Pain at the Pump: Great Expectations
Earlier this month, the Energy Information Administration (EIA) significantly downgraded the forecast for summer (April through September) pump prices by 16 cents per gallon to $3.79. With the EIA changing their expectations for the summer, are consumers doing the same? Will the pain at the pump impact Memorial Day? And how do gas price expectations impact consumer behavior?
Let’s start with the upcoming holiday weekend. Less than half (43.3%) of Adults 18+ indicated that increased gas prices will impact their spending for Memorial Day, down more than 10 points from last year (53.7%) when gas prices were more than 30 cents higher on average. This is on par with May of 2007 (43.2%) when gas prices were $3.10 on average and below May of 2008 (56.4%) when prices were $3.66 per gallon. What a difference a few years can make; $3.10 per gallon would feel like a clearance sale at this point.
Note: The EIA gas price data is from the first week of each month which corresponds with the timing of the survey collection.
What do consumers expect prices to be by the time the holiday weekend has passed? On average, Adults 18+ anticipate that prices will be $3.95 by the end of May. Consumers have lowered their expectations after an increase in April ($4.17). While this is still above the $3.79 average expectation the EIA recently released, it’s important to note that they announced their new forecast on May 8, 2012, the same day we completed fielding the Monthly Survey. Stay tuned for June to find out if consumer expectations continue to lower and if these decreasing pump price forecasts help boost their confidence in the economy after it fizzled in May.
Why all this talk about expectations for gas prices? Do they really matter? In the April BIG Call, we learned that the answer is yes. When gas prices exceed consumer expectations, they make changes quickly. The chart below shows the percentage of consumers who said they are driving less because of gas prices compared to actual gas prices. From February to March of 2012, we see a more than ten point jump in those who are thinking twice before putting their foot on the gas pedal. While there was a 30 cent upswing in the average gas price during this time, the percentage who were driving less remained flat from March to April when prices increased 15 cents per gallon. Wouldn’t we expect to see some sort of increase in consumers driving less often in April if the 30 cent upswing in March had such a dramatic effect?
After taking a closer look, we came across a BIG insight. The differentiating factor from February to March is that gas prices exceeded consumer expectations. In February, consumers had only expected gas prices to be $3.69 per gallon by the end of the month. By the first week of March, they were at $3.85 per gallon. So, the consumer expectation was below the actual gas price. In March, consumers had an expectation of $4.08 per gallon by the end of the month and prices were only $4 per gallon by the first week of April. The expectation was higher than the actual price.
*The actual gas price data is from the first week of the following month.
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Source: BIGinsight™ Monthly Consumer Survey – MAY-12 (N = 8789, 5/2 – 5/8/12)
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