More than a nibble in April-May In the past, we have referenced a rule of thumb citing that a one cent increase in retail gasoline prices (NYSE:UGA) reduced annual non- energy consumer spending by approximately $1 billion. Our analysis shows that over the past 18 years, the impact has been somewhat larger—closer to $1.4 billion for every once cent increase. Based on the above relationships, the run-up in energy prices through May lopped between $90 to $150 billion (annualized) off of consumer spending in H1. This lowered the six-month rate of change for total personal consumption expenditures by over a full percentage point. Total PCE was up 5.7% over the six months ending in April, while ex-energy PCE was up a lesser 4.4% over the same period. The following chart illustrates the extreme degree to which energy prices, specifically gasoline, encroached on other household expenditures over the past few months.
Image: Deutsche Bank
For bulls/economic optimists out there, it’s this view on gas, combined with the presumed snapback in Japan (NYSE:EWJ) that offer the best hope right now.
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