Vacationers undeterred by $4 gasoline
Americans are cutting back on other areas of the budget to make room for Memorial Day travel.
Thu, May 19 2011 at 1:55 PM
PUMPING DOLLARS: A customer fills up at the Hess Station at 44th and 10th avenues in Manhattan. (Photo: ZUMA Press)
NEW YORK - Americans will cut other expenses rather than forsake highway travel this Memorial Day weekend, travel group AAA forecast, the latest indication that near-record $4-a-gallon gasoline is having a limited impact on demand.
About 30.9 million people will drive to their destinations over the May 26-30 holiday period, the unofficial start to the summer driving season when consumption peaks. That compares with 31 million a year earlier, AAA said on Thursday.
The AAA forecast underscores the view of many analysts that gasoline demand in the world's biggest consuming nation is not suffering as much as it did in 2008 because drivers are in a better economic position to weather higher prices. They now appear ready to make other sacrifices before abandoning their cars.
"Some travelers will compensate for the higher fuel costs by cutting other areas of their travel budgets," AAA President Robert Darbelnet said in a statement.
In 2008, Memorial Day travel fell more than 10 percent, a third consecutive annual decline as steadily rising prices took their toll. But holiday travel has recovered since then to near 2007 levels, suggesting that American consumers have been able to accommodate higher fuel costs without big cutbacks.
AAA expects gasoline prices to average $3.91 during the holiday weekend, 37.2 percent higher than a year earlier and the highest on record for the three-day weekend, traditionally the start of summer.
The forecast, based on a survey of 50,000 U.S. households, also found that just less than 3 million people will board flights during the holiday period, an 11.5 percent jump from a year ago, even as ticket prices have risen 14 percent from 2010.
The total number of vacationers is seen rising to 34.9 million, the highest since 2007. The number soared 14 percent in 2010 and this year's Memorial Day holiday travel will approach levels seen before the financial crisis, AAA said.
The travel forecasts, if confirmed, may bolster the case for a rebound in oil prices that have slumped more than $15 this month, partly on fears that high prices are slowing demand. Some analysts question this argument, saying the effect of a recovering economy is blunting the reduction in oil use.
"This jives [sic] with our expectation that net growth in the number of people employed will outweigh the effect of high prices," said Jan Stuart, global oil economist at Macquarie Securities.
"We have been expecting a slowdown in gasoline demand growth, but we're not persuaded there will be a decline in demand," he added.
The average price of regular gasoline fell slightly this week to $3.91 a gallon, its first decline since January, but is 38.3 percent higher than a year before, data from the U.S. Energy Information Administration (EIA) showed.
But RBOB gasoline futures on the New York Mercantile Exchange are on the rise again, buoyed by worries over Mississippi River flooding a week after their downward tailspin triggered a five-minute halt in trading.
The unemployment rate is a full percentage point lower this year than in 2010, and gross domestic product is growing, increasing disposable income, AAA said.
Confirming AAA's positive outlook, data from the U.S. Labor Department showed Thursday that the number of Americans filing new claims for jobless benefits fell more than expected last week.
But other analysts note there are still warnings signs, such as weekly government oil data released on Wednesday that showed gasoline demand over the past four weeks fell 2.3 percent compared with levels seen a year ago.
"We are seeing some signs of initial demand destruction, but this won't deter Americans from their holiday plans," said Matt Smith, an analyst at Summit Energy.
"People will make sacrifices elsewhere, and I think prices will come down after the Mississippi River levels come down," he added.
(Reporting by Selam Gebrekidan; Editing by Marguerita Choy)
Copyright 2011 Reuters US Online Report Domestic News
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