Two new tools from the University of Michigan Energy Survey are tracking consumer attitudes about the cost of energy, how consumers react to changes in energy prices, and how consumer attitudes about the cost of energy changes over time.
Both the Gasoline Affordability Index and the Home Energy Affordability Index grow out of two years of quarterly surveys of a total of 3,400 Americans, who were asked how they feel about their home energy bills and what they pay to gas up their cars. The survey tracks several consumer attitudes about energy costs, including how high prices would have to climb before the household would feel the cost was unaffordable and would force a change in lifestyle to handle the increased expense.
The energy survey is a joint project of the university’s Energy Institute and U-M’s Institute for Social Research. The polls runs as part of the Surveys of Consumers, which is the source of the nationally recognized Index of Consumer Sentiment.
The gasoline index and home energy index differ from economic analysis that views energy costs as a slice of the household standard of living, and whether the percentage of income eaten up by energy costs is increasing or decreasing. Instead, the U-M Energy Survey asks a few very direct, effective and simple questions: “At what price per gallon would gasoline get so high that it becomes unaffordable to you?” and, “At what dollar amount would that home energy bill become unaffordable to you and your family?”
The definition of “unaffordable” is the point where household members would need to make significant changes to their lifestyle, such as carpooling or using mass transit or cutting back spending in other parts of the family budget to cover the cost of fueling their cars and paying their home energy bills.
Over the first two years of the Energy Survey, gas prices would have needed to increase by about 80 percent for most households before filling up the tank became unaffordable. The majority of households say that level is around $5.50 a gallon. If the gasoline index is at 0, it means consumers are on the threshold of finding prices at the pump to be unaffordable. If the index is at 100, it means prices would more or less need double before causing significant financial pain.
On home energy, the first several Energy Surveys have found that that cost would need to double before it got to the level of being unaffordable, for the majority of people surveyed. Naturally, households in the bottom third of incomes were somewhat more sensitive to price increases in both gas and home energy, and had lower limits to how high prices could climb before becoming unaffordable.
Overall, the first two years worth of survey results on gasoline and home energy – and each corresponding index – show that consumers are more sensitive to gasoline prices than to home energy costs. Partly, the Energy Survey researchers conclude, this is because consumers frequently pay home energy costs by automatic payments or through level-billing programs where costs don’t fluctuate from month to month. In comparison, gas prices are in the news every week, and consumers may be filling up their cars as often as twice a week. That makes consumers particularly sensitive to changes in the price they see at the gas station.