Monday, June 30, 2008

Adjusted for Increases in Income & Fuel Efficiency, Gas Today is Almost 50% Below Record High

Yesterday's CD post of a graph of 1,000 gallons of gas as a percent of per-capita disposable income (top graph above) shows that we're still nowhere near record highs for gasoline, when measured as a share of income.

Warren Meyer at Coyote Blog thoughtfully suggested adjusting the analysis to account for the significant increases in fuel efficiency over time, see middle chart above, which shows the 64% increase in fuel efficiency from the early 1980s to 2005.

The bottom graph above shows the results of Warren's analysis (see his chart here), which calculates the percent of per-capita disposable income required to buy enough gasoline to drive 15,000 miles, at the average fuel efficiency in each month from 1980 to 2008. This adjustment for increased fuel efficiency makes the initial results even more dramatic.

After adjusting for: a) higher incomes and b) greater fuel efficiency since 1980, we are nowhere near record highs for gas. In fact, to match the 13.75% level in 1980 when average fuel efficiency was only 16 mpg (and gas was $1.26 per gallon and per-capita disposable income was $8,575), gasoline today would have to reach $7.53 per gallon, almost twice today's prices!

Bottom Line: Gas prices today are almost 50% below the record highs of 1980, after adjusting for higher incomes today and much greater fuel efficiency.


At 6/30/2008 9:10 PM, Blogger Ironman said...

Let's also not forget that individual Americans have not increased their consumption of things made from oil since at least 1982. The amount of finished petroleum products supplied to U.S. residents has held remarkably level all these years.

At 7/01/2008 5:39 AM, Anonymous Anonymous said...

Sigh, once again you exclude trucks. Fleet peak efficiency was achieved in 1988 and hasn't been surpassed since. Thank increased SUV and truck sales for that.

At 7/01/2008 8:19 AM, Anonymous Anonymous said...

An alternative way to view the cost of gasoline over time periods is to view it in terms of personal consumption expenditures (PCE).

Gasoline expenditures as a percentage of PCE peaked in 1981 Q2 at 5.8% and clocked in at 3.8% in 2008 Q1. The 2008 Q2 PCE data which will show a higher percentage will be out in a month or so.

See BEA Table 2.3.5U

This method would eliminate the bias of disposable per capita income concentration for the period in question.

At 7/01/2008 9:29 AM, Blogger Marko said...

So maybe this is why the economy continues to grow, and consumer spending has not collapsed, dispite the gas price increases.

Once the market bottoms, I am buying consumer discretionary sector. We are going to have alot of pent up demand when people realize the sky isn't falling. Maybe if Saint Obama gets elected, the constant doom mongering will stop and people will get back to normal (in fact, if Obama were president now, the high oil price would be spun as somehow a good thing).


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