Gasoline Prices Weigh on Americans’ View of Economy

This post was written by James Coan, Research Associate at the Baker Institute Energy Forum.

Oil prices nosedived by the largest amount in two years on increasing concerns about the U.S. economy. Slower U.S. recovery means lower oil demand and with no additional negative news coming from the Middle East, oil traders have begun to focus instead on recently released reports that U.S. gasoline use is once again falling. The fall in crude oil prices would be good news for U.S. consumers since historical patterns would suggest that $90 to $100 oil would translate into retail gasoline prices under $4.00 a gallon, at around $3.30 to $3.65 cents a gallon.

Views of the fate of the U.S. economy and gasoline prices seem to have become inexorably linked, so these recent declines will hopefully correspond with more optimistic views of the direction of the economy.

The graph shows it all: rising gas prices are often accompanied by worsening views of the economy. According to Gallup polling seen in the graph above, early in the year, the country was roughly divided between those saying the economy was getting better and those saying it was getting worse. Yet when gas prices started skyrocketing in the wake of the tumult in Libya, the percentage of Americans saying the economy was getting better plummeted by 10 percentage points, and it has continued to worsen when gas prices once again began rising in April.

We at the Baker Institute have previously analyzed other tight linkages between gas prices and the attitudes of Americans. Along with the Brookings Institution, we tracked the effect of gasoline prices that rose to over $4/gal in 2008 before the financial crisis on Americans’ views of their own well-being and found – surprisingly – that a $70/month increase in gasoline costs corresponded to a decline in well-being of about $530/month in income-equivalent terms.

Of course, when dealing with this most recent Gallup polling, we must take to heart the nostrum that correlation does not imply causation. We cannot absolutely guarantee that gas prices are at the heart of all of the changing perceptions of the economy, even if the timing between gas price increases and Americans’ views of the economy are uncanny mirror images of each other.  Broader indications of the economy’s performance are surely troubling: the GDP for the first quarter of the year only grew at an estimated annual rate of 1.8%, and weekly unemployment insurance claims also rose last week.

Yet we’re sure Americans are fretting about gas prices. Gallup in March found that Americans are more likely to think gas prices will rise by large amounts this year, Reuters/U. of Michigan found in their April Consumer Sentiment poll that inflation expectations for the year run at a high 4.6%, and early reports from Mastercard SpendingPulse suggests that gasoline demand has fallen in five of the past six weeks.

8 Comments

  1. WriterDude

    I believe that high gas prices are what caused the housing collapse. Many people who bought houses before the crash were confident they could make the payments, but when gas prices went to $4.00, that added an additional $250 to $300 a month in expenses. This was enough to push many people into defaulting on their loans.
    Buying gas to get back and forth to work is not a discretionary expense.

    #1
  2. BOB

    It is not often a president keeps his campaign promise. President Obama did. Here is his promise in his words.

    Obama promised us energy prices would soar because of his cap and trade but he has had to switch gears and use regulation and hence he appointed our well renowned communist Harvard law professor regulation CZAR Cass Sunstein.
    Here he is in his own words on energy soaring prices.

    #2
  3. Terry

    When gas prices went up under Bush he was blamed for it. Now that gas prices are rising under Obama, and Obama is partly to blame because of his policies, you don’t hear the main stream media blaming Obama. The main stream media does a great job of protecting their boy.

    #3
  4. Unemployment remains virtually unchanged with 13 plus Million out of work. The realities of ObamaNomics are setting in. For Americans energy cost have INCREASED, healthcare cost have INCREASED and now inflation created by Obama’s stimulus (which created no jobs) INCREASED the cost of food and devalued the dollar. People feel the way they do about the economy because all of their expenses are increasing and many people have figured out they are only left with change, and hope does pay the bills.

    #4
  5. The price of gas went up to four dollars a gallon and the cost was adjusted for products and services at that time. The price went down and was not adjusted on products and services. The price is back up to around four dollars a gallon and the price is being adjusted for products and services again. Isn’t this classic price gouging? What is being done about this? Greed seems to be acceptable now….?

    #5
  6. Big Pappy

    High gas prices are a symptom of the problem, NOT the ultimate problem. The problem is with the financial footing of the USA. We, the American Public, is and will be asked to “pay for” government employees at all levels retirement. There is NO WAY we can afford it. The current gas prices are just a look into what America will be like for the foreseeable future. Until the current administration quits trying to be the little wall flower at the world dance, and steps up and LEADS, it will remain as such.

    P.S. BOB is completely correct. Hussein Obama TOLD the American people what he was going to do. But a majority wanted to be seen as tolerant and acceptable to a minority, and voted for the community organizer.

    Pappy !!!!!HERMAN CAIN IN 2012!!!!!!

    #6
  7. gson

    The thought of leaving my lovely little house in order to move closer to my job so that my gas expense goes back to normal is looming heavily. It costs me DOUBLE what it did a year ago to drive my car to the office and since we do not have a mass transit system in Houston capable of getting me to and from work reliably, I may be forced to leave my residence of several years. That is not acceptable! The gas prices have forced many Americans to do without necessary items – medicine for one, food for another just so they can put gas in their car to go to work – IF they are lucky enough to have a job. This is beyond ridiculous! I’m with you Big Pappy – Herman Cain/Allen West in 2012! Let’s get some people in office who are actually in tune with real Americans and have the BRAINS to set things right!

    #7
  8. PAT

    Big Pappy, for what purpose did you use President Obama’s middle name? You could have made your point without it, but you chose not to, why?
    The main difference to me, insofar as the price of gas going up under the Bush/Cheney administration vs. now is that both Bush and Cheney were heavily involved in energy companies; in fact, Cheney was making money while serving as VP, since he was and still is on the payroll of Halliburton, whether thru pension, stocks or whatever.
    Gson, too bad we didn’t have brains in the white house, starting about 10 years ago! Who would LOWER taxes while fighting 2 wars?

    #8