The first thing that immediately came to mind was the rising costs elsewhere in Americans pocketbooks that would take up the slack of lower gasoline prices, such as rent. Social Security recipients for example will see an increase of 1.9% in 2015 however this is no where on pace with the increases in average rents which continue to climb. In fact, how about a rent increase of 6.9% in November according to Trulia? Ouch!
Indeed incomes, when adjusted for inflation, have definitely not kept pace since 2000. (chart right). Add to this the fact that the majority of new jobs being created are at the low end of the pay scale and you have a situation where any savings at the pump are not going to translate into further driving and gasoline demand but to holiday spending, consumer staples and yes, pay the rent.
Even the number of miles driven appears to have topped out according to FRED. Again this can be attributed to income growth and lack of it and it doesn't appear this will change any time soon. (second chart)
According to the EIA:
In recent years, gasoline expenditures have accounted for about 5% of household expenditures. In the Bureau of Labor Statistics' (BLS) Consumer Price Index, gasoline accounted for 5.1% of consumer spending, as of October 2014. Reductions in the gasoline price ultimately impact the relative weight of gasoline compared to other expenditures (shelter, clothing, food, entertainment, and so on) in price indices compiled by BLS and the Bureau of Economic Analysis at the U.S. Department of Commerce.
The demand for gasoline is very price inelastic over short time periods, meaning changes in price have little impact on the number of gallons used. Falling gasoline prices allow households to spend their income on other goods and services, pay down debt, and/or increase savings.
Of course the improvement in fuel efficiency in autos the last 20 years has greatly lowered demand as well but is there still something more?
Well maybe. One last thought on spending. Aging baby boomers. While Obama issued temporary relief from deportation to millions of immigrants in November, the U.S. has an enormous swath of baby boomers reaching retirement age who won't be driving the kiddies to Disney World any time soon. Will these immigrants be able to afford to take up the slack in gasoline demand? That remains to be seen but I'm not holding my breath.
Instead I believe we're going to have to wait to see a pick up in wage growth which comes at the end of the cycle before driving and gasoline demand pick back up.
With a new GOP-held Congress coming in in 2015, hopes of a Federal minimum wage increase are dim so sit back and relax. It may be a while unless Congress (and big business) finally decide to throw the consumer a bone but a near term pick up in demand? I just don't see it happening until something changes in the macro picture.