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Can We Handle $4 Gas?
By Morgan Housel, The Motley Fool
March 07, 2012
Can We Handle $4 Gas?
Some excerpts :
How? For one, there's little sign that rising gasoline prices are causing consumers to retrench in a meaningful way -- yet, at least. Despite higher gas prices, "consumer spending on clothing and accessories was up 5.3% versus a year ago, spending increased 4.3% at sporting goods, hobby, book, and music retailers, and the food and drinking establishment business increased by 8.2% year over year," S&P wrote.
There are a few reasons for this. Nominal incomes are rising, up about 3% in the last year. That doesn't make people richer -- inflation ate away most of the gain -- but it does offset part of the rise in gas prices. People are also driving less and doing it in more fuel-efficient vehicles. And after defaulting or refinancing on painfully high mortgages, households have much more flexibility now than they did a few years ago. In 2007, debt payments made up 14% of an average household's disposable income. Today, it's 11%. That makes a huge difference.
But it was this line in S&P's report that caught my attention: "While consumers are definitely paying more at the pump, many consumers are benefiting from the lowest winter heating bills in years due to the combination of natural gas prices and the exceptionally mild winter in the northeastern U.S."
Surging gas prices could wallop consumers if you assume all else is equal. But it's not. Recent headlines that read "Home Heating Costs Fall to Lowest Point Since 2001" draw less attention than those detailing higher gasoline prices, but they're just as important to households' finances.
Natural gas -- which heats about half of U.S. homes -- has fallen 40% in the last year, with prices now near a decade low. The Energy Information Administration estimates that the average home that heats with natural gas will spend $204 less this year than they have during the average of the last five years. For a household using 60 gallons of gasoline per month, that savings offsets the entire recent spike at the pump.