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Gas prices, economy keep Americans home this holiday weekend

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07/04/2008 11:54 AM
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Gas prices, economy keep Americans home this holiday weekend
Mary Schwarz had to give extra thought before deciding to visit her family in Detroit over the July 4th weekend. The reason: Record gasoline prices will cause her to spend about US$90 just to get there and back to Chicago.

"I definitely thought about it," said Ms. Schwarz, a teacher who drives a 1997 Ford Taurus sedan, which gets about 26 miles per gallon on the highway. It's "a lot to spend just to go home."

The fewest Americans in three years will travel over the July 4th weekend as record gasoline prices and a slowing economy force consumers to curtail spending, according to AAA, the largest U.S. motoring group. The number of people taking trips of at least 50 miles from home Friday through July 6 will fall 1.3% to 40.5 million, AAA said.

"The majority of Americans are just looking at this economy and trying to figure out 'OK, where should I be spending my money right now?"' said Troy Green, a spokesman for Heathrow, Fla.-based AAA. "The everyday items like gasoline and food, it's really eating at peoples' discretionary income."

The AAA survey marks the first time this decade travel was expected to decline over consecutive holidays, following a projected drop for Memorial Day in May.

Gasoline topping US$4 a gallon, along with rising food costs, falling home values and tighter credit, are leading to cutbacks in consumer spending, raising doubts that the expansion will persist, economists said. Such spending accounts for 70% of the U.S. economy.

"A year ago, we were hoping the economy would work through the slowdown in the housing sector," said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Mass. While fuel costs are the biggest factor restraining travel by consumers, "credit is much tighter than it was, the value of their principal asset, the home, is falling, and any assets they have in the stock market are falling," he said.

Those choosing to travel are cutting back on other costs, opting for cheaper accommodations and restaurants during their vacations or paring other areas of their budgets, said Mr. Green.

Gasoline prices rose 39% in the past year to a record US$4.10 on July 2, according to AAA.

Higher costs for energy and food, along with payrolls that have fallen every month this year, explain why economists project spending growth will slow to a 0.5% rate by year-end, the weakest pace since the fourth quarter of 1991.

Payrolls in June fell by 62,000 after a 62,000 drop in May that was greater than initially reported, the Labor Department said Thursday in Washington. The jobless rate remained at 5.5% after jumping in May by the most in two decades.

Economic growth for all of 2008 will be 1.5%, the slowest since 2001, with next year recording a 1.9% gain, according to the median forecast of economists surveyed by Bloomberg from June 2 to June 11.

Marguerita Rollins, a 27-year-old stay-at-home mother in Las Vegas, said a discounted airfare she found after a lengthy online search will enable her family make the trip to visit her father in Chicago.

Her US$181 ticket compares with the US$450 fare her husband will have to pay for the same trip. Their five-month-old daughter doesn't need a ticket.

Airlines are cutting back on flights and raising surcharges and ticket prices, reducing the chances Ms. Rollins will be able to get such a fare again.

The rise in prices "concerns me because we're looking to make this trip again in the fall, and I'd hate to have to pay exorbitant airfare to get back there," Ms. Rollins said.

The number of air travellers over July 4th will probably fall 2.3% to 4.5 million, AAA said.

"Most of these people bought these tickets before you started to see this significant jump in airfares," Air Transport Association spokesman David Castelveter said.

The number of people going by car will be 1.2% lower at 34.2 million, AAA said. Some 1.7 million plan to use trains and buses or other modes.

Allison Viola, 38, of Washington, said she's sticking with plans for going a 77-mile trip to St. Michaels, on Maryland's Eastern Shore, because it's relatively close.

"We have a free place to stay, so that certainly helps out quite a bit," said Ms. Viola, a trade association director, who will travel with her husband and two children.

One group benefiting from high costs for gasoline and jet fuel is passenger railroads, which generally run on electricity powered by coal and natural gas. The number of passengers on Amtrak is up 11% from a year earlier in the fiscal year that started in October, spokeswoman Tracy Connell said.

"Lots of our trains are sold out," she said about this weekend. "We've been seeing a very steady increase in ridership."

[link to www.financialpost.com]