As gas prices rattle economy, Americans can't stay off the road

School officials in Davenport expected that keeping the tanks of district buses filled would be a challenge in these days of high gas prices. What they were not prepared for was prices at the pump making it such a challenge to also keep students fed.

As gas prices climbed past $4, snacks of rainbow carrots and other fresh fruits and vegetables delivered as part of federal grant to promote healthy eating were suddenly in jeopardy. The grant got drained as the vendor tacked on extra charges to cover the high price of fuel, forcing some schools to end deliveries early.

Troubles with bread came next. The company delivering it first asked for hefty fuel surcharges before ultimately telling the district not to bother. It said it can't afford to keep loaves coming to schools next year at all. The district has turned to another company, paying nearly double — $40,000 more — for less-frequent deliveries.

"It's very stressful," said Coni Dobbels, the Davenport school district's food and nutrition services director. "People keep saying, 'Aren't things at schools better this year than they were last year?' They're not. I have never experienced anything like this."

The shocks of high gasoline costs are ricocheting through the economy as prices continue to rise, and industry analysts see little relief. Even as drivers are loath to change their habits, with Americans eager to get on the road to shake off pandemic cabin fever, the fallout of gas prices is touching every corner of society.

Retailers and trucking companies are in a state of high anxiety over worsening diesel shortages, with an increasing threat that the fuel will need to be intermittently rationed in some parts of the country. Similar worries are gripping the airline industry.

Concern about soaring fuel prices is spreading to restaurateurs, as dining out tends to be high on the list of spending that gets cut when household budgets are strained. Manufacturers are wrestling with the cost of plastic packaging, which is made from the same crude oil in high demand for gasoline. Boaters are weighing whether they should delay putting their vessels in the water.

Gas prices keep passing earlier milestones, now averaging more than $4.59 per gallon nationwide and more than $4.16 in Iowa as of Friday, according to AAA. That national average is 50 percent higher than gas was at this time last year, according to AAA.

While the war in Ukraine is playing a major role, as the world shuns Russian oil, it is not the only challenge. The plunge in demand during the pandemic moved producers to cut back on their investments in drilling and refining capacity. The oil-and-gas sector now finds itself ill-equipped to meet the demand of a society getting back on the road. The federal government has exhausted most of the limited tools it has to confront price spikes, such as releasing oil from the Strategic Petroleum Reserve.

"The bottom line is, it is going to be an expensive summer," said Michael Tran, managing director for global energy strategy at RBC Capital Markets.

As climbing gas prices force Americans to change their spending habits, one thing Americans aren't doing very much of is driving less. "People are willing to pay higher prices to make up for lost travel over the last few years," Tran said.

It is a different economic landscape than when gas prices last spiked like this, in the summer of 2008. At the time, Americans had been on a spending frenzy and household savings rates were low.

By contrast, household savings now are at record highs after people spent less during the height of the pandemic. "We were never, as a population, more ready to absorb high gas prices than we are right now," Tran said. But even as prices go up, demand is not easing, which puts pressure on prices to rise even more.

Memorial Day Weekend is expected to bring 37.9 million Americans to the road, more than traveled by car over that holiday weekend before the pandemic hit, and an increase of 8.5 percent over last year, when gas prices were considerably lower, according to projections by the location data firm Arrivalist. The firm attributes the trend, in part, to Americans forgoing air travel. Plane ticket prices have become prohibitively expensive for many.

While Arrivalist's pronouncement that "the American road trip is thriving" is hardly an overstatement, some drivers are stunned by what they are seeing at the pump.

Amanda Laudwein of Silver Spring, Md., was finally able to attend her nephew's wedding in Death Valley National Park, which spans Nevada and California, this month after it was twice postponed because of COVID-19. The already expensive trip came with an unexpected cost: The price for a gallon of unleaded at Death Valley's Furnace Creek gas station was $8.25.

"It cost us $120 to fill up our van," she said. "It was quite a shock."

Like many other Americans, though, the 67-year-old has no plans to cut back on her travel. She is looking forward to a cross-country road trip in the fall regardless of whether gas prices are high then.

Even as old driving habits remain, the high gas prices are forcing Americans to make other adjustments to accommodate them.

Walmart this week saw its stocks suffer their biggest decline since 1987 amid an earnings report that acknowledged high gas prices are hammering its business. They are creating unanticipated operational costs for the company and also changing the ways consumers shop, as they try to consolidate their trips to the store and forgo purchasing items that are not daily necessities.

Economists and energy analysts warn the prospects are dim for this cycle of increasing energy prices driving evermore inflation to end anytime soon. There are only a few things that could bring it to a close: a huge uptick in available oil, gas and renewable energy, which most analysts say is years away; or a recession.

A less-painful alternative to a recession would be consumers tiring of the high prices and moderately pulling back on their spending.

"If this were not the COVID reopening year, I would say consumers start to pull back when gas hits $5 a gallon," Tran said. "But I am reluctant to make those predictions for this summer. A year from now, maybe everyone has had their fill of travel and demand starts to drop."