Headlines in April read that gas prices soared an average of 19 cents within three weeks due to lingering high crude oil prices, growing demand and higher refining costs. In New York trading, oil prices reached an all-time high of $57.60 a barrel. While pump prices have declined since then, many talked about and feared what would happen should a barrel top $100 — and what it would do to Las Vegas tourism.
Throughout May, gas prices continued to drop in Nevada. At month’s end, the statewide average of $2.41 for a gallon of self-serve unleaded was 15 cents cheaper than the record high posted in April, AAA reported. The price, however, was 50 cents a gallon more than what Nevada drivers paid in January.
Keith Schwer is director of the Center for Business and Economic Research and a member of the UNLV economics department faculty. According to him, something drastic would have to happen to the price of gas to affect tourism. And that is unlikely.
“Even if you doubled the price of gasoline from the price it was a year ago, all we are talking about is $20, and $20 is not a substantial amount in people’s budgets,” Schwer said.
Of course when prices reached more than $50 a barrel, the cost of travel raised concern, Schwer admitted. Tourism and travel are tied together, as travel is a component of the overall expenditure. Schwer estimated half of Vegas’ visitors arrive by air and pointed out that airlines have had minimal market power to pass on the price of fuel to consumers through ticket fare. The other half drive, mostly from Southern California.
“What we are talking about is a tank of gas,” Schwer said. “Yeah, it’s a few more dollars for travel, but not a significant amount.
“So would the recent price increase have a significant adverse impact on travel and tourism? No,” Schwer answered. “If you look at the rise in prices over the first part of the year, we’ve actually had a substantial increase in visitor volume. I would argue the reason higher gas prices haven’t had an impact on tourism is that the increment in the cost of gasoline is not a large increment in the total amount people are going to spend.”
The average gas price in Las Vegas is $2.36, while in Reno, the average is $2.51. Cheaper oil and increased gasoline production at California refineries have helped lower gas prices.
Trilby Lundberg publishes the semimonthy Lundberg Survey of 7,000 gas stations around the country. According to his survey, the most popular grade nationally, self-serve regular, was priced at $2.29 a gallon in April, while customers paid $2.38 for midgrade. Premium averaged $2.48 a gallon for the period. The highest average gas price in the nation for regular unleaded was $2.62 a gallon in Bakersfield. The lowest price was $2.06 in Newark, N.J.
With the dawn of another heavy summer driving season, the Energy Information Administration reported that gasoline demand for this summer is projected to be 9.3 million barrels a day, up 1.8 percent over last summer, and the highest on record.
While Las Vegas appears to be in the clear, the national picture isn’t as stable. Surging oil prices helped send the economy into a nerve-wracking “soft patch” in 2004 and could do it again this year if they rise much higher from current record levels.
The higher cost of energy has caused little economic damage yet despite the pain drivers are feeling at the gas pump, where regular gasoline is selling for an average $2.05 a gallon nationwide — more than $3 in some locations.
But the price of crude oil has already risen 30 percent this year to a record of nearly $58 a barrel, defying the expectations of analysts who expected that oil would settle back into the $40 range after last year’s run-up. If prices remain at current levels or higher, growth could slow substantially in the summer and fall, analysts say.
Rising energy prices create a two-headed monster that attacks the economy both by sucking away discretionary income from consumers and businesses and by pumping up inflation at the wholesale and retail levels.
Mark Zandi, chief economist for economy.com, and other economists say the higher oil prices could add to the economic pressure created by rising interest rates and a decline in federal tax cuts and spending increases that had helped buoy the economy over the past two years.
Federal Reserve policy-makers continue raising short-term interest rates to keep a lid on inflation, making it difficult for them to respond if rising oil prices begin to undermine growth. The Fed recently raised key benchmark rates another quarter-percentage point, and there is growing speculation they will have to raise rates a half-point sometime this year to stay ahead of the curve on inflation.
So far this year the economy has been growing a bit faster than expected, with retail sales showing surprising strength in the first two months of the year, capital spending by businesses rising at a strong clip and the housing industry continuing to boom.
That strong growth gives many analysts confidence that the economy will withstand the battering of higher energy prices relatively unscathed.
Certainly there is a risk that if oil prices reach $70 a barrel, that could really do some serious damage to growth. It wouldn’t push the economy into recession, but it could trim growth to 2.5 percent. For an economy expected to grow at a pace of 3.5 to 4 percent, that would represent a serious slowdown, although the impact would be far smaller than the energy shocks of the ’70s and early ’80s, when oil hit $90 a barrel in current, inflation-adjusted terms.
But even if oil hit $90, the impact would be smaller than back then because the U.S. economy is far more efficient in terms of energy use than it was a quarter-century ago. Partly because of the shift to a more service-based economy, but also because of federally mandated improvements in energy efficiency, economists figure the U.S. produces about twice as much output per unit of energy as it did 30 years ago.
"One other thing to keep in mind is if you go back and look at gasoline prices and adjust them to inflation, even at $50 a barrel it’s well below what it was in the late 70s and early 80s," Schwer said. "There is a price out there. It would have to be substantially higher.
"People talked about gasoline going to more than $100 a barrel; it hasn’t," Schwer continued. "It went over $50 and now it’s at $48. It’s not a sustainable price level. If it’s not sustainable in the 50s, it’s not sustainable in the 100s."
Michael Englund, chief economist for Action Economics, figures crude oil prices would have to reach $180 a barrel before the economy would be impacted like it was in the early ’80s. As he puts it, oil is still a cheap commodity.
"For high-income people, the increase in the price of gas is very minimal," Schwer concluded. "They are the ones who are going to visit Vegas more than those who are low income, who might be more adversely impacted."
