Gas Prices: Down Lately, But Up 30% From 2010

Gas PricesMost of the media coverage about gas prices lately is focused on the fact that they've fallen from a national average of $3.98 to $3.58 in about two months according to the AAA Daily Fuel Gauge. What's rarely mentioned is that the cost per gallon is still 30% higher than it was this time last year, when a gallon cost $2.75. The price has still been over $2.60 since March 2009. The recent run-up to nearly $4 only lasted seven months.

The real question with gas prices is how high is too high? The answer is that the economy might have been able to support the consumer and business impact of $2.75 gas prices when GDP was beginning to recover in the second half of 2010 and unemployment began to ease.

The case that the nation can accept what are still relative high prices gets harder and harder to make by the day. Unemployment improvement has stalled and more than 6 million people have been employed for over half a year. Many of those people already live on a shoe string. The cost to fill up a 15 gallon tank is $41. That might not seem like much unless the person who has to pay is out of work.

Even Americans who work still have trouble with gas prices in many cases. The cost of commuting over a month is about $200 for a 50-mile daily round trip commute. That doesn't include weekend travel. A family with a household income of $50,000 -- about the national median -- only nets $2,800 a month after taxes.

The effect on business is harder to calculate across the entire economy. The industries that are bearing much of the weight of higher fuel prices are those in the nation's transportation infrastructure. Shares of American Airlines (AMR) are off more than 20% in a year. The DJIA is up by 20% over the same period. Restaurants, retailers and other companies that need to move goods will continue to have earnings margins pressure that they did not have a two years ago. And high gas prices are piled on top of high prices for other commodities which effect profits across the economy. It is a vicious cycle for the consumer, who has to pay more for essentials.

Gas prices may be down recently, but that is only relative to the first half of 2011. A 30% increase in one year is still too much for the U.S. economy to bear.


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