The Fuse

Falling Gasoline Prices a Huge Benefit for Low Earners

by Leslie Hayward | September 04, 2015

With oil prices half what they were this time last year, how much are normal families saving at the pump? The average American household spent $2,468 on gasoline in 2014, according to the Bureau of Labor Statistics’ latest Consumer Expenditure Survey (CES), down five percent from last year, but still up 85 percent from one decade ago. The slight downtick in 2014 doesn’t change the overall trend: In the past decade, consumer spending on gasoline has risen disproportionately compared to average household incomes and annual expenditures, both of which increased by exactly 31 percent. The CES for 2014 contains a trove of data related to consumer spending, but this release offers only a partial glimpse of how low oil prices have impacted household budgets so far: 2015 consumer spending is not captured in this release. Next year’s data set, with full data for 2015, will provide further insight.

There is still plenty of insight to be gained from 2014’s data about how consumer spending on gasoline has changed over time, some of which can be seen in the chart below. It was roughly flat through the 1990s, rose astronomically during the 2000s, dipped and popped back up during and immediately after the financial crisis, peaked in 2012, and has declined to pre-financial crisis levels as of 2014.

gasoline spending 2014

The biggest beneficiaries

Perhaps unsurprisingly, the group most impacted by lower fuel costs are the very poor. For the lowest earning quintile of Americans—with a mean annual income of $10,308—gasoline prices can be a make-or-break expense. This income bracket spent an average of $1,160 on gasoline, less than half of the national average of $2,468, but the amount that they spent on gasoline was just over 11 percent of their entire pre-tax income. This is down from last year’s levels of 12.5 percent. As a percentage of income, 2013’s gasoline spending from this group was the highest in recent history.

For the lowest earning quintile of Americans—with a mean annual income of $10,308—gasoline prices can be a make-or-break expense.

For the general population, the difference in gasoline spending over recent years is less dramatic, but remains high. The average American household spent about four percent of its annual income on gasoline over the past decade, with the exception of 2009 when that figure dropped to around 3.5 percent.

For the highest earning quintile, gasoline spending is consistently around 2-3 percent of income. The CCES pegs this group’s mean pre-tax annual income at $172,952, and they spend an average of $3,789 on gasoline every year.

gas spending by quintile 2014Gasoline spending slightly down, everything else up

The 2014 downtick in gasoline spending is more relevant in the context of broader economic trends. Income and total consumer expenditures both rose significantly in 2014. According to BLS, average expenditures per consumer unit (or household) were $53,495, up 4.7 percent from 2013 levels. This closely mirrors the increase in pre-tax income, which was up 4.8 percent (although down 2.8 percent between 2012 and 2013).

total expenditures

Keen observers will note one major different between this chart, which describes gasoline spending as a portion of total expenditures, versus the one above, which shows gasoline spending as a portion of income. In the chart directly above, the gasoline spending of “all consumer units” is remarkably close to the lowest earning quintile. Put simply, the average American household spends about five percent of its total expenditures on gasoline, and so do the poorest households. High earners are allocating about 20-25 percent less of their total annual budgets to gasoline.

For the average American household, almost 5 percent of total annual expenditures and four percent of its annual pre-tax income goes into the tank.

But the earlier chart shows that the average household is actually quite close to the top earning quintile, in terms of what portion of their annual income is spent on gasoline. This is the opposite of the trend for what portion of total annual spending is allocated to gasoline. What does this mean? It’s a reflection of the fact that for most households, gasoline is an unavoidable expense, which cannot be diminished beyond a certain point, even for those who can hardly afford it. For the average American household, almost 5 percent of total annual expenditures and four percent of its annual pre-tax income goes into the tank. Low-earners are pouring 11.3 percent of their incomes into gasoline, but it’s still five percent of their total annual spending. When gasoline prices rise, both these low earners and the average household will see gasoline costs eat into the remainder of their total budgets.

The big picture

Last year’s minor downtick shouldn’t distract from the fact that gasoline spending has risen disproportionately over the past decade, relative to both incomes and other expenses. Last year’s Issue Brief from Securing America’s Future Energy dove into this topic, showing that consumer spending on gasoline increased by an average of 8 percent annually over the past decade, while non-gasoline discretionary spending increased by an average of just 1 percent annually. Those trends have remained the same: As of 2014, gasoline spending was still up by an average of 7 percent per year.

Putting this year’s numbers into context, in 2002, the average U.S. household spent approximately $1,235 on gasoline, equivalent to 3.0 percent of total expenditures and 2.5 percent of pre-tax income.

Low oil prices are not being fully passed on to consumers.

Finally, low oil prices are not being fully passed on to consumers. Thanks to refinery outages, the resurgence of gasoline demand as the U.S. economy recovers, and other factors in gasoline markets, oil prices are down 60 percent since August 2014, but gasoline prices have only dropped 30 percent (see chart from Bloomberg below). It’s likely that gasoline prices will correct to some extent in the near term, but given their persistence this year and the uptick in demand, the savings to consumers are likely to be tempered in the near future.

consumer spending

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