How do folks pay for gas?
Gas prices are up 82% in the past 6 years. (Years we have CPI consumption data*) How has the consumer been able to afford such a massive price increase? What items have been cut out of the family budget? The answers are surprising and spell trouble for all those companies that serve the sectors the consumer treats as "optional".
Just six years ago, for every dollar the average household spent they spent 6.2 cents on energy, today that spending is 9.7 cents. Consequentially some other spending was reduced by 3.5 cents.
Total spending rose 5.3% in 5 categories
Energy 3.5%
Housing 1.1% (people have been buying more and bigger houses)
Prescription Drugs 0.3%
Health Insurance 0.2%
Education 0.2%
Health Insurance is worth mentioning as well as spending on this has nearly doubled from .297% of the household budget to .537%. We know coverage and care have not doubled, so the net increase in spending is simply higher prices. Drug spending has gone up 30% from just under 1% of the family budget to 1.23%.
Only Education and Housing seem like reasonable cases for where consumers are actively purchasing more of their budget on these items than they did 6 years ago. In other words 4% of the family budget was forced to change, and 1.3% was a voluntary change.
8 Major categories that families cut spending in percentage terms
New and Used Vehicles -1.4%
Vehicle insurance and repair and registration -0.8%
Food at Home -0.8%
Apparel -0.7%
Personal Care Services -0.6%
Recreation -0.4%
Doctor Services -0.2%
Tobacco -0.2%
With gas prices up, drivers are making do with what they have. New leased vehicle activity is down about 40% and sales of new and used vehicles are down and have fallen much more since this survey was taken.
Consumers are playing a delaying game, but it isn't clear how long they can keep it up. Vehicle parts and equipment are down and so is vehicle repair. Essentially motorists are putting up with damage to the vehicle, and stretching routine maintenance. Oil change every 4000 miles instead of 3000, but they've also cut back on Vehicle insurance and are dropping their coverage. And amazingly they aren't paying nearly as much in state and local registration. So either they aren't driving the 3rd car, or they are driving without a registration.
Food at home is down, indicating families are substituting for cheaper meals, chicken or hamburger instead of steak. Cutting back on more expensive prepackaged food and perhaps buying more store brand food.
Apparel spending is down, but prices are also down quite a bit, so consumers may actually be purchasing the same amount of sneakers and dresses, just cheaper ones.
Personal Care Services are down quite a bit as consumers are cutting their own hair. Households used to spend about 0.9 cents per dollar at the hair salon and are now spending only 0.6. But also laundry, financial, legal, and funeral spending is slightly down.
Interestingly personal care goods are largely unchanged as spending on hair care, shaving, and dental goods are mostly unchanged, but perhaps that makes sense as consumers still hair cuts so they are purchasing the items they need to do it themselves.
Recreation is down as toy purchases, sporting goods, photography, newspapers and recreational admission tickets (events and movies) are all being cut back by the consumer.
*(the 1999-2000 average vs. the 2005-2006 average and since then gas prices have risen another 16%)
| http://www.bls.gov/cpi/cpiri2007.pdf |
| http://www.bls.gov/cpi/cpiri_2001.pdf |
Related Post on the size of food inflation at the Big Picture
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