Why gas prices haven’t squelched the recovery — yet
Here’s one reason high gas prices haven’t blunted the U.S. economic recovery — at least so far. The Wall Street Journal’s Ben Casselman reports that the average American household actually spent $25 less on energy costs this winter, compared to last.
How can that be? Two things to bear in mind are that this winter was freakishly warm and natural gas prices are spectacularly cheap. Add those up, and heating bills have plummeted for the vast majority of Americans who heat their homes with electricity or natural gas. At $643, the typical natural-gas heating bill between October and March was $204 smaller than the average of the previous five years. (On the other hand, the 7 million Americans who use oil to heat their homes paid about $26 more this winter, particularly in the Northeast, though this represents just 6 percent of all households.) That drop in heating bills has offset the pain from rising gasoline prices. In the aggregate, Americans aren’t seeing their wallets squeezed by energy prices — yet.
But that’s just the winter. Spring’s about to bloom and, barring an apocalypse, summer will soon be upon us. Not only does driving tend to go up during the warmer months, but gas prices usually tick up about 50 cents per gallon in the summer. (That’s because refiners stop blending gasoline with cheap butane and swap in more expensive ingredients that don’t evaporate as easily in the heat.) What’s more, Americans will turn off their heating units and flip on their air conditioners, which means they’ll be relying less overall on cheap natural gas.
“If natural-gas prices stay low,” writes Casselman, “they’ll help keep electricity bills in check during air-conditioning season, but that likely won’t be enough to make up for higher gasoline bills, especially if oil prices stay on their current upward trajectory.” And if those higher gasoline bills cut into consumer spending elsewhere, that could act as a drag on the recovery. (How much drag is still a matter of some debate, as Michael Levi explains.) The economy has been able to gallop past soaring crude oil prices this winter, but there’s no guarantee that will last.