The direction of consumer spending has implications for broader economic activity. If income growth slows while gasoline prices rise, overall spending could be negatively impacted as less money becomes available for more discretionary categories.
Since the start of the year, the average retail price for regular gasoline has risen from $3.22 to $3.84 per gallon, an acceleration of 19%. The amount of gasoline supplied in the latest release from the EIA registered 8.01 million barrels per day (-15.3% y/y), down compared to the 9.46 million in the same week last year. At the June 2022 high, the average cost for a gallon of gas reached $5.01, but the amount of gasoline supplied declined by -9.9% y/y. This dynamic would suggest consumers have become more price sensitive to increases in the price of gasoline.
In terms of the broader consumer demand, real personal consumption expenditures (PCE) for August slowed to a m/m pace of 0.05%, compared to 0.64% last month. On a y/y basis, real PCE decelerated to 2.3% y/y from 2.7%. Consumer spending on gasoline and other motor fuels accelerated 10.3% m/m on a nominal basis. The PCE price index for that category accelerated 10.7% m/m, which would imply most of the growth in that spending category came from consumers spending more on gasoline, not getting more gasoline. Looking back to June of last year, when the EIA-reported average gas price peaked, we saw a similar setup in PCE and PCE prices, followed by weaker m/m growth rates.
We will continue to monitor gasoline prices and demand for insight into consumer spending trends. The direction of spending will likely impact the trajectory of broader economic activity.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Economic Analyst
Boyd Watterson Asset Management, LLC