By Michael McKeown, CFA, CPA - Chief Investment Officer
Consumers are feeling a slight pinch at the gas pump these days. Gas prices are up from the national average last summer. The level increased from about $2.30 to the $2.80 zone this summer.
Oil prices typically peak in the summer months as the producers squeeze consumers during the peak driving season. After September 1st, prices tend to drift lower for the rest of the year.
In the big picture of economic expansions, looking at gas prices is important. Gasoline and other commodities are inputs into costs consumers and businesses must face. Steady prices of commodities make it easier for planning and allow economies to continue growing. Increases in inflation tend to squeeze customers which in turn brings about lower demand and economic slowdowns (or recessions).
Where are we today? Gas as a percent of personal consumption is only 2.3%, below the 3% average of the last 60 years. This is a sign that consumer budgets can withstand higher gas prices.
Looking at it another way, gas prices as a percent of average hourly wages are at 13%. In the past, when this went above 15%, it provided a warning prior to the recessions in 1980 and 2008. Today wages are rising by about 3%, so if we see gas prices spike higher quickly, it could start to squeeze consumers.
The seasonal period is favorable for consumers coming up, but gas prices are something to monitor into 2019.
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