What Do Gas Prices Tell Us About Consumer Spending?

What Do Gas Prices Tell Us About Consumer Spending?

By Diana Farrell, CEO, JPMorgan Chase Institute
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New #JPMCInstitute report shows true impact of lower gas prices on consumer spending. @jpmorgan Read it here: http://bit.ly/1FXUXrV

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Thursday, October 8, 2015 - 7:30am


There has been much speculation over the last few months about the decrease in gas prices and its impact on consumers’ financial habits. For some time, the general perception has been that consumers have been using their savings at the pump to pay down debt or build a financial buffer. However, much of the information used to support this theory has been from self-reported or aggregate, lagging data. 

With the average American household saving $700 in gas spending in 2015, we knew that the JPMorgan Chase Institute could use its unique, real-time data to better understand what individuals are doing with their savings from the pump.

Today, the Institute is releasing its newest research report: How falling gas prices fuel the consumer: Evidence from 25 million people.

By building an anonymized, aggregated data asset of 25 million Chase debit and credit card customers, we analyzed who is impacted by the change in gas prices and how spending patterns changed after prices went down.  One thing is clear: consumers are spending more of their gas savings than initially estimated.

According to our data, they’re spending about 80 percent of their savings from lower gas prices.  Recent government estimates comparing the first quarters of 2014 and 2015 suggest that consumers spent only 45 cents for every dollar saved on energy, but our data show that they’re spending significantly more of these savings and they’re spending it largely at restaurants (18 percent) and on groceries (10 percent), but also giving a boost to sales in department stores, entertainment, electronics and appliances.

By digging deeper with the JPMorgan Chase Institute’s unique data-asset, we uncover several significant findings.

  • Gas spending and the savings associated with gas price declines vary dramatically among U.S. individuals. When gas prices were still high, high-gas spenders spent $359 per month on gas using their credit and debit cards, more than triple the typical American, and low-gas spenders spent only $2 per month, less than 2 percent of the typical American.
  • The drop in gas prices represented more than 1 percent of monthly income for low income individuals and disproportionately impacted younger Americans. The savings at the pump were equivalent to a 1.6% increase in income for lower income Americans (when projecting total gas spending beyond credit and debit card transactions).  Although gas spending is highest among men, 30-49 year-olds, and high-income earners, spending on gas represents a larger share of income overall for men, 18-29 year-olds and low-income earners than for other individuals as a whole.
  • [As stated above] Individuals spent roughly 80 percent of their savings from lower gas prices. For every dollar less spent at the gas pump, individuals spent 73 cents on other things and up to 89 cents when projecting total spending beyond credit and debit card transactions.  They spent it largely at restaurants (18 percent) and on groceries (10 percent), but also gave a boost to sales in departments stores, entertainment, electronics and appliances.
  • Consumers in the South and Midwest spent more on gas and saw larger increases in disposable income when gas prices declined relative to consumers on the East and West coasts. In the South and Midwest, “higher impact states,” people saw the largest percentage declines in gas prices and gas spending as a percent of income. In the East and West, “lower impact states,” people saw smaller drops in gas prices and gas spending as a percent of income. Initially, people in higher impact states typically paid lower gas prices and consumed more gas than people in lower impact states.

It’s also worth noting that the top states for average monthly gas spending during this time period were West Virginia, Indiana, Louisiana, Texas and Ohio. Notably, the top five counties for gas spending were in Arizona (Greenlee), Louisiana (Cameron and Allen) and Texas (Armstrong and LaSalle).

With this information, we know that robust consumer spending could continue if gas prices remain low or continue to decrease over time. Conversely, a substantial increase in gas prices might proportionately dampen consumer spending.

The goal of the JPMorgan Chase Institute is to provide decision makers with the level of data, facts and analysis necessary to make smart economic decisions.  A better understanding of the impact gas prices have on consumer spending, will allow policy makers, business leaders and others to make more informed decisions as they shape economic policy.

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.