Energy affordability evens out in 2016

For the first time since the start of our quarterly Energy Survey, home energy and gasoline have run neck-and-neck in terms of affordability for an entire year. That is to say, 2016 saw no statistically significant difference between the two indices, a situation never before observed for four consecutive quarters. Though customers recently feel similarly about the costs of gasoline and home energy within each quarter, the affordability scores for both have dropped significantly since peaking in January. The gasoline affordability index, which tends to vary seasonally, dropped 41 points from January to July. The index for home energy dropped only half as much, by just under 21 points. 

Note that the error bars are much wider for home energy than they are for gasoline, which reflects how consumer responses about the affordability of home energy are much more variable than they are for gasoline. We suspect that this statistical “squishiness” of views on home energy costs may have something to do with consumers not having as clear an idea of what they pay for home energy as they do for the price of gasoline. The latter is, after all, highly visible and something most Americans get to look at weekly, which is about how often motorists have to fill their tanks. In contrast, home energy is billed monthly. Also, more and more consumers are on an auto-pay plan, and so may not have a very precise recollection of their electric and other home energy bills when we ask about them during the survey.

Consumer views on the affordability of home energy have been remarkably stable over time. The 2016 average score of 127 is only slightly (and insignificantly) higher than the pre-2016 average of 124. In contrast, consumers have found gasoline to be significantly more affordable in 2016 than in past years. The 2016 gasoline index average of 124 is nearly 50% greater than the pre-2016 average of 84. The jump perceived affordability is largely explained by the price at the pump. In 2016, the national average retail price of all grades of gasoline was $2.25 per gallon, significantly lower than the of $3.08 per gallon average from October 2013 (our first quarter of Energy Survey data) through 2015. This pattern also reflects the fact that consumer responses to our survey question about “What would the price of gasoline have to reach before it became unaffordable to you?” did not change much when gasoline prices fell.

In any case, 2016 has consumers feeling similarly about how well they can afford both gasoline and home energy. That’s in contrast to what we saw over the first five consecutive quarters of Energy Survey data, when consumers on average felt that gasoline was only about half as affordable as home energy.

Concerns about energy’s impact on the environment continue to edge out concerns about affordability

With three years and counting of data, a clear trend has emerged: consumers are more concerned about how energy impacts the environment than they about whether it is sufficiently affordable and reliable. The extent to which consumers worry about reliability — that is, whether their lights stay on and the fuels they need are readily available — has consistently lagged their concerns about energy costs and environmental impacts.

Over the first four quarterly samples starting with the launch of the U-M Energy Survey in October 2013, the difference between the levels of concern about the environment and about affordability was not statistically significant, even though the average for the environment was nominally higher than that for affordability. However, the significance of the gap grew as additional data came in. By the second year, we were able to report that the environment had pulled ahead of affordability as Americans’ top energy-related concern. As seen in the chart below, based on data over the first three years of the survey, concern about affordability has lessened a bit in 2016 while concern about the environment has remained strong in spite of some transient ups and downs.   

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On the seasonal trend of gasoline affordability

Over the course of each year we’ve conducted the Energy Survey to date, consumers find gasoline to be most affordable in the winter, when our January sample is taken. These responses — plotted in the chart below — show how consumers feel that gasoline is less affordable at other times of the year, as reflected in notably lower affordability index values derived from the spring (April), summer (July) and fall (October) quarterly samples. For reference, an affordability index of 100 means that the fuel price would have to double (i.e., rise by 100 percent) before consumers would consider it unaffordable. (See this overview of how the affordability index is calculated.) 

As of the most recent survey data we analyzed in July 2016, the gasoline affordability index was 104. That’s down nearly fifty points from what it had been in January when it reached a value of 152, which was the highest level of perceived motor fuel affordability since the U-M Energy Survey began in October 2013. Over the first five quarters of the survey, the gasoline affordability index was well below 100, reflecting the fact that gasoline prices had been much higher than they have been more recently.Continue Reading

Energy affordability trended down in first half of year

The beginning of 2016 found American consumers feeling that energy was more affordable that it had ever been since we began our systematic quarterly surveys on the topic three years ago.

As seen in the chart below, the perceived affordability of gasoline reached an all time high of 152 in January. That means that pump prices would have to rise by a factor of 2.5 before they really began to pinch the pocketbooks of the average American consumer. That month, the national average retail gasoline price was $2.06 per gallon, the lowest it had been since prices briefly plummeted in late 2008 into early 2009 during the economic meltdown.

Since then, gasoline prices have risen a bit, reaching an average of $2.41 per gallon in June and July, by when the gasoline affordability index had dropped to 104. Nevertheless, that’s still more affordable than it had been through fall 2014. Over the first year of the Energy Survey, which was launched in October 2013, U.S. pump prices averaged $3.54 per gallon, and during that period, consumers felt that gasoline was only about half as affordable as home energy.Continue Reading

Consumers’ perceived affordability of gasoline rises with income, but not by as much as one might think

Results from the U-M Energy Survey give us unique insights into how consumers feel about the affordability of motor fuel, which is a major concern for many Americans. The overall gasoline affordability index — which we update quarterly in Energy Survey Indices sidebar on our home page — reflects the average view of all consumers nationwide. It blends together the responses of our diverse, nationally representative sample, averaging over their socioeconomic backgrounds as well as gender, race, age and geographic location. 

Naturally, we expect consumers’ incomes to affect how affordable they perceive energy to be. This is true in general, with higher income consumers reporting higher levels of affordability. However, we also find that the perceived affordability of gasoline does not rise as much as one might think given the large spread in household income across the population. 

The chart below shows how the affordability of gasoline varies according to the five income quintiles, where each quintile represents 20% of the population. It plots the gasoline affordability index by quintile of self-reported household income over the 11 quarters of Energy Survey data gathered to date. The patterns through time are similar to the overall trends in the affordability index as previously reported. All consumers felt that motor fuel became much more affordable after gasoline prices fell in late 2014. Perceived affordability peaked this past January, when pump prices had fallen to a national average of $2.09 per gallon. 

aff-ix-g-by-income-thru-apr2016

One thing that stands out is how the affordability index level for the 5th quintile (consumers with the highest incomes) is so much higher than the levels for the 4th and lower quintiles. In contrast, there is no significant difference in gasoline affordability as viewed by respondents in the bottom two quintiles, who comprise the lower 40% of consumers by self-reported income.

Both bottom quintiles have an average gasoline affordability index of 88 over the 11-quarter period, significantly below the 100 level which indicates that gasoline prices would have to double before being seen as unaffordable. The index is in fact 100 for households in the 4th (second highest) income quintile, a level 8 points higher than the middle quintile but 24 points lower than that of the top quintile.

In 2016 so far, that difference in perception between the top and 4th quintiles has grown to 35 points, while the difference between the top income consumers and the bottom two quintiles has reached 57 points. That’s notably greater than the 31 point spread seen over the previous 9 quarters. 

In short, perceptions regarding gasoline affordability tend to diverge as income rises. These findings about a commodity that is a essential expense for most Americans seem to echo the nation’s general concerns about economic inequality. 

Consumers feel that gasoline is a bit less affordable than they said it was last winter

The affordability index for gasoline fell by 23 points from its mid-winter value of 152, which was based on the University of Michigan Energy Survey taken in January 2016. Although by April pump prices only went up 13 cents, to $2.19 per gallon, that was enough to push the gasoline affordability index down to 129. Back in January, when the U.S. average retail price of gasoline dipped to $2.09 per gallon, American consumers  felt that gasoline was more affordable than any time since our quarterly surveys started in October 2013.
pump-prices_2-19_06nov2016
Our affordability index is based on comparing the energy costs that consumers say they would find to be unaffordable to the actual costs — in this case, the average gasoline price — they experience when each quarterly survey is taken. As explained in our Overview of how the indices are calculated, an affordability index of 100 means that consumers believe energy prices would have to double (i.e., see a 100% increase) before they were considered unaffordable. In this context, “unaffordable” means that the energy cost has become so high that consumers feel they would need to change their day-to-day activities in some way. When consumers report that the price they find unaffordable is the same as what they currently pay, then the affordability index is zero.

Statistically speaking, the April 2016 gasoline affordability index, at 129 (±7), was not significantly different than the home energy affordability index of 135 (±11) that month, meaning that on an overall, national-average basis, American consumers believed that home energy and gasoline were equally affordable. In other words, those costs would have to more than double before most consumers would feel seriously pinched by what they pay for energy.

April2016 AI graphFor home energy, little trend was found when comparing its affordability index in April to the previous ten quarters. In April 2016, consumers said that they spent an average of $159 per month on home energy bills. They also responded, on average, that they would find a monthly energy bill of $326 to be unaffordable. Although both reported home energy bills and the size of energy bill consumers say they would find unaffordable have fluctuated over the past two years, the ratio between the two has not changed in a statistically significant way. Therefore, the home energy affordability index has not changed significantly since we launched the U-M Energy Survey nearly three years ago.

The situation is, of course, quite different for gasoline, since pump prices have been much more volatile than home energy costs. But for going on two years now, that volatility has been downward and so has helped consumers at the wallet. Oil prices fell from averages around $100 per barrel in recent years through summer 2014 to the $40-$50 per barrel range since then. As a result, the U.S. average gasoline price dropped from levels above $3.50 per gallon through August 2014 to an average below $2.50 per gallon over the past year and a half.

In responding to our survey question about how high the price of gasoline would have to become before they found it to be unaffordable, consumers name a price in the vicinity of $5.50 per gallon. That’s more than double the recent pump price but well less than double what gasoline prices were over two years ago. As a result — and as shown in the chart above — the affordability index for gasoline has risen significantly, and April 2016 makes for the third quarter in a row that consumers view gasoline to be just as affordable as home energy.

For further detail on our latest affordability indices, download our short report in PDF format.

How affordable is our energy? Here’s what consumers say as of January 2016

The January 2016 University of Michigan Energy Survey finds a record high in how consumers perceive the affordability of gasoline. 

Over the past six months, consumers’ beliefs about the maximum price of gasoline that they feel they can afford has been on the rise.  The latest quarter of energy survey data — gathered from polling conducted in January 2016 — reveals a 40 point jump in the gasoline affordability index, from 112 in October to 152 in January.  On average across the United States, consumers paid $2.41 per gasoline for gallon.  Averaged across all demographic groups, Americans believe that gasoline would become unaffordable if it reached $5.48 per gallon.

Aff-indices-thru-Jan2016

A year ago, the January 2015 energy survey pegged the gasoline affordability index at 138, which was a new high at the time and reflected a large gain in consumer comfort about pump prices compared to the previous two years.  After dipping again over the remainder of 2015, the January 2016 data sets the new high at 152. Now, consumers believe that gasoline would still be affordable if its price increased by a factor of 2.5, corresponding to the 152% increase represented by the affordability index. (Background on how the the index is calculated from the survey data is given in our Affordability Indices Overview report.)

For home energy,  the affordability index of 137 in January 2016 remained similar to that of the previous quarters.  On average, survey respondents said that they paid $159 per month for their home energy. They told us that a monthly energy bill of $356 would be unaffordable. In other words, even if its cost were to slightly more than double, most Americans would still find home energy to be affordable in terms of their current lifestyle.

See our latest energy affordability report for more details.

Americans feeling much better about the price at the pump

The latest University of Michigan Energy Survey finds a 27 point increase in the gasoline affordability index; home energy affordability remains similar to what it was in the previous quarter. 

Last quarter, in July 2015, consumers believed that a doubling in the per-gallon price of gasoline would not quite be affordable. However, based on polling conducted during October 2015, the energy survey’s latest data reveal that consumers now feel that motor fuel is much more affordable. The gasoline affordability index jumped by 27 points, from a value of 85 in July 2015 to 112 as of October. Federal data show that nationwide, consumers paid an average of $2.41 per gallon in October. When we asked consumers how high the price would have to get before they thought it was unaffordable, the average response was $5.44 per gallon. The resulting affordability index of 112 indicates that, as of October, consumers believe that the price of gasoline would still be affordable even if it were to double.

Aff-indices-thru-Oct2015

Although the gasoline affordability index increased from the last quarter to the present, 112 was still significantly below its high of 138 in January 2015.

Consumers’ views of home energy affordability in October are similar to what they were over the previous eight quarters. In October, the home energy affordability index was 122, indicating survey participants believe more than a doubling in monthly costs would still be considered affordable.  In other words, consumers paid an average of $170 per month for their home energy needs and believed $342 per month would be their max affordability.

According to the latest energy survey data, Americans find gasoline and home energy to be similarly affordable, as seen in how the two trend lines nearly touch as of this past October.

See our latest Energy Affordability Report for more details and the Affordability Indices Overview for background on how each index is calculated.

Are women the fairer and more pro-environmental sex?

At the Energy Survey, we’ve examined the responses of American consumers as influenced by a number of different factors including income, geographic region and age. All of these have given us wonderful insights. However, we haven’t discussed one of the most compelling variables until now, which is gender. Based on our survey, women and men exhibit significantly different opinions, especially regarding environmental issues. This has been true throughout the ten quarters of data analyzed thus far. 

To analyze the responses to the questions that probe consumer concerns, we utilize a 4-point Likert Scale. A value of 1.0 indicates the lowest level of concern (e.g., “not at all” concerned) and 4.0 the highest (concerned “a lot” or “a great deal”). An average of 2.5 reflects a neutral group response. 

In our survey, men profess to know more about energy than women, which might suggest that men would be more concerned about the environmental effects of energy. However, the opposite is true. Although women express less confidence about their knowledge of energy, their responses exhibit a significantly greater sensitivity to its impact on the environment. 

Firstly, women are more worried about the environmental impacts of energy. While it is true that women seem to worry more about other topics covered in the survey (such as the affordability and reliability of energy), the difference between the genders is greatest in regards to environmental impact. In other words, it’s not just that women might tend to be “worriers” overall. Rather, they have a particularly elevated level of concern about the environment, at least when it comes to the effect of energy.

Secondly, despite a perceived lack of knowledge, women maintain that their energy affects the environment to a greater degree than men. Both genders believe the effect is greater than neutral, however men are much more likely to say that energy does not affect the environment at all. Although our survey does not isolate environmental professionals we suspect that — regardless of their own gender — they would side with women.

Home Energy Affordability Index

Findings based on data from 8 Quarterly Samples, Oct 2013 – Jul 2015

American consumers’ views on their home energy costs has remained stable over the past two years. The national average home energy affordability index measured by the University of Michigan Energy Survey stood at 125 as of July 2015, a level that has varied little statistically speaking since the U-M Energy Survey began in October 2013.

Aff-index-H-thru-Jul2015

Figure 1. Average home energy bill that U.S. consumers say they would consider unaffordable compared to their self-reported energy bills, Oct 2013 – July 2015

The affordability index is based on comparing the most that individual consumers say they can afford to their recollection of what they’ve been most recently paying for home energy at the time the survey was made. This comparison is shown in Figure 1. Overall, across all income brackets and 8 quarters of data, consumers reported spending an average of $160 per month on home energy. In reply to the question about how high their home energy bill would have to be before they considered it unaffordable, they gave an average response of $340 per month.

Aff-index-H-by-income-thru-Jul2015

Figure 2. Home energy affordability index by income tercile, Oct 2013 – July 2015

Figure 2 shows how views on energy affordability vary by income bracket. In line with what one would expect, the higher the household income, the more affordable energy is perceived to be. For consumers in the lower income tercile, whose self-reported household income averaged $23,000 annually, had an average affordability index of 104. That means that they would find home energy (electricity, natural gas and other household fuels) to be unaffordable if its costs were to roughly double. Middle income (averaging $61,000) consumers had a somewhat greater affordability index of 124. For consumers in the highest income tercile (averaging $166,000), the affordability index was 152, implying that their monthly bills would have to go up by a factor of roughly 2.5 before they would view home energy as costly enough to induce them to make changes in their lives.

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