high gas prices begin to bite

as the price of crude edges toward $70 per barrel...

gas costs cramp consumer spending

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For months, economists have warned that rising costs at the pump will leave people with less money for other purchases, and could even stall the economic recovery. Yet consumers continued to spend with gusto.

Now there are signs that some areas of consumer spending are starting to get pinched, especially among low-income households. But the cutbacks have yet to spread up the income chain. With gas prices still heading into the stratosphere, economists figure a breaking point must lie ahead.

``You can try to ignore it for some time,'' said Scott Anderson, senior economist for Wells Fargo. ``But eventually you have to adjust your behavior.''

Linda Baker is one of the few who are already adjusting. Higher gas prices are changing her life.

The Baker household used to have a full slate of premium channels on their cable service, but now they've cut back to just HBO. She used to buy all kinds of snacks for her eight kids, but she's paring those down to just necessities -- like fruits and vegetables. Baker, a paralegal, and her husband, a respiratory therapist, used to take their kids out to the movies every Friday, and then eat out. Now, they just go to the park and eat homemade sandwiches.
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She points to the culprit: her Chevy Suburban. ``Look at what I drive,'' she said. The last time she filled up, the bill came to $78. She's unsure of the exact mileage, but driving around town, ``it feels like five miles per gallon.''
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For people on a fixed or low income, the squeeze may have already started. According to the Consumer Federation of America, a low-income American will spend about 11 percent -- or $1,000 -- of their average income on gas. That's up from 8 percent in 2002.

Earlier this month, Wal-Mart's stock tumbled when executives said gas prices were cutting into customers' spending. And last week, the U.S. Commerce Department reported that orders for big-ticket manufactured goods dropped a surprisingly sharp 4.9 percent in July.
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