The recent run-up in gasoline prices could threaten the pace of retail recovery.

This story first appeared in the February 22, 2012 issue of WWD. Subscribe Today.

That’s the concern of Customer Growth Partners, the New Canaan, Conn.-based consulting and research firm covering retail and consumer products. Craig Johnson, president, noted that five of the last six recessions — all but the 2001 pullback following the 9/11 terrorist attacks — have occurred when overall energy costs have exceeded 6 percent of personal consumption expenditures. With the national average at the pump at $3.52 a gallon in mid-February, energy costs would run at about 6.2 percent of PCE, as measured by the U.S. government.

“Gas prices aren’t necessarily the cause, but there’s a strong correlation between them and economic downturns,” said Johnson, who served as branch chief for economics in the Department of Energy before focusing on retailing. “This was happening in 2008, before the collapse at Lehman Brothers — gas prices went to an all-time high, above $4, and didn’t come down until the economy was already in recession.”

Johnson, one of the more optimistic and accurate prognosticators among those covering retailing, last week projected a 5.7 percent increase in retail sales for the new year, with apparel sales up about 6.5 percent. However, his low-growth alternate scenario, which assumes a rise in gas prices to more than $4.25 a gallon during the year, was a substantially smaller 2.3 percent growth rate with apparel again performing somewhat better. CGP’s retail sales are based on categories other than automobiles and parts, gasoline and oil and restaurants.

“If energy gets up to 9 percent [of PCE], which it could if gas moves to $4.30 or so, that would take another 4 percent out of consumer spending, with certain categories, particularly discretionary ones like fashion apparel, being hit the hardest,” Johnson said. “People still have to buy groceries, drive to work and heat their homes, but a night out or a new outfit could be sacrificed.”

In all likelihood, he stated, that would affect average unit retail prices more than units themselves. Consumers might shop in less expensive departments or turn to lower-priced nameplates or retail channels, such as off-price stores and factory outlets. E-commerce’s advantages would be enhanced, as they appeared to be during the holiday season as gas prices began to move higher.

Johnson cautioned that fuel prices are volatile and could move up briskly on heightened tensions in the Middle East or, in a preferable scenario, downward on hopeful geopolitical signs or oversupply. What’s especially troubling to him is the pace of recent inflation in fuel prices, which have risen about 30 cents a gallon in the last two months alone.

“This is the steepest early-winter rise since the Seventies’ oil embargoes,” he said. “Supplies are ample, so a lot of this can be traced to geopolitical strains and some of it simply to the effects of economic improvement.”

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