The Consumer Response to Lower Gas Prices
July 11, 2016
After falling sharply in 2014, gas prices remained low for most of 2015, providing a substantial boost to US consumers’ spending power. Understanding who experienced this boost and how people responded are important questions for policymakers and business leaders.
Yet most of the available information on these questions comes from surveys or estimates based on aggregate data. Those results would lead us to believe that consumers are primarily saving or paying down debt with the extra money in their wallets.
The JPMorgan Chase Institute’s granular, transaction-level data suggest otherwise.
Today, we’re releasing a new report that relies on an anonymized sample of one million Chase customers across 23 states to quantify the impact of an entire year of lower gas prices in 2015.
On average, gas prices in the United States were 25 percent lower in 2015 than in 2014. We estimate that the lower gas prices generated a potential savings of about $630 for middle-income households. Altogether households spent 58 percent of their total potential gas savings. Of that amount, households spent 24 percent — roughly $150 — at gas stations. They spent 34 percent — over $200 — on things other than gas, primarily on restaurants and retail. The remaining 42 percent might have been saved or otherwise spent on purchases not typically paid for using a debit or credit card, notably vehicles or other durables.
You can read the key findings of our report here. The following are a few of our observations.
- The fall in gas prices had meaningful impacts on households’ transportation choices. Households consumed more gas when gas prices fell. In 2015, this contributed to a reversal of the five-year trend of declining real gas consumption and vehicle miles traveled. In addition, we observed that households decreased spending on transit in response to lower gas prices. For every dollar saved from lower gas prices, households decreased their spending on transit by roughly 14 cents. This might imply lower ridership and revenues for public transit systems around the country and increased carbon emissions by motor vehicles.
- Lower gas prices benefitted the restaurant and retail sectors. Households spent roughly 34 percent of their potential gas savings on non-gas goods and services, primarily on restaurants and retail. These sectors which gained the most from lower gas prices in 2015 also potentially stand to lose the most if gas prices return to higher levels.
- Gas price fluctuations contribute to expense volatility, particularly for lower-income households. The drop in gas spending was equivalent to more than a one percent increase in annual income for low and middle-income households. Low-income households increasingly live in areas that lack reliable public transportation options and spend the highest fraction of their income on gas.
The goal of the JPMorgan Chase Institute is to help decision-makers use better facts, timely data, and thoughtful analysis to make smart decisions to advance global prosperity. Our hope is that the insights in this new report can inform policymakers, business leaders, and others as they confront challenges including inequality, climate change, and transportation infrastructure.
Diana Farrell is the founding President and Chief Executive Officer of the JPMorgan Chase Institute. Previously, Diana was the Global Head of the McKinsey Center for Government and the McKinsey Global Institute. She served in the White House as Deputy Director of the National Economic Council and Deputy Assistant to the President on Economic Policy.
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