Gas prices hit working classStudy says lower income people effectively pay 8 times more to fill up; broader economy could feel sting.
By Steve Hargreaves, CNNMoney.com staff writer
November 14 2007: 7:02 AM EST
NEW YORK (CNNMoney.com) --
Lower-income Americans spend eight times more of their disposable income on gasoline than wealthier residents do.
The disparity is dramatic. In Wilcox, Ala., people spend 12.72 percent of their income to fuel one vehicle, according to a new study from the Oil Price Information Service (OPIS). In Hunterdon County, N.J., people spend 1.52 percent.
The study illustrates the impact rising oil prices are having on people's budgets. Many economists have downplayed the effect gasoline prices will have on consumer spending. But with prices now pushing above $3 and studies like this, some say the economy may take a hit.
"It's stinging less in some areas than it is in others," said Fred Rozell, retail pricing director at OPIS, an energy research firm. "It's tough out there for a lot of people."
The most painful places to fill up were in Alabama, Mississippi or Kentucky. In each case residents there pay more than 11 percent of their income to fuel their car.
The five counties where resident are having the easiest time are in either New York or New Jersey. In both states, residents spent less than 2 percent of their income on gasoline, although that by no means suggests everyone there is so well off.
Income is obviously a big factor in the difference. In Wilcox, the median household income in 2004 was $19,682, according to the Census Bureau. That means half the people earn more than that amount, and half earn less. In Hunterdon County, median income was $87,701.
"When I looked at this, I said, 'How do people live on $17,000 a year,'" said Rozell.
Rozell said another big factor in the gap was the amount people drive. In Alabama, the average person drives 13,000 miles a year. In New York and New Jersey, the average yearly commute was just 8,374 miles, thanks largely to better public transportation.
And gas prices also play a role. New Jersey, with its multiple refineries and low state taxes, often has the cheapest gas in the nation. As of Tuesday, the average for a gallon of regular in the Garden State went for $2.905. In Alabama it was $3.026.
The study shows that the amount people spend on gasoline as a percentage of their income has about doubled since 2002. In that period, gas prices have tripled and oil prices have soared nearly five-fold. Nationally, Americans spend 3.8 percent of their income fueling one vehicle, versus 1.9 percent in 2002.
Saving money at the pump
The study may seem to contradict other reports that say Americans spend proportionally less of their income on gas than they used to. The OPIS study uses 2002 as its starting point, a time when gasoline prices were relatively cheap at just more than $1 a gallon and wages were fairly high following the go-go 1990s. Since that time, wages have been fairly static while gas prices have soared.
Other studies have said it's relatively cheaper for Americans to drive now than it was in the early 1980s.
In 1980, the average American had to work 105 minutes to buy enough gas to drive the average car 100 miles, according to a study by David Wyss, chief economist at Standard & Poor's. By 2006, the average American needed to work only 52 minutes, thanks in part to better fuel efficiency but mostly due to higher wages.
Still, economists will be looking at the numbers closer to 2002 when trying to figure out if these high gas prices are going to crimp consumer spending, which accounts for over two-thirds of the nation's economic growth.
Whether consumer spending has been hit is still an open question. Over the last few months, auto sales are down and retail sales have been mixed. But experts point to the credit crunch and troubled real estate market, saying it's hard to pin consumer spending problems on rising energy costs alone.
Past gasoline spikes above $3 a gallon have usually amounted to short blips prompted by a major event, such as the Lebanon and Israeli war or Hurricane Katrina. With national average gas prices now over $3 in a time of year that is usually a period of low gas demand and prices, some experts say the economy could feel the sting.
"We're going to see the consumer pull back a bit in the fourth quarter," said Jim Glassman, a senior economist at J.P. Morgan. "When you have to pay these bills, there's just not as much left over."
