Bloomberg Briefing, edited by Richard Yamarone, is fast becoming oe of my favorite Bloomberg publications for terminal subscribers.

They had an excellent set of charts along with a valid issue concerning rising gasoline prices recently. Here is a brief excerpt:

“The 7 percent rise in the price of gasoline combined with future wholesale prices pointing to another 4 percent rise pose additional downside risks to an already difficult outlook for the consumer.

The increase in gasoline prices comes at a time when consumer confidence, modest improvement in the labor market and easing inflation appear to have bolstered overall investor confidence. That confidence is one reason for the 24 percent increase in the Standard and Poor’s 500 index {SPX INDEX<GO>} since October. Household spending is on track to support a weak 1-to-1.5 percent expansion in the current quarter, even after a solid increase of 0.7 percent in retail sales, excluding the volatile autos, gasoline and building materials categories. An ill-timed increase in consumer gasoline prices carries with it the risk of pushing the economy back towards stall speed in the first half of 2012.

Rising gasoline prices tend to curb spending on discretionary service items like dining out, entertainment and consumer electronics, which given the weak pace of spending does not bode well for growth this quarter.

Yamarone does the back of the envelope calculation: If gas prices rise to $4 per gallon, it is $908 per year in additional energy costs (assuming they drive the same miles, a big if). At $4.50 per gallon (about $122/barrel) the cost would reach $1,283. That is about the amount of money the tax holiday is worth — about $1000 into the pockets of taxpayers.



Rising Gasoline Prices Point to Consumer Spending Risk
Bloomberg BRIEF, February 21, 2012

Category: Consumer Spending, Energy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “Rising Gasoline Prices Point to Consumer Spending Risk”

  1. ashpelham2 says:

    The saying is the way to a man’s heart is through his stomach. The way to my heart is by BR blogging on fuel/energy costs….
    I digress. We seem to be going thru this every spring now, and it’s messing with the way consumers plan. Good thing the average American has a VERY short memory. Americans must first move away from trucks and suv’s as their main transport. When gas is high, this is an easy argument. When gas is dropping, like it’s going to do in short order, we fall back into our old habits.

    We need to change our lifestyles to depend less on petrol, like a dieter needs to cut out the sugar and fat.

  2. [...] Just how much would higher gasoline prices cost consumers?  (Big Picture) [...]

  3. Concerned Neighbour says:

    It should also be noted that the China/Fed-financed tax holiday will add to the debt.

    But perhaps Cheney was right that deficits don’t matter. After all, in the face of a truly horrible fiscal situation, Mr. Romney’s big idea as unveiled earlier this week is to cut taxes for everyone by 20%. Not 2%, and not only for the poor middle class. Twenty percent for everyone.

    I’m long past being surprised by the sheer idiocy of our policy makers, on all sides of the political spectrum. And I grow more convinced by the day – a Fed-fuelled rocket-ride to the moon notwithstanding – that things are going to get a whole lot worse.

  4. Bob A says:

    the other side of the coin is the higher incentive to purchase a new more fuel efficient car.. with more and better choices becoming available all the time.

  5. Aeolus says:

    All-Electric cars like the Nissan LEAF and will make sense to more buyers all the time, especially if they can put solar panels on their roofs. Forty per cent of Nissan LEAF owners in California have gone PV/EV, which is a great investment if you can take advantage of Time of Use rates.

  6. James Cameron says:

    That is about the amount of money the tax holiday is worth — about $1000 into the pockets of taxpayers.


    Frankly, I think that $1000 is already spoken for in a bevy of higher costs elsewhere, including property taxes, utility rates, insurance premiums, broadband costs, etc, at least here in Seattle, forget food and gas. The gasoline surge is just piling on for a lot of consumers . . .

  7. dead hobo says:

    I’m a little confused here. A few months ago, you, BR, were adamant about higher oil prices (aka high gas prices) being good for the economy because they were an indicator of economic expansion. I argued they were simply a direct effect of excess liquidity being applied towards an investment system (etf arbitrage with oil contracts) that allows investors who intend to go long to significantly increase oil prices. I stated high oil prices would be a big negative to the economy and went into detail about it. You regarded me, indirectly, as a goofball. Now, you’re agreeing with me. What gives?

  8. rktbrkr says:

    Rising fuel costs have nipped every mini recovery we’ve had since Bush flew the economic plane into the mountainside.

  9. willid3 says:

    and prices are rising even while demand is tanking. and supply isn’t in trouble at the moment. wonder why that is.
    which means that they drill,baby drill would have no impact on gas prices.
    not that it would matter since oil is an international commodity. sold world wide.
    to the highest bidder.
    nor would adding refinery capacity. no business will add capacity unless demand is up (they do have to make a profit if they are a business). besides a lot of what US refiners export a lot of what they produce.

    as long as demand is up some where in the world, oil will keep going up.

  10. dead hobo says:

    Also, not too many years ago, wasn’t excess flatulence in Nigeria and harsh language in other countries considered a genuine and true reason for oil prices of nearly $150, yet today we see Iran and real concerns only dinking the price of oil up a little at a time, or is it the falling dollar against the amazing and impressive Euro? Thanks for coming around and, at least, accepting that high oil prices are a negative. Now, for the next great leap forward, and be a little forthcoming about why prices rise and fall so erratically.

  11. davefromcarolina says:

    You have to love the GOP’s ability to create a problem and then profit from it. Gasoline consumption is down in the U.S., but prices are rising because traders are spooked by GOP-led saber-rattling over Iran. (Story here.) Yet this is Obama’s “election-year problem.” Amazing.

  12. Stan Klein says:

    Look at slide 8 of this presentation –

    It suggests that Toyota is basing their electric vehicle plans on an exponential increase in gasoline prices starting about now.

    People may look back at $5/gallon gasoline as the good old days. But hopefully it won’t bother them that much because they will only need gasoline (or algae-based diesel) when they need to go further than their electric car batteries will take them and fast-charging stations are inconvenient for their trip.

  13. willid3 says:

    another possible reason for high gas prices. refineries have been shut down because there wasn’t enough demand to keep them operating. they couldn’t raise the price of gas enough over the price of oil because demand crashed. and nobody forced them to do that. it was all a business decision.

    while pure electrics won’t make a big dent it gas demand as long as they have a relatively short range and long refuel times (both are subject to big changes as demand drives interest).
    extended range electrics (like the Volt) could work nicely. and its really not new technology, its been in trains from almost 50 years now.
    just new to cars as the propulsion needs are just a tad bit different (cars tend to have shorter trips, with many more stops and starts).

  14. Sechel says:

    You are correct that Gasoline price increases has the ability to derail “discretionary” consumer spending(before buying flat screen TV’s we must eat , heat our homes and fuel are cars). But it strikes me as naive when we don’t realize that oil is a global commodity and that green energy is not economically viable. Technology which allows us to extract more oil or natural gas is not all that different from alternate energy sources . The end goal should be marshaling economic forces to increase conservation and investment in the best new technologies. To that end the best way to accomplish this(even if counter-intuitive) is to tax gasoline, which will foster conservation and promote consumers to consider the most efficient energy choices. Having gov’t pick and choose which technologies or or companies might succeed to me is comes off as foolish. If gov’t wants to help on the technology front , they should just fund basic research and make the answers freely available.

  15. JimRino says:

    Now is the time to consider the Tesla Model S.
    - Luxury like a Jag, but better.
    - Air Shocks.
    - 300 mile range.
    - Super Quiet.
    - Instant Torque.
    - Excellent handling, with excellent weight distribution.

    Only Problem? Sold Out.

  16. “…and its really not new technology, its been in trains from almost 50 years now…”

    Who? really, needs to be so _______ Stupid?

    …In 1917, GE produced an experimental Diesel-electric locomotive using Lemp’s control design, the first known to be built in the United States.

    Following this development, the 1923 Kaufman Act banned steam locomotives from New York City because of severe pollution problems. The response to this law was to electrify high-traffic rail lines. However, electrification was uneconomical to apply to lower-traffic areas.

    In the mid 1920s, Baldwin Locomotive Works produced a prototype Diesel-electric locomotive for “special uses” for example runs where water for steam locomotives was scarce, using electrical equipment from Westinghouse Electric Company.

    Industry sources were beginning to see the outstanding advantages of this new form of motive power. In 1929, the Canadian National Railway became the first North American railway to use diesels in mainline service with 2 units, 9000 and 9001, from Westinghouse.

    The first regular service of Diesel-electric locomotives was in switching applications. General Electric produced several small switching locomotives in the 1930s.

    Diesel locomotive and diesel-electric railroad locomotion entered the mainstream when the Burlington Railroad and Union Pacific used Diesel streamliners to haul passengers.

    Following the successful 1939 tour of General Motors demonstrator freight locomotive set, the transition from steam to Diesel power began, the pace substantially quickening in the years following the close of World War II. Continue reading about the diesel locomotive …

    “…almost 50 years now…”

    by that ‘kind’ of “Logic”, Qe, most assuredly, can be (‘reversed’/’soaked up’)

    Sorry! (It’s more than a “board game”)

  17. “…algae-based diesel…”

    O, hey, “Stan”,

    didn’t mean to leave you out..

    don’t ‘worry’ about (readily accessible ‘intel’)

    if you’re looking for a ‘pipe-dream’, you’d be better off in Vancouver..

  18. victor says:

    When asked about high gas prices Bush said that he wished he could just wave a magic wand and lower them. Not to be outdone, Obama just said the other day: there is no silver bullet, we must follow an all of the above strategy, ironically same terminology poor Sarah Palin used. Well, poor back then a bit richer today.

    We still import half of our crude oil consumption and the recent reversal in net refined products to exports is due to reduced demand and the need to use the excess refining capacity. So now we have net exports of gasoline, diesel and jet fuel to Mexico, Brazil and even China. Ignorants such as Bill Reilly, Lou Dobbs see our exports of refined products as the root cause for high gas prices here! What a world!

  19. lalaland says:

    I think cities that use mass transit are more insulated from oil shocks – in NYC we rely on subways, cargo ships, ferries, trains, etc, and I imagine that’s replicated in the east coast megalopolis, chicago, portland, what have you. We’ll also save a buck by not having to upgrade our vehicles to access the increased fuel efficiency. I also think it’s a good time to introduce super fuel efficient cars though (building on increased car sales of the past few months).

  20. romerjt says:

    “Back of the envelop calculation? Using a calculator I find something is wrong with these ($908 and $1283) additional cost numbers: I

    If you drive 15,000 miles per year and get 20 mpg you use 750 gal/ year. At $4 (say a $.50 increase) your additional cost is $325 and at $4.50 its $750 additional cost.

    “If gas prices rise to $4 per gallon, it is $908 per year in additional energy costs (assuming they drive the same miles, a big if). At $4.50 per gallon (about $122/barrel) the cost would reach $1,283. That is about the amount of money the tax holiday is worth — about $1000 into the pockets of taxpayers.”

  21. romerjt says:

    By the Way . . you get the numbers / increase in the chart if you start with gas @ $2.79, which it was in 2009-2010.

    Hoffer’s Right . . Note that the Chevy Volt and other so-called plug-in hybrid cars use an existing technology, one that powers all diesel, more accurately diesel / electric locomotives.

    Volts have a range near 400 mi, use gasoline to refuel, and get about 100 mpg in typical use (half use under 40mi/day). Just look at the swings in gas prices, especially since 2005, how long before enough is enough! Dept of Energy source

  22. rktbrkr says:

    People are looking at electric vehicles like the electric is free – it isn’t. The conversion efficiency of utility base stations ain’t that hot – think 30-40% with a few % transmission and distro losses coming out of those numbers. And incremental electric demand for these vehicles will be met by the highest cost units – many of which are burning oil.

    Comparing Con Ed approximate total electric cost of .25/kwh and 25 mpg car burning $3.50 gas would save about 1/3 or $600/yr. The economics are a lot more attractive in low electric cost areas but the big numbers are in high cost areas on the coasts.

    Of course the marginal cost of electric can be much, much higher at times and if there were widescale adoption of electric vehicles the older, less efficient – and oil burning plants would be meeting this demand. But with the averaging effect of utility rate structures these higher incremental electric costs would be picked up by other ratepayers who would be subsidizing their neighbors using electric vehicles.

    So the feel good moment of using a “green” electric vehicle should be shared by both the vehicle driver and his subsidizing neighbors.

    I think the best solution would be natural gas fueled vehicles which would be using relatively inexpensive, north american based fuel that require much less costly vehicle modification. The gas distribution network would have to be improved a lot but gas home filling stations and improved natgas cruising ranges could do a lot to solve this problem (and the modified gas engines would last longer than gasoline engines which last longer than the batteries in electric vehicles)

  23. victor says:

    Like Obama said: all of the above, no silver bullet to magically lower the price at the gas pump. Natural gas for thye nation’s Diesel fueled truck fleet would be a good start, go to T. Boone Pickens’ website for more info. BTW, most of the US increased oil production in the last 3 years has come from PRIVATE lands, (see N. Dakota); production from PUBLIC lands/waters has actually decreased, the BP spill didn’t exactly help of course.

    If you increase materially crude production in the US, at the margin it will affect the price of crude which is a par excellence a worldwide priced commodity. However, that will also help redress our wretched foreign trade balance with good implications for the green back and as the oil is priced in dollars, lower further our foreign oil bill. Remember we still import 50% of our crude consumption.

    WILL SOMEONE, even you BR: PLEASE try to stop Bill O’Reilly’s idiotic misinformation campaign on gas prices? He incessantly blames the recent spike in the gas prices on our having become net exporters of refined products which of course is a GOOD thing. Lately he went so far as to propose that the US refiners NOT pass along the 30% added cost of the crude attributed to speculation on NYMEX to the American Consumer? Let’s see: if Valero (biggest US refiner, ) did this, their gas stations would be running out of the cheaper gas in one day! Then what? I said “try” because Billy Boy is going to try to scream you into silence. Unfortunately he has quite an audience, easy to manipulate.

  24. JimRino says:

    - The efficiency of an electric motor is 90%, that greatly offsets transmission losses which, rktbrkr, exaggerates.
    - The vehicles will mostly be charged at night, which will require no build out of utilities, but add to their profitability.
    - That money stays HOME, in the US Economy [ the Terrorists Lose ], adding to jobs for Electricians in America.
    Economic Boost.

    Natural Gas is a big loser as it is JUST As Dirty as Oil, and does nothing to stop the greenhouse effect of Global Warming.
    - Fracking in PA and NY puts at risk Fresh water supplies for 10′s of Millions of people.

    The Current Cost of Global Warming?
    - Global Drought.
    - US Drought, especially Texas, CA and the US Southern States.
    - So dry as to wipe out the cattle industry. Cattle INVENTORY the lowest since 1952.
    Guess what? You’re Steak is going to DOUBLE in Price.
    - Water Aquifers in the South are RUNNING DRY.

    The Republican Party, and the Oil Industry, need to TRANSITION NOW into Solar and Wind.
    Either Shareholders REVOLT, or the Government Must Step in.

  25. JimRino says:

    It’s Time for SHAREHOLDERS to demand that Oil and Coal Companies, INVEST in a 10 to 1 Ratio of New Solar projects, to expansion of current oil, gas and coal production.

    For every dollar invested in an oil well, there should be a 10 dollar investment in Solar and Wind.

  26. James Cameron says:

    “Back of the envelop calculation? Using a calculator I find something is wrong with these ($908 and $1283) additional cost numbers


    The numbers – the orange bars in the graph – are the the incremental increase in yearly gas costs for a driver, using $2.79/gal as a base. The $908 is the yearly increase going from this to $4/gal using whatever parameters Yamarone used for his driver (the article is not readily accessible). Here are some numbers that place that $908 in perspective:

    Miles MPG gal/yr $.5/gal $1/gal $1.50/gal
    15000 20 750 $375 $750 $1125
    20000 20 1000 $500 $1000 $1500
    15000 25 600 $300 $600 $900
    20000 25 800 $400 $800 $1200
    15000 30 500 $250 $500 $750
    20000 30 667 $333 $667 $1000

    where columns 4-6 are the ADDITIONAL yearly cost of gas when it goes up by $.5, $1 and $1.50 a gal, respectively, for the various driving assumptions shown. Note, going from $2.79 to $4 per gal is an increase of $1.21/gal – somewhere between columns 5 and 6 (which I hope is reasonably formatted after it’s submitted here!).

  27. Francois says:

    We know what to do to make these rises insignificant. Alas, Reichpubliscums refuse to let this country go the path of more oil economy and self-sufficiency.Here’s an example that should make the blood of every person with common sense, boil:

    Military’s alt energy programs draw Republicans’ ire

    I mean, how fucking retarded do these guys have to be before people stop voting for these idiots? The military is trying to be self-sufficient, operationally more flexible, less dependent of heavy logistics of oil transport and delivery and what do hey get for that? The Club of the Tards berate them!

    I despair!

  28. formerlawyer says:

    For an interesting scientific perspective on alternative energy sources see:

  29. JimRino Says:

    Now is the time to consider the Tesla Model S.

    Only Problem? Sold Out. (Really?)

    Tesla Roadsters Parked Without Being Plugged in Brick Themselves (In as Little as One Week)
    February 22nd, 2012

    Via: The Understatement:

    Tesla Motors’ lineup of all-electric vehicles — its existing Roadster, almost certainly its impending Model S, and possibly its future Model X — apparently suffer from a severe limitation that can largely destroy the value of the vehicle. If the battery is ever totally discharged, the owner is left with what Tesla describes as a “brick”: a completely immobile vehicle that cannot be started or even pushed down the street. The only known remedy is for the owner to pay Tesla approximately $40,000 to replace the entire battery. Unlike practically every other modern car problem, neither Tesla’s warranty nor typical car insurance policies provide any protection from this major financial loss.

    Despite this “brick” scenario having occurred several times already, Tesla has publicly downplayed the severity of battery depletion risk to both existing owners and future buyers. Privately though, Tesla has gone to great lengths to prevent this potentially brand-destroying incident from happening more often, including possibly engaging in GPS tracking of a vehicle without the owner’s knowledge.

  30. victor says:

    @JimRino: you’re wrong about natural gas, do a bit of research or continue to lose credibility on this blog. I’m a shareholder in various oil/gas companies and your statement that “Shareholders demand that Oil and Coal Companies, INVEST in a 10 to 1 Ratio of New Solar projects, to expansion of current oil, gas and coal production” is pure lunacy. Next you’ll advise that Saudi citizens demand the same of Saudi Aramco which by itself owns some 270 billion of barrels recoverable reserves, some 10 times of USA’s and some 30 times those of the big 5 integrated oil companies (XOM, CVX, COP, BP and RDS). Note that the last two are foreign. Please! What ever you come up with along these lines, don’t mention it to Putin he’s busy making money with his oil and especially gas. Ask T. Boon Pickens why he gave up on wind and try buying some used equipment from Solyndra, it’s being auctioned off at 5 cents to the dollar, not too many takers so far.

  31. Most vulnerable to job loss presently is the auto sector with these rising prices. Light Vehicle Sales fail upon exceeding a definitive petroleum/GDP ratio represented today by $3.38/gal. The sector had only just recovered from surpassing that threshold in Feb/2011. Stay tuned for ugly car & claims figures for March & April.

    Gas Pump model chart: