Retail sales suggest consumers shrugging off gas prices

— -- Dave Prokupek doesn't like the high price of gasoline either. But business is good enough at Smashburger that the chain where Prokupek is CEO opened its 150th restaurant Wednesday, and plans to open up to 75 this year, even though eating out is theoretically the first thing gas-strapped consumers would trim.

"I was very worried about gas prices," said Prokupek, adding that traffic in existing stores is up 9% this month from last year and growth is accelerating. "But while gas is going up, unemployment is going down. With a couple of dollars in their pocket, they're letting loose a little. They're off their diet."

You can see the impact of rising gas prices everywhere — except, so far, in the economic statistics.

As the surge in at-the-pump costs nears its fourth month, the data show people aren't yet making the spending cuts they've been expected to make. One reason is that the mild winter and cheap natural gas prices are saving them a bundle on heating bills. And that's making some economists relax — a little — about the effect of gas prices on the recovery.

The latest indicator was Tuesday's report on February retail sales, which rose 1.1% from January, matching the median forecast of economists surveyed by Bloomberg. That included an 8.2% year-over-year gain in restaurant sales, according to the U.S. Census Bureau. That followed Friday's report on February employment, which showed restaurants and food-service operations hired 41,000 people, about 18% of the 233,000 new private-sector jobs. Smashburger alone will hire up to 2,000 people this year, Prokupek said. Consumer-confidence reports also show gains.

"There's absolutely no evidence of a loss of retail sales from the upturn in energy prices," said John Lonski, chief capital markets economist at Moody's Analytics. "There's a lot of discretionary spending going on — and you have to drive to go out to eat."

For now, most experts are forecasting only modest impact from gas prices on the rest of the economy. IHS Global Insight says they will take 0.1% off this year's growth rate for gross domestic product, which it estimates at 2.1%. Moody's says it will be 2.2%, and hasn't cut its forecast because of gas prices. One reason is that gasoline burns only 3.3% of the average consumer's disposable income, IHS says.

Investment bank Barclays Capital actually raised its first-quarter GDP-growth forecast twice on Tuesday, moving to 1.9% from 1.8% after the retail sales report, and then to 2.1% after the government reported stronger-than-expected manufacturing inventories.

The wild card in all of these forecasts is that no one knows how much further gas prices will rise, IHS U.S. Chief Economist Nigel Gault said. The 18% gain since December, to an average price of $3.88 a gallon for all grades of gas, has stemmed mostly from fears about a confrontation between Iran and the U.S. and Israel over Iran's nuclear weapons development program, Lonski said. Another factor is a series of refinery closings in the Northeast that have restricted supplies in Mid-Atlantic states.

If gas goes above $4 and stays there, or if Iran militarily closes the Strait of Hormuz to take Persian Gulf oil off world markets, the impact could get much worse, Lonski said.

Every $10 added to the price of a barrel of crude means 24 cents a gallon at the pump and shaves 0.2% off GDP, Gault said. "At $30 to $40 more per barrel, it would be a big hit," Gault said.