More on Gas Prices

Gas190
Earlier this week
, I noted that despite the rise in premium gas prices, I still haven’t changed any of my driving habits.

Dan Gross makes a similar observation in his column in the Sunday NYT — "Why Prices at the Pump May Have Little Bite."  The column goes into detail about what our prior chart showed:
Gasoline is still only 4% of a family budget, and therefore rises
(while annoying) are still absorbable by most families.

Excerpt:

"Based on data collected in the bureau’s consumer expenditure surveys in 2004, consumer expenditures per household averaged $43,395; spending on gasoline and motor oil, with gasoline accounting for virtually the entire sum, were 3.7 percent of that, or $1,598.

Since then, this amount has certainly risen with the price of gasoline, but so has average income. John Felmy, chief economist at the American Petroleum Institute in Washington, estimates that in 2006 the average household will devote $2,150 of its $46,302 in consumer expenditures to gasoline — or 4.6 percent.

"This proportion is certainly up from recent years, but it is something that most households can cope with," said Carl Steidtmann, chief economist at Deloitte Research. The difference in spending on gasoline from 2004 to 2006, then, is an extra $10.62 a week, about the cost of going to a movie. In 2004, for comparison, the typical household spent significantly less on gasoline than on discretionary things like entertainment ($2,218), or food away from home ($2,434), according to the Bureau of Labor Statistics."

Makes sense to me as to the spending aspect being little impacted (at least in middle and upper income families) . . . Now someone needs to explain to me the political fall out of $3 gas . . .

Source:
Why Prices at the Pump May Have Little Bite
Dan Gross
NYT, May 7, 2006
http://www.nytimes.com/2006/05/07/business/07view.html

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What's been said:

Discussions found on the web:
  1. D. commented on May 7

    Looking at averages again…

    Expenditures/household. The average is probably much higher than the median in numerator.

    Also, the less rich you are, the farther away you are from your work… the farther away, the larger your house and car.

    I went to pick up my son at school last Friday, ended up talking to a few moms. Some were talking about finding some kind of revenue stream to pay for higher taxes, higher mortgage payments due to rising rates and gas. We’re talking about a couple of grand here. People are tight.

  2. Idaho_Spud commented on May 7

    Someone mentioned on another blog that while gas might be only four percent of Joe six’s budget, it’s chewing away much more of his *disposable* income.

    It might be important to keep your eye on that ball, rather than percent of after tax earnings.

  3. DJ commented on May 7

    As D. mentioned, the report looks at average incomes which is almost meaningless if your intent is to figure out what is happening to the average American. The median income has declined during this gas price increase.

    Also, no offense but anecdotes from Investment Managers and NY Times columnists about how that is affecting their driving habits are almost meaningless if your intent is to figure out what is happening to the average American. The average American had a negative savings rate before gas prices blew up. There is no way aroung the impact it is having.

    Speaking of meaningless statistics, I’d put consumer confidence way up there also.

  4. Keith commented on May 7

    My wife and I were strolling around the neighborhood last night. We noticed three newly purchased cars in our townhouse complex, a brand new little Mercedes, a 2003 little Jaguar and a brand new Toyota Corolla.

    All three are imports and all three are little cars.

  5. DBLWYO commented on May 7

    Good points all – also need to factor in the indirect impacts, e.g. all the inputs to the consumer goods and services are going up and putting pressures on myriad points in the whole system. Had the time to chat to my drycleaner and he’s been under pressure for 3-4 years and it’s increasing. Heat’s up, platic wrappers are weigh…weigh up and he hasn’t raised prices but needs to start thinking about it. In the meantime he’s working longer hours, using a couple of kids to fill, hasn’t hired any adult employees and/or let go the two he had and is cuting way back on personal consumption spending.

    Similarly my grocery bill seems to have doubled/week in the last month or so. Bear in mind on a $25 bag the store might make $.25 of final profit to begin with. Now I can afford that, and the doubling of my heating bill, the shift from $20 to $40 to fill my tank and so forth but what about the rest of the country/world ? 1/3 of the population makes ’round ’bout $35-45K/yr, another 1/3 maybe $75 or so and they’re trying to raise families. Wouldn’t think it could be kept up.

    When you look at the actual numbers and YOY% changes CPI is up over 3% and accelerating while the various components of PPI (commodities->equipment->goods food chain) is higher (say approx. 6%) but you have to do your own dload analysis with a spreadsheet as it’s not being reported. The profit pressures are growing and hiring is down as a result.

    Now why do da market think that flat job growth, declining earnings and the disappearance of asset-based borrowing fortend good things for the economy, earnings and the market ?

    Help ?

    Greatly puzzled in CT.

  6. John Faughnan commented on May 7

    At what price would gas affect consumer behavior?

    I think gas in my birthplace, Quebec (Canada – still), goes for about $6/gallon US. You don’t see a lot of SUVs there.

    I suspect the price in BC is similar. It would be interesting to compare the per-foot costs of suburban vs. urban homes in Vancouver vs. Seattle. If $6/gallon gas changes behavior then the suburban/urban per foot costs ratio in Vancouver area should be smaller than in the Seattle area. (One might have to adjust for tax structure differences.)

    I’ve long guessed that US middle-class behavior will change significantly (mass transit choices, preference for urban living) when gas hits $7/gallon. Can’t say why, but I figure it’s about the adjusted Canadian price. Mostly it would be a trend to smaller homes, smaller cars, urban condominiums, etc with shorter commutes or access to transit. Terrorism or social unrest could counteract a trend to urbanism though, so probably the most reliable prediction is the obvious and dull one — smaller cars.

  7. Franco commented on May 7

    Every dollar increase in a gallon of gas cost me an additional $854 per year just to drive back and forth to my office. Much can be done with that amount of money. Its a crock that $3 gas “may have little bite”.

  8. Hilly commented on May 7

    We are at the bottom–I am on Disability, my daughter works at Wal-Mart. In the last 6 months we put the house up for sale and will move south, far enogh that the heating season is shorter, but not so far that air conditioning is necessary. I sold my car – a 9 year old Blazer. We look to conserve and cut back and change what ever we can to keep costs under control. At this level there is very little discretionary income, so there isn’t much wiggle room. For us the rise in gas and heat has been, at times, nightmarish. “Hang onto your hat ~ it’s going to be a bumpy ride!”

  9. donna commented on May 7

    So sorry for you, Hilly – hang in there.

    I’m so sick of this “every man for himself” attitude in America. We ARE all in this together.

  10. hilly commented on May 7

    I know I’m really lucky–we have a home to sell, we have the flexibility to move, we have a clear definition of want vs. need. And we have a lot of practical skills between us so we can make do. We’re pretty sure we’ll be OK. But a lot of folks on the bottom won’t.
    Mostly I just wanted to put some kind of face on the % of the average income topic. And we are not average bottom either (what ever that is) My daughter only has a 6 mile commute. I have friends that drive 100 miles a day for a $12.00 an hour job. The math just doesn’t work. There is no mass transit up here, Grey hound abondoned us last year. So, just another perspective.

  11. cm commented on May 7

    D.: “Some [moms] were talking about finding some kind of revenue stream to pay for higher [outflows]”

    Incidentally, only yesterday I went on a walk through the neighborhood, and the first time since I live here I saw several (!) “art shows” on residential property, in the style of mini-galleries under tents. Plus a noticeable number of open houses (the latter may be just the delayed spring season, we had a record rain period this winter).

  12. cm commented on May 7

    DBLWYO: Price movements are not homogeneous, and price leverage is always a function of the “competitive landscape” and the degree to which the product/service is (non)discretionary.

    I don’t use dry-cleaners, but go to the less fancy variety of local restaurants for lunch almost daily, and there is a lot of competition (once you’re willing to drive and are not restricted to the corporate cafeteria and the nearest walkable strip mall). Accordingly, many prices have not budged over the past 5 years I’d say. And the nickel-and-diming of ingredients, service quality (esp. speediness), and portion sizes goes only so far — overstep the line, your customers will look elsewhere, and word of mouth will do the rest.

    In grocery retail, it looks like the market is largely controlled by a few large chains — Safeway, Albertsons, etc. I’m not exactly sure why there is not more effective competition even between chains. Perhaps the harried time-squeezed US lifestyle drives most people to one-stop shopping. If I had kids, I’m sure I would have to severely curtail my cherry-pick shopping, and make do with the mainstream products I can get in Safeway. When I see stuff piled up in people’s shopping carts, it is outright scary. Bottom line, the large chains can set prices, and people do have to buy the stuff.

  13. daniel commented on May 7

    I fault our poloticians, especially the Republicans.

    We face a struggle. We are in a sort of war and high oil prices aids our enemies (eg. Iran, Venezuela) and those with whom we have potential conflicts (the Sauds, Russia, UAE etc.)

    It weakens us economically. Over a hundred billion in increased trade deficit from just oil increases alone.

    We are forced into huge military expences to “protect” the oil regions and competition with China over third world resources increases the odds that we will enter into a new very, very expensive cold war.

    And our rivals use half as much energy per dollar of production. This hurts us competively.

    The issue is not the consumer, it is the nations capacity to thrive and not be forced into catastrophes in the future. Yet we had big expences on people fixing up their homes with marble counter tops, but not spending an extra 5 or 6 thousand for the geo thermal in the new air system which could save 50% on cooling and up to 70% on heating.

    Not a mentiion when the home pages are filled with all kinds of expensive deco tips. It is decadence.

  14. Fred commented on May 7

    Yep, there will be political implications. Ther will be more attention given to the impact of politicians on the price of gas.

    Taxes are at the top of the list. State and federal taxes are a big chunk of the price. In my home state there is a three cent a gallon tax to pay for cleanup of old gas station underground tanks. The cleanup fund is overfunded enough to pay for every forseeable reclaimation. You might think that tax woul go away but, now the governor wants to divert that money to one of his pet support groups. People are noticing.

    “Boutique” gas blends are mandated by politicians. These mandates also mean big money to ADM and farmers who lobby our state politicians. By extension, that means money for politicians. People are noticing.

  15. Cherry commented on May 7

    oink oink oink!!! That is the sound of America right now.

    Funny we talk about gas prices, when the post-Katrina price of gas dipped in December and into the 1st quarter, SUV sales went back up as demand increased for OIL which began trickling its way down with higher gas prices for the 2nd quarter and what happens to April SUV sales? They drop.

    Mercy. Is this a dumb country. As long as the Gov. has poor leadership and fat pigs themselves, not much will get done. The rest of the world is laughing while they fatten us up, to have a mighty feast themselves!!!!

  16. Mabelle commented on May 8

    Iran’s Letter to Bush Caused Oil to Fall Over $1
    Monday, May 08 2006 @ 02:16 PM Eastern Daylight Time

    BusinessOil fell over $1 on Monday. Iran’s President Mahmoud Ahmadinejad has written to President Bush where has given an analysis of the current world situation, of the root of existing problems and of new ways of getting out of the current vulnerable situation in the world.

    The nuclear ambition of Iran will ease after Tehran has made a move to contact Washington. The crude oil in London fell $69.89 per barrel. The United States made an international action to stop Iran’s nuclear plan. This was assumed to be aimed at the production of nuclear weapons.

    Iran insists that the need for fuel is for civilian use. However, analysts were cautious over the effect of letter on the relationship of the two countries.

    By Mabelle Sese
    Turks.US – Daily News

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