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Let's examine gasoline first. Looking at price alone provides limited information, because a variety of factors have changed over the years: inflation, incomes, fuel efficiency, number of cars per person. To account for these I produced a chart tracking the number of hours a person needs to work to buy a year's supply of gasoline for the car(s) he owns, currently around 540 gallons per car. Though fuel efficiency has improved significantly from 700 gallons/car in 1967, the number of cars owned per person has grown quite dramatically, going from 0.50 in 1967 to 0.78 currently. All of these factors are combined in the chart below (click to enlarge).
Data: EIA, DOT, FRB St. Louis
For those on minimum wage (currently ~$12.000/yr) driving has has quite clearly become a luxury. But even for average wage earners (currently ~$37.000/yr) real gasoline costs are back to the bad old days of the early 1980s. At current prices of $3.10/gal, they have to work for nearly a month just to pay for gas. No wonder, then, that even middle-class people are scaling down and looking for bargains.
Food expenses haven't become as burdensome, yet. The hour-cost of purchasing one unit of the Consumer Price Index for Food, as published by the Bureau of Labor Statistics, has risen for low-income workers but remained flat for average earners (chart below).
Data: BLS, FRB St. Louis
However, this situation may change quite rapidly if fuel costs remain elevated. Energy is a very important cost factor in food production because of the heavy mechanization and high usage of fertilizer and pesticides in US farming. During the past 12 months crude foodstuff and feed prices are up 20%, a jump that is only gradually now being passed through to consumers, as the crop cycle hits food processors. The chart below shows that there is a potentially large "pent-up" move in retail food prices relative to fuel.
Data: BLS, EIA
"Extracting" home wealth had up to recently boosted spending at the cost of increased monthly financial obligation payments. Such payments are now almost one-fifth of disposable income - a record high despite low interest rates. Of course, home loans don't actually "extract" anything; for this to happen homeowners must sell or refinance at a lower rate and save the monthly difference. According to studies done by the Fed only a minority of homeowners did this - the rest just spent the money.
Financial Obligations Ratio Chart: FRB St. Louis
According to a recent (2007) paper co-authored by Alan Greenspan and published by the Fed, net home equity extraction (i.e. after fees, taxes and points) had been running as high as 10% of disposable income in 2004 and again in 2005 but then declined to 4.5% in the third quarter of 2006 (click chart to enlarge). Given developments in the real estate and mortgage markets since then, it is certain that the extraction has dropped further, perhaps towards 2% of disposable income.
The difference between 4.5% and 2% translates to $230 billion less per year, or 5% of current annual spending at retail and restaurant establishments.
http://suddendebt.blogspot.com/
Let's examine gasoline first. Looking at price alone provides limited information, because a variety of factors have changed over the years: inflation, incomes, fuel efficiency, number of cars per person. To account for these I produced a chart tracking the number of hours a person needs to work to buy a year's supply of gasoline for the car(s) he owns, currently around 540 gallons per car. Though fuel efficiency has improved significantly from 700 gallons/car in 1967, the number of cars owned per person has grown quite dramatically, going from 0.50 in 1967 to 0.78 currently. All of these factors are combined in the chart below (click to enlarge).
Data: EIA, DOT, FRB St. LouisFor those on minimum wage (currently ~$12.000/yr) driving has has quite clearly become a luxury. But even for average wage earners (currently ~$37.000/yr) real gasoline costs are back to the bad old days of the early 1980s. At current prices of $3.10/gal, they have to work for nearly a month just to pay for gas. No wonder, then, that even middle-class people are scaling down and looking for bargains.
Food expenses haven't become as burdensome, yet. The hour-cost of purchasing one unit of the Consumer Price Index for Food, as published by the Bureau of Labor Statistics, has risen for low-income workers but remained flat for average earners (chart below).
Data: BLS, FRB St. LouisHowever, this situation may change quite rapidly if fuel costs remain elevated. Energy is a very important cost factor in food production because of the heavy mechanization and high usage of fertilizer and pesticides in US farming. During the past 12 months crude foodstuff and feed prices are up 20%, a jump that is only gradually now being passed through to consumers, as the crop cycle hits food processors. The chart below shows that there is a potentially large "pent-up" move in retail food prices relative to fuel.
Data: BLS, EIA"Extracting" home wealth had up to recently boosted spending at the cost of increased monthly financial obligation payments. Such payments are now almost one-fifth of disposable income - a record high despite low interest rates. Of course, home loans don't actually "extract" anything; for this to happen homeowners must sell or refinance at a lower rate and save the monthly difference. According to studies done by the Fed only a minority of homeowners did this - the rest just spent the money.
Financial Obligations Ratio Chart: FRB St. LouisAccording to a recent (2007) paper co-authored by Alan Greenspan and published by the Fed, net home equity extraction (i.e. after fees, taxes and points) had been running as high as 10% of disposable income in 2004 and again in 2005 but then declined to 4.5% in the third quarter of 2006 (click chart to enlarge). Given developments in the real estate and mortgage markets since then, it is certain that the extraction has dropped further, perhaps towards 2% of disposable income.
Chart: FRB, Sudden Debt
The difference between 4.5% and 2% translates to $230 billion less per year, or 5% of current annual spending at retail and restaurant establishments.
