Why Gas Prices Directly Impact Consumer Sentiment

When they pay more for a fill-up, consumers sour on the economy and the nation’s direction.

October 27, 2022

ALEXANDRIA, Va.—Gas prices have a profound impact on U.S. consumers’ outlook of the country, observes the New York Times. Consumer sentiment appears to be in sync with gasoline prices, and although the price of fuel is not the only factor in the mood of the nation, patterns do suggest that the price at the pump has a strong influence over how Americans view their personal circumstances, the economy, the state of the nation and how they view the president (even though presidents have little control over gas prices).

Gas prices have a hold on consumers because they dictate how Americans shop and spend on other necessities, and they can influence travel behavior temporarily. Over time, they can even influence what vehicles consumers purchase, the appeal of far-flung housing and even development patterns, according to the Times.

A recent survey by NACS found that higher gas prices prompt consumers to reconsider everyday household purchases. Respondents said they have become more price sensitive when buying groceries (88%) and buying gas (87%), cutting back on snacks and drinks (80%) and dining out less (74%). These reflect an across-the-board increase since the February survey when gas prices were about 20 cents lower per gallon.

Another NACS survey found that nearly half of Americans (45%) said they are driving less than they did before the pandemic hit in early 2020, and they cite gas prices as the main reason why.

“When prices go up, we have this feeling of oppression that we can’t do everything we want,” Patrick De Haan told the Times. De Haan is the head of petroleum analysis at GasBuddy, which tracks real-time gas prices across the country. And when prices are low: “You feel like you can go anywhere, you can see anything, you can do anything.”

The strong influence of gas on consumers’ attitudes has much to do with how Americans depend on gas and how it’s different than other commodities that are purchased.

“There is no other consumer good or service with price tags that are visible from the street, all the time,” Joanne Hsu, director of the Surveys of Consumers at the University of Michigan, told the Times.

When buying gas, consumers watch in real time the cost of their fill up increase.

“You stand there watching your purchase, cent by cent, bite into your bank account. Imagine the psychological toll if you paid your rent this way: $656 … $657 … $658 …,” writes the Times.

Many drivers aren’t able to cut back on driving to offset increases at the pump. They need to get to jobs, take their kids to school and activities, drive to doctor’s appointments and the like.

“Even if it’s just gas, it’s just a car—it’s a lot for a family like mine, where we depend on this for a job,” Denange Sanchez told the Times. Sanchez is a cleaner with her mother, and when gas prices go up, her family still needs to fill their tank at the same frequency.

A July survey by the Times showed that people who bought gas more often were more likely to say that the country was headed in the wrong direction. The survey was taken shortly after gas prices hit their peak in mid-June. Then, prices fell for three months straight, and the Times surveyed consumers again in September. It found that the share who said the country was on the right track rose by 14 percentage points, and President Biden’s approval rating rose by nine points.

The Times reported other consumer sentiment polls showing similar patterns, with confidence being low in June when gas was priced at its highest, followed by improvements in consumer sentiment, presidential approval and the country’s direction stalling or reversing in September around when gas prices stopped falling.

Carola Binder, an economics professor at Haverford Collegem, told the Times that her research finds that consumer sentiment goes down when gas prices go up because the price at the pump is simpler to understand and track than unemployment or inflation rates that are announced by the government once a month.

When consumers see sky high gas prices, “it keeps as top of mind things that are not going well in the country, and not going well for you,” Laurel Harbridge-Yong, a political scientist at Northwestern, told the Times. High gas prices mean some people decide to not go on vacation, or they have to spend less on groceries, or they put off seeing aging parents and grandchildren.

NACS has written many blog posts on gas prices and their impact on consumers. Check out “Do Gas Prices Come Down Slower Than They Rise?,” “Do Oil Companies Make Money on High Gas Prices?” and “Why Gas Prices Are Rising When They Should Be Falling.”