How do consumers in the U.S. deal with rising (gasoline) expenses?
During the most recent upturn in gas prices and gasoline spending, consumers saved less. From the first quarter of 2007 to the first quarter of 2008, the decline in saving alone covered 53.1 percent of the increase in gasoline spending. The rest came from less spending on cars and furniture. Yet at the same time, households borrowed more than was necessary to cover the increase in gasoline price increases. This allowed consumers to not only spend more on gasoline, but also afford the rising costs of health care, for instance.
This is not a new phenomenon. From 1947 to 2008, 12 percent of all quarters saw extraordinarily large gasoline expenditure increases.20 Lower saving covered 61.6 percent of these spending increases on average. Increases in consumer debt covered almost five times the increase in gasoline spending, leaving enough additional resources available for more spending on health care, housing, food, and transportation—all large consumption items that required more expenditures as they became more costly or more people were driving to work.
But right now, as gas prices continue to rise, the escape routes of saving less and taking on more consumer debt may be closing off. In the first quarter of 2008, the personal saving rate was 0.6 percent, which is 0.4 percentage points lower than it was in the first quarter of 2007.21 And consumers can no longer tap as freely into the equity in their homes as they once did. The total values of all homes fell by 2.5 percent in the first quarter of 2008 after accounting for inflation, the largest drop since the second quarter of 1974. Home equity as share of home values also fell to a record low of 46.2 percent.
In the first quarter of 2008, household debt averaged 132.4 percent of disposable income, down from a record high of 133.4 percent in the previous quarter, but higher than at any point prior to the second quarter of 2007. From the first quarter of 2007 to the first quarter of 2008, total consumer household debt rose by 1.4 percent age points relative to disposable income. Total household credit card debt, however, increased by 0.4 percentage points between the first quarter of 2007 and the first quarter of 2008, the largest year-over-year increase since the third quarter of 2001.
This leaves very few other areas where consumers can make sacrifices to accommodate the pressures from higher prices at the pump. Traditionally, more spending on gasoline has also been associated with less spending on cars. People are already buying fewer and smaller cars as the cost of driving goes up rapidly. And eventually, families will spend less on gasoline simply because there are fewer jobs to which they can drive.
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