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.

In contrast to the changing views on the costs of gasoline, consumer perspectives on home energy costs have been relatively stable. The error bars shown for each quarterly point on the affordability index trends reflect two standard deviations, i.e., a 95% confidence interval. So statistically speaking, we can see that consumer perceptions of home energy affordability have rarely changed in any significant way over the past three years. The average since we started the U-M Energy Survey is an index level of 126 for home energy affordability.

What’s notable when examining the error bars is how much wider they are for home energy than they are for gasoline. That reflects how the responses on home energy are much more variable than they are on gasoline. We suspect that this statistical “squishiness” for home energy 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.

In any case, this year has consumers feeling similarly about how well they can afford both gasoline and home energy. That’s a contrast with the situation two years ago when (as also seen in the chart) they felt that gasoline was only about half as affordable as home energy on average.