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Gas prices and consumer optimism

Hydrocarbon Engineering,

A survey released by the National Association of Convenience Stores (NACS) has said that rising gas prices are taking a toll on consumer optimism about the economy, with optimism falling to its lowest level since August 2014. Consumer optimism fell from 54 – 44%, the largest decrease in optimism in more than two years. Over the past month, gas prices increased 29 cents/gal. as refineries have started the transition to produce the costlier summer blend fuels that are required in many markets across the country. Over the last 15 years, gas prices have increased, on average, more than 50 cents/gal. during the February to May transition.

Consumers reportedly expect the upward trajectory of gas prices to continue, as 73% believe gas prices will be higher in 30 days than they are today, a noteworthy increase from 58% in February. Weather may also apparently play a role in consumer optimism. Consumer optimism was the lowest in the Northeast at 37%, which has been hit by storms and cold weather over the past month.

Jeff Lenard, NACS Vice President of Strategic Industry Initiatives said, “while prices are rising, retail gross margins on gas are falling and now average 10 cents per gallon, about half of the 19 cents per gallon that they have averaged over the past five years. After factoring in expenses, especially credit card fees, profit margins across the country are slim or negative at the fuel pump now.”

With gas prices on the up, consumers say that they are more sensitive to the price at which they would change their behaviour. The median fuel price consumers say they would try to reduce how much they drive is US$3.50/gal., down from US$4 this time in 2014. Similarly, the median price that consumers would seek out alternatives to drive is US$4.14 /gal., down from US$4.70 in March 2014. Both of these figures are the lowest since NACS initiated the monthly consumer survey in January 2013.

Lenard also commented, “this lowering of the price threshold would seem to give evidence to the theory that consumers become much more sensitive to a spike after a period of lower prices. Consumer optimism has fallen to the level of August 2014, when gas prices were US$3.50 a gallon, more than a dollar a gallon more than today.”

The good news

The survey did find some good news. Despite the rise in gas prices, nearly 19% of consumers say they will spend more money on consumer goods over the next 30 days, the highest level since December when holiday shopping surged. Also, younger consumers are more likely to spend and drive more this month. Of those aged 18 – 34, 27% said that they will shop more and 28% said they would drive more, significantly higher than the overall average of 17%.

Edited from press release by Claira Lloyd

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