I’ve spent far too much time over the past few weeks going back to a hodge-podge of data collected from various government agencies in a semi-futile effort to really learn how, if at all, the price of gas affects consumer spending, and if so, to what degree. I say semi-futile because some of the data is not available in certain frequencies the rest is, e.g. per capita spending on gas in CPI is annual, while the rest of the data is mostly quarterly. So, with the caveat that the data from which the following charts and computations are derived is both imperfect and noisy**, I present my (simplistic) conclusions:
First up, let’s take a look at Disposable Personal Income (DPI), Personal Spending on non-gas goods & services (Personal Consumption Expenditures, or PCE less gas), Retail Gas Prices, and the 4-quarter moving average thereof:
The most immediate conclusion is that gas prices are MUCH more volatile than both incomes and consumer spending, even if we use a smoothed moving average to measure them. Even if we look at a much shorter (5 years v. 26) time horizon, gas prices are significantly more volatile (remember the summer of ’08?):
What should be apparent by now is that the shape of the personal spending curve matches almost exactly the shape of the income curve. In fact, over the 1984-2009 period, the correlation between disposable income and personal spending is 0.99, while the correlation between PCE and gas prices is only 0.54.
Over this same time period, in aggregate, spending on gas (and motor oil) has accounted for anywhere from 4.01% (1999q4) to 9.06% (2008q4) of total personal spending, with an average (arithmetic mean) of 5.23% and standard deviation of 1.23%. This works to $888 to $2,715 annual per capita spending on gas, averaging $1,312, a pretty damn wide range considering per capita disposable personal income ranged from $20,693 to $33,480, averaging $26,784!
Intuitively, if one year we spend $900 on gas and the next we end up spending almost $3,000, the difference is going be reflected in some combination of less spending on other goods and services, dipping into our savings, and credit card balances. What that combination is (and how it has changed over time) is the subject of my next post on the subject, so stay tuned!
** These are unadjusted numbers and include transfer payments. Data from BLS, EIA, DOT, Federal Reserve.