A View from Here

Bill's Sisson's weekly Trade Only blog

Will rising gas prices hurt less this time?

Gasoline prices are a moving target, and of late they have been heading north at a nearly unprecedented clip.

Nationally, the average price of a gallon of gas on Monday was $3.70, an increase of about 16 cents from the previous week, according to AAA. In cost leader California, prices zoomed up nearly 26 cents in a week, to $4.29 a gallon for self-serve, according to the Los Angeles Times. That’s about 57 cents higher than one year ago.

The price in San Francisco was about $4.34. USA Today reported that drivers near Disney World in Florida were paying as much as $5.89 a gallon. Ouch.

Prices at the gas dock vary as widely as they do at gas stations. The highest may be on Catalina Island off California, where a gallon of gasoline and diesel was in the neighborhood of $6.85, according to the fuel website MarineFuel.com, of Stuart, Fla. Prices in Florida ranged from $3.73 to $5.95 for gas and $3.49 to $5.95 for diesel, according to MarineFuel.com.

The concern, obviously, is about the impact of rising fuel prices on consumer spending and the nascent economic recovery at large. In the marine world, higher gas and diesel prices certainly won’t help declining registration numbers, but there is evidence from our automotive brethren that the effect of this latest spike may not be as great as in 2008, when most of us were left holding our breath as prices soared.

The Wall Street Journal reports that the effect of this most recent escalation on Detroit, for instance, will be moderated by the shift away from SUVs and light trucks to more fuel-efficient cars and “crossover” vehicles.

Oil expert James Hamilton, a professor of economics at the University of California, San Diego, has written in his Econbrowser blog that because of the very high gasoline prices we saw in 2008, U.S. car-buying habits did not go back to earlier patterns, meaning buying bigger cars and trucks. Therefore, he notes, $4 gasoline won’t have the same disruptive effect today that it had the first time we experienced those prices in 2008. (Higher gasoline prices, however, are cited as one reason Americans are driving less.)

Also worth noting is Hamilton’s rule of thumb regarding the relationship between the price of crude and gasoline. For every $1 increase in the price of a barrel of crude, Hamilton says, consumers are likely to pay 2-1/2 cents more for a gallon of gasoline.

The Journal story also cited work done by three economists who looked at detailed auto sales data from 1999 through the middle of 2008. What the trio found was revealing. A $1 rise in a gallon of gasoline increased by 21.1 percent the market share of new automobiles with top-quartile fuel economy. Conversely, the market share of vehicles whose fuel efficiency is in the bottom quartile declined 27.1 percent when the price of a gallon of gas went up a buck.

With a bit of rhetorical flourish, we have the following suggestion from a petroleum analyst with a company called GasBuddy.

“Motorists who drive an SUV may want to consider calling their banking institution and obtain a credit limit increase so they can afford this summer’s fuel expenses,” wrote Patrick DeHaan, a senior petroleum analyst at GasBuddy, which gathers and pushes out via the Web near real-time gasoline price data.

Gas Buddy is forecasting that prices will peak in May, when the median price of a gallon of gas will reach $3.95. “Consumers who think the Iran situation is over-hyped clearly don’t understand the high stakes behind not only the Strait of Hormuz but behind Iran’s feud with the West,” DeHaan writes.

As irritating and impactful on household budgets as this latest increase has been, folks have gotten hardier about these episodes — and the prices. There is less surprise. We’ve been here before. Did anyone think prices were never going to spike again? Anyone think this one will be the last?

“Consumers are not as concerned with the current level of gas prices as they were in past episodes,” Credit Suisse economist Jonathan Basile was quoted as saying in a report.

So the mix of vehicles rolling out of Detroit today is much more balanced than it was several years ago, which should help mitigate the impact of oil shocks on that key industry and, as a result, the U.S. economy as a whole. That’s good news.

What about boats? This latest jump in prices will, in all likelihood, continue to support the broad downsizing trend we’ve seen since the start of the recession. Given the pent-up demand out there, might it also cause owners of older boats powered by less-efficient iron to buy new boats and less thirsty power plants?

The Journal suggests it might happen with autos. “Given how much better the mileage is on new cars than the old heaps they are driving, rising gasoline prices might even prompt some consumers to get off the fence,” the newspaper wrote.

That’s a silver lining.

Comments

5 comments on “Will rising gas prices hurt less this time?

  1. Jeff

    If anyone thinks that you can compare buying habits of consumers comparing auto purchase and use to marine is sadly mistaken. Just as so many pundits in the 1980’s and 90’s tried to compare us to car dealers, there is no comparison.
    I am already seeing negative effects and the boating season has not even started. Customers are selling used boats, particularly the higher hp cruisers in large numbers. They are throwing in the towel. Service is down and more boats are sitting.
    Those that do use their boats are doing shorter trips.
    Until the oil speculators can somehow be reigned in, when just the rumor of a problem throws fear and panic buying, and rampant profiteering of every sector of the gas business ceases, until then we will always be living on the edge of disaster in this industry.
    There is no shortage of oil. We don’t get our oil from Iran. We EXPORT gasoline and have excess refinery capacity. And what of domestically produced oil, not subject to any threats?
    Face it, this is an artificial escalation of oil prices designed to do one thing. Line the pockets of the speculators, damn the economy or the American people.

  2. R.N

    We could have access to our own oil if only the environmentalists would quit hugging the trees and get into reality. They are the reason we are having to endure the rising cost of oil. They are doing more harm then good! Times are changing very drastically, so they need to realize their cause is non beneficial nowadays!

  3. Larry

    As a Marine Dealer & Marina Owner for over 40 years I have to say that the article is so far off base is is laughable !! To even dare to say the consumer is not concerned or affected adversly is IGNORANT ! and out of touch with reality. I have 12 employees that drive daily to work, Ask them ! about fuel costs, Just got off the sales floor with a customer that was saying how he wouldn’t be upgrading this year due to the cost of fuel. This guy must take a TAXI to work every day !!!!!

  4. abdoallah

    , “Calculating real wagesBy Donald J. BoudreauxSunday, February 19, 2006Like many pundits today, New York Times cuimonlst Paul Krugman often asserts that middle-class Americans have suffered stagnant income growth since the mid-1970s. In one of his columns last June, Krugman summarized his gloomy assessment of economic performance in America over the past three decades: “The middle-class society I grew up in no longer exists.”He’s right. The society that he (and I) grew up in indeed is history. But this fact deserves applause because ordinary Americans’ standard of living today is so much higher than it was 30 years ago.I admit that standard-issue data mask the truth of my claim. Most notably, after adjusting for inflation, wages of the average worker haven’t risen since the mid-’70s — while during the previous 30 years these wages escalated impressively.But data can be tricky. For a variety of reasons, the data relied upon by Krugman and others to paint a picture of an economy that’s failing the middle-class are incomplete or misleading.One of the trickiest maneuvers for statisticians is to adjust wages for inflation. This adjustment is typically done by (as economists say) deflating actual wage numbers by the Consumer Price Index (CPI). In theory, as the average of all consumer-goods prices rise, so does the CPI. And the higher the CPI, the higher the reported rate of inflation and, hence, the greater the amount by which actual wages must be discounted to translate them into “inflation-adjusted” (or “real”) wages.Average hourly wages of private-sector workers in 1975 were $4.73; today this figure is $16.34. But when deflated by the CPI, we find that today’s average wage is worth only $4.62 in 1975 dollars. Looks bad for the average wage earner.But can we trust the CPI? I think not. For a variety of reasons, it significantly overstates the amount of inflation we’ve suffered — and, thus, it misleads us in estimating changes in real wages over time.”–30–So Dan B. says the CPI way overstates inflation. That is his stance on this issue. It is the opposite of Vange’s stance. Through such relatively new spaces at 99 cent stores and Craigslist, I find many items cheaper than ever. I won’t even talk computers and cameras. The only thing that truly seems to get more expensive is military hardware/services and health services. Those are the two truly parasitic industries upon us—-and religion, but that is volitional, so let it be.

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