NEW YORK — Robert Wright would like to be buying books, or taking his family out to dinner. But he has to budget for higher gasoline bills instead.
"Unfortunately, it's not that I'm willing to pay it. It's that I have to pay it," said Wright, a police officer who was at the Westfarms Mall in West Hartford, Conn., last week.
Americans like Wright have had to make adjustments in their spending to cope with higher energy costs. And it appears the economy is finally starting to show the effects of their financial juggling.
The Commerce Department said Friday that economic growth slowed dramatically during the second quarter as Americans spent less. The shift came as something of a surprise after the Conference Board earlier in the week reported an unexpected rise in consumer confidence.
Clearly, consumers are faced with the reality that high energy costs won't go away any time soon, with oil prices remaining stubbornly high at near $74 a barrel, in part because of worries that the conflict between Israel and Hezbollah in Lebanon could draw in other countries in the Middle East.
Higher energy prices were reflected in the Commerce Department's latest snapshot on the gross domestic product, which showed that the economy's growth from April through June was less than half that of the prior three months as consumers tightened their wallets and spending on home building plunged. The GDP's 2.5 percent annual growth rate was the slowest since 1.8 percent in the final quarter of 2006, when the economy was suffering from the fallout of the Gulf Coast hurricanes.
Consumers have issues beyond energy prices. A big source of cash — home equity lending — is drying up as higher interest rates and the leveling off of housing prices have made such financing less attractive.
"We're definitely at a crossroads," said Zoltan Pozsar, economist at Moody's Economy.com. "If (oil) prices don't moderate in 2007, we will see a much larger impact" on consumer spending.
Gregory Miller, chief economist at SunTrust Banks Inc. agreed, noting, "For the past two years, consumers have figured out a way to accommodate and sustain their living standards. This past quarter, cracks are showing up."
Analysts said a steady job market and wage growth have helped prop up consumers' confidence. But they also noted that despite its strong showing, the Conference Board's consumer confidence index had some worrisome components.
Lynn Franco, director of the organization's Consumer Research Center, noted a widening gap between how consumers feel about current conditions and their six-month outlook on the economy, which has fallen below levels seen back in January.
Franco noted that shoppers are feeling that "this is as good as it gets."
Moreover, the job market is also vulnerable to a downturn. Job growth has slowed since this past spring as some employers held back on hiring while they waited to see where the economy is heading. Economists are worried about major layoffs in 2007 as employers seek to offset higher energy costs if oil prices remain high throughout this year.
"I am concerned that the continuation of the impact of higher energy costs that's hitting not just the consumer side but the business side could show up in the reversal of the job market," Miller said.
In recent weeks, there have been other negative signs about consumers. When the nation's banks including JPMorgan Chase, reported second-quarter bank earnings, they warned that rising interest rates could lead to consumer bankruptcy filings.
In the nation's malls and stores, evidence is mounting that shoppers are pulling back on big-ticket purchases like furniture and washing machines, according to Wendy Liebmann, president of WSL Strategic Retail, a New York-based consulting firm.
Wal-Mart Stores Inc., whose low-income customer is most vulnerable to higher energy costs, has said it started feeling the fallout from higher gas prices earlier this spring. The company, which reported disappointing business in May and June, said its customers are focusing on food and other consumables.
That doesn't bode well for the back-to-school shopping season.
The International Council of Shopping Centers forecasts a modest same-store sales growth of 3 percent to 4 percent for the back-to-school season. That's down from a robust 4.8 percent in the year-ago period. Same-store sales are sales at stores opened at least a year and are an important barometer in a retailer's health.
"This will be the most promotional fall season in years because retailers will need the sales, and consumers will need the discounts," said C. Britt Beemer, chairman of America's Research Group, based in Charleston, S.C.