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. Continue Reading

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.
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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.

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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 the Affordability Indices Overview for background on how each index is calculated.

Introducing the Energy Affordability Index

The University of Michigan Energy Survey has developed a new way to measure how affordable Americans think energy is. Based on responses to questions that elicit consumers’ individual feelings about what they pay for home energy and gasoline, we compute an index that reflects how high an energy expense would have to rise before their household would find it unaffordable. In this context, “unaffordable” doesn’t mean that the consumer could not afford to buy gasoline at all, for example. Rather, it means that the price has gotten so high that the consumer believes they would have to make changes in their lives (drive less, for example) because of the cost.

We modeled the energy affordability index on the widely reported index of consumer sentiment generated by the University of Michigan Surveys of Consumers (“SCA”). The energy survey is conducted as a quarterly rider on that long-running monthly survey. Adopting the methods used by the SCA, the energy survey probes consumers’ personal cost thresholds by asking respondents how their high energy expenses would have to go to become difficult to bear. This psychological rather than economic approach provides a clear picture of what consumers really feel about the issue at any given point in time.

An affordability index of zero indicates that consumers already feel that the given energy expense is unaffordable. An index value of 100 indicates that consumers believe the cost of energy would have to double before they would view it as unaffordable.

This initial report on the energy affordability indices is based on two years of quarterly survey data, comprised of eight samples starting in October 2013 and gathered every three months through July 2015.

Over this two-year period, the average affordability index for home energy was 125, indicating the Americans on average believed they they could afford more than a doubling in their home energy costs. Gasoline, however, is viewed as significantly less affordable than home energy. The average affordability index for gasoline over the past two years was 80, meaning consumers on average would find motor fuel to be unaffordable at a price notably short of twice what they’ve been paying.

The home energy affordability index was fairly stable over this period. That’s in contrast to the situation for gasoline, where the affordability index increased as the price fell in the second half of 2014 and early 2015 before rising again this past summer.

For more about these new results on on energy affordability, download the report:
How Much of an Increase in Home Energy and Gasoline Costs Do People Think They Can Afford?

For further details on the method, see Energy Affordability Indices: An Overview.

Americans again feeling a bit more pain at the pump

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

How affordable is gasoline? Consumers’ answers to that question naturally change as the price of gasoline goes up or down. And being tied to world oil prices, gasoline has the most volatile price among the forms of household energy.

To measure how consumers feel about the affordability of energy, we ask them how much higher its price would have to be before they consider it unaffordable. For gasoline, that means that the price at the pump becomes so expensive that consumers feel they would have to make changes in their household activities.

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Figure 1. Average gasoline price that U.S. consumers say they would consider unaffordable compared to the national average retail gasoline price, quarterly data Oct 2013 – July 2015

Figure 1 compares responses to that question to the average price of gasoline when each quarterly energy survey was performed. The price considered unaffordable declined over the past year, but notably much less than pump prices dropped. Averaged across all incomes, the gasoline affordability index jumps from 61 over the first five quarters of data to a mean of 138 in January 2015. It then declined as gasoline prices rose in the following months.

Consumers of different income levels have a different sense of how much they can afford to spend before a given expense seriously dents their budgets. The sensitivity of the affordability index to household income can be seen in Figure 2, which plots it according to income tercile.

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

Consumers in the top income tercile stand out; their average gasoline affordability index of 99 indicates that the pump price would have to essentially double before they found it to be unaffordable. In contrast, the gasoline affordability index values of 75 and 67 for middle and lower income consumers, respectively, show that pump prices would not have to go up nearly as much before those households felt crimped by the cost.

 

What if gas became unaffordable? Americans say they are most likely to use different transportation

ANN ARBOR — This summer, in most parts of the country, average pump prices have been nearly a dollar per gallon lower than the previous three years. But the price of oil can be quite volatile, and so what do consumers say they’d do if gasoline became unaffordable?

Personal vehicles are a staple form of transportation for most U.S. consumers, whether for traveling to work or escaping to distant places. Moreover, cars have a long-standing symbolic link with Americans’ sense of independence. Not surprisingly, pressures to reduce car use often evoke psychological resistance.

at-5-69-on-dark-skySince its inception in October 2013, the U-M Energy Survey has asked a representative nationwide sample of consumers, in an open-ended format, about what they would do differently to get around if gasoline prices reached a level that they thought would be personally unaffordable. In a separate question, the survey asked what level pump prices would have to reach before they were viewed as unaffordable, and the average answer has been in the range of $5.50 to $6.00 per gallon.

Averaging across the past seven quarters of data (October 2014 through April 2015), the survey respondents who own a personal vehicle consistently reported the most willingness to use different modes of transportation (e.g., public transportation, biking, walking). Such a response was given by almost half (47%) of those surveyed. The next most common response, given by 34% of consumers, was that they would drive less (34%).

Other responses to the question were driving a smaller or more efficient vehicle (19%) and carpooling (17%). Fewer (9%) reported that they would consolidate the number of times they drove (combine trips). Very few (3%) said that they would not change their travel behavior.

The nearly two-year period examined by the U-M Energy Survey to date saw some notable swings in gasoline prices, with the national per-gallon average ranging from a high of $3.75 in June of 2014 to a low of $2.17 this past January. Nevertheless, most responses to the travel behavior question changed little over this period. The only notable change was in the most recent sample (April 2015), when a significantly greater proportion of respondents (54%) said that they would use different transportation (compared to 48% or fewer consumers in previous quarterly samples).

Digging deeper into the data, we do find a greater difference in how consumers say they would alter their travel behavior based on self-reported income. Consumers in the lowest income bracket were more likely than those in the middle and top brackets to say they would use different transportation (55% vs. 44% and 40%). Respondents in the middle income bracket were somewhat more likely than those in the low and top brackets to say they would drive less.

Notably, consumers in the lowest income bracket were least likely to say they would drive a smaller or more efficient vehicle. A car with higher gas mileage per gallon would reduce a consumer’s driving costs; however, a limited family budget is a clear barrier to acquiring a different vehicle.

For a closer look at the data, download our technical brief on this topic.

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The U-M Energy Survey is administered four times a year through a set of questions added quarterly to the Thomson Reuters/University of Michigan Surveys of Consumers, conducted by ISR since 1946.

University of Michigan Energy Institute
The demand for economically and environmentally sound energy solutions is urgent and global. The Energy Institute builds on the University of Michigan’s strong energy research heritage at the heart of the nation’s automotive and manufacturing industries to develop and integrate science, technology and policy solutions to pressing energy challenges.

Institute for Social Research
Established in 1949, the University of Michigan’s Institute for Social Research is the world’s largest academic social science survey and research organization, and a world leader in developing and applying social science methodology, and in educating researchers and students from around the world.

Thomson Reuters/University of Michigan Surveys of Consumers
Based on telephone interviews with 500 U.S. households conducted every month, the U-M Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected.

Contact: Amy Mast, 734-615-5678, amymast@umich.edu

What if gasoline became unaffordable?

Personal vehicles are a staple form of transportation for most U.S. consumers, whether for traveling to work to escaping to distant places. Moreover, cars have a long-standing symbolic link with Americans’ sense of independence. Not surprisingly, circumstances or events that make it more expensive to drive can increase consumer anxiety, or at least increase their irritation. But what if the cost of driving — which on a day-to-day basis is determined by the price at the pump — reached a point where consumers felt they had to change the way they get around?

Since its inception in October 2013, the University of Michigan Energy Survey has asked U.S. consumers, in an open-ended format, about what they would do differently if gasoline prices reached a level that they thought would be personally unaffordable. Although in recent months the national average price of gasoline has been nearly a dollar per gallon lower than it was over the prior three years, fuel prices can be quite volatile. The possibility that pump prices might go up certainly lurks in everyone’s mind, and so understanding what consumers might do if gasoline became unaffordable can shed light on this important aspect of energy-related decision making. how-change-get-around_thru-apr2015

We analyzed the responses to such a question over the past seven quarters of cross-sectional data (October 2014 through April 2015). On a national average basis, Americans who own a personal vehicle consistently reported the most willingness to use different modes of transportation (e.g., public transportation, biking, walking).

That’s the longest bar in the accompanying chart, showing that almost half of consumers (47%) indicated they would use different transportation. The next most common response is that of the 34% consumers who said that they would drive less if gasoline prices reached a level they consider unaffordable. Less common responses, although expressed by a sizable number of consumers, were driving a smaller or more efficient vehicle (19%) and carpooling (17%). Fewer (9%) reported that they would consolidate the number of times they drove (combine trips). Very few respondents (3%) said that they would not change their travel behavior.

We also examined how the answers to the question broke down according to income. To read the full report, click the DOWNLOAD link at the top of this post.

Low gasoline prices do not seem to change what consumers feel they can pay

This past January brought the lowest gasoline prices that the country had seen in nearly six years. The national average gasoline price was $2.27 per gallon that month and many parts of the country saw pump prices below two dollars. Gasoline is clearly more affordable than it had been, but does the price drop affect what consumers think they can afford?

Businesses and policymakers might wonder whether people get comfortable with a given price range. In other words, would consumers think they can afford more once they get used to a price rise or, conversely, do they feel they can afford less when the price drops?

Two of the questions asked in the University of Michigan Energy Survey probe consumers’ “thresholds of pain” when it comes to energy prices. One asks how high gasoline prices would have to get before consumers felt it would cause them to have to make adjustments in their travel decisions. A similar question examines the limits of affordability for home energy, such as monthly electric and heating bills. This chart shows how the answers for gasoline price since the U-M Energy Survey started in October 2013 compared to actual national average pump prices over a similar time frame.

gasoline-unaff-vs-avg-price-thru-jan-2015The upper (red) curve shows the average responses to our question about how much gasoline would have to cost before consumers would find it unaffordable in the sense of greatly crimping their household budgets. This threshold averaged $5.61 (±0.08) per gallon over the six quarterly samples of October 2013 to January 2015. Although there is a hint of decline, it was not statistically significant even as pump prices plummeted in the months leading up to this past January. So even as consumers enjoy lower costs, their views of the price at which gasoline would become unaffordable have not really changed.

What has changed is the difference between the most that consumers feel they can afford—that is, their threshold of serious pain at the pump—and the price they were paying when we conducted the survey. The gap between those two prices provides a measure of how consumers themselves perceive the affordability of gasoline.

Our full report on this issue examines the responses on this question in more depth. It also compares what consumers say about the price of gasoline to their views on home energy bills, which have not seen the price fluctuations seen in motor fuel markets over the past several years. The report can be downloaded via the button at the top of this post.