·
On average, retail gasoline prices last week held at the prior period's
level of $3.00 per gallon, according to the US Department of Energy
survey. That level is, however, down eleven cents from the peak one
month ago.
· The recent stability of gasoline prices owes to the decline in the price of crude oil. For spot WTI crude oil, prices at $90.00 per barrel are down almost 10% from the highs last month which nearly touched $100 per barrel.
· That stability, however, is little comfort at the pump where prices have doubled versus the $1.56 averaged during 2003. To drive 10,000 miles in a vehicle which averages 20 miles per gallon, the annual cost has risen to $1,500 from $750.
· At the margin, where spending decisions are made, persons earning $30,000 per year now will now spend 5% of yearly income on gasoline versus 2.5% in 2003. Since then the demand for gasoline indeed has fallen, but only modestly to 2.3% of real consumer expenditures from 2.5%. Bottom line: less will be available for spending on other goods & services.
· Longer term trends
paint a somewhat less gloomy picture for two reasons. 1) As a percentage
of total consumer spending, that percentage spent on gasoline is down by
nearly one half since before oil prices quadrupled in the mid 1970s, and
2) versus all other consumer prices gasoline has risen sharply, yet only
to the level of the early 1980s.
· Less demand for gasoline only is perhaps a saving grace for this picture. Had vehicle fuel efficiency not roughly doubled to that 20 miles per gallon, annual fuel costs would be $3,000. Ouch. That's still a doubling.
· Relative to all other consumer prices, gasoline indeed has risen. Ouch. In fact, the rise rivals the gain of 25-30 years ago. A saving grace, perhaps; the level prices have risen to is still below the high seen in 1980. (That's only a positive if a person was born before 1963.)
· Other factors also do mitigate the negative effects of the recent rise in gasoline prices. Disposable income growth is now accelerating versus decelerating in earlier periods of oil price shocks. And even though employment growth is recently down, the deceleration is nowhere near as dramatic as in earlier periods. And the unemployment rate is lower. Finally, interest rates are quite a bit lower.
· That all, makes it
quite uncertain how consumer will/is holding up. The data are inconclusive,
so far. Anecdotal reports are mixed. Chain store sales are easing.
Vehicle sales are flat to lower. (All of the data used in this analysis
is available in Haver's USECON and USWEEKLY data bases.)
· Oil Shocks and Price Stability from the Federal Reserve Bank of St. Louis is available here.
· Today's announcement by the Fed of recent auction result can be found here.