Gas prices are rising again. What does that mean for the economy?
The annoying but true answer: It depends.
In case you haven’t noticed: It costs more to fill up your gas tank these days.
Gasoline prices nationally have risen from $1.73 per gallon in February 2016 to $2.24 last month, my colleague Jordan Blum reports, and consumers are forecast to spend $50 billion more on gas than they did last year. Theoretically, that’s $50 billion they won’t have to spend on other things — so what does that mean for the U.S. economy?
We now have decades worth of data on how gas prices affect consumer spending, through several spikes and crashes, so this shouldn’t be hard to figure out. For example, a 2009 study found that between 1970 and 2006, a 1 percent increase in energy prices caused a 0.15 percent decrease in total consumption a year later.
People’s spending decisions are affected by more than just gas prices, which also serve as an indicator of the economy and the consumer demand that ebbs and flows with economic growth. Consumers may be more or less careful on spending their saving at the pump depending on where they think the economy is heading.
But those effects haven’t been uniform in magnitude over time. The consumption response to energy price shocks weakened from the 1970s to the 2000s, due in part to what the study’s authors theorized was a change in the structure of the American auto industry. As domestic manufacturers started to produce more small cars, consumers looking to save on gasoline didn’t have to buy imported vehicles, which preserved jobs in the United States.
Written by Lydia DePillis