Pain at the pump
Posted 02:11 p.m., April 21, 2008
I doubt that there’s anyone in America over the age of six who doesn’t know that gasoline pump prices are at an all-time high at the moment. But that fact, taken in isolation, doesn’t tell us how painful these prices are. If we all had unlimited money to spend on fuel, the price level wouldn’t really matter. The question is not, “How high are gas prices?” Instead, it’s, “How affordable is gas for the average American?”
Here’s one way of answering that question:
What this chart shows is Americans’ annual per capita personal income divided by the annual average price of a gallon of gasoline. The vertical scale thus shows how many gallons of gasoline someone could afford by spending the equivalent of one person’s annual income. (For the final data point, which represents 2008 to date, I calculated the year-to-date average price of a gallon of gas and plugged in the fourth-quarter 2007 per capita personal income figure; the first-quarter ’08 income figure isn’t available yet. So the last point could actually be higher or lower than the chart shows, though any difference is unlikely to be large.)
The peak in this indicator came in 1998, when the average gas price for the year was just $1.06. What the chart makes clear is that since then, growth in personal income has been significantly slower than increases in gas prices. As of the end of 2007, this indicator was at its lowest level since 1985, and if my first-quarter 2008 approximation is anywhere close to accurate, it’s now at its lowest level since 1984 – down a full 50 percent from the 1998 peak. In comparison, the decline from the 1973 peak to the 1980 low – paced by the “oil shocks” and “stagflation” of the 1970s – was a mere 37 percent.
My reading is that our “pain at the pump” is quite real, that the crimp being put in our wallets by soaring fuel prices is really as severe as it feels, and the effect on overall consumer spending has got to be significant.
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