Spending Flat, Dollar Weak, Gas And Food Spike

Flat spending and rising prices are adding to recession and inflation worries.

Feb. 29, 2008 — -- There is more evidence that the U.S. economy is still struggling. Consumer spending, a primary engine for economic growth, was stagnant in January, the Commerce Department announced today. After adjusting for inflation, spending went up last month, 0.4 percent, basically flat. Excluding the disruptions from Hurricane Katrina, it's the weakest spending figure since 2001.

Spending is down, even though prices for consumer goods continue rising, forcing Americans to struggle more to make ends meet.

Most of the price increases can be traced back to the cost of oil, which triggered the recent spike in gas and food prices.

Overnight, crude oil prices briefly crossed the $103-a-barrel threshold, a new intra-day record. This week the national average price for gasoline hit $3.16 per gallon.

And the dollar continues to struggle. As markets opened today, the dollar hit record lows against the euro, Swiss franc and a basket of currencies.

A Commerce Department report released Thursday showed economic growth slowed to just six percent in the last quarter of 2007. Meanwhile, the Dow Jones fell 112 points, along with other Wall Street indices that saw losses across the board.

Together, these economic indicators demonstrate a trend that has economists worried about stagflation, or simultaneous inflation and recession, and Americans will be more worried about their bottom line.

Higher gas prices always force grocery prices higher. The rising cost of wheat, due to a global shortage, has also driven up the cost of many food products, especially bread, which is up 12 percent compared to this time last year, according to the Department of Labor Statistics.

"Consumers have really been hit from all angles right now. We've seen gas that may creep upwards of $4 a gallon come spring and in the supermarkets, staples like meat and eggs and milk, those are also creeping upwards, making consumers have to make tough decisions about spending," said "Good Morning America" contributor Wendy Bounds.

Even President Bush expressed surprise at a news conference Thursday when a reporter told him that some analysts were predicting $4-per-gallon gasoline. "That's interesting. I hadn't heard that," Bush responded.

The White House Friday clarified that statement, saying the President was expressing his view that he did not think gas prices were going to go that high.

In the last year, the price of eggs has shot up 40 percent, compared with this time last year. The price of milk rose 26 percent over the same period. Other staple items such as spaghetti are up 18 percent, and ground beef up close to 7 percent.

In Arizona, the Martinez family of seven were already struggling to pay for fuel for their car, but now the price of their grocery bill has also soared, rising to $1,100 per month, compared to $700 this time last year.

"With five kids it has really made a difference in food prices," said Juan Martinez.

To save money, the Martinez family are cutting back on beef. "It's expensive. I can't feed the family meat every single day," he said.

Shop Smart: Bounds recommends staying away from eye-catching display tables, filled with high-cost products. Instead she encourages consumers to buy store brands and buy in bulk.