Spending on gas rising, hits a high in 2012
Gas prices are emotional roller coasters – when they’re low, life is great, and when they’re high, we begin to think long and hard about taking lengthy drives. It’s a necessary expense that can’t be avoided by most, and it definitely has an impact on consumer and business spending. According to reports from the Union of Concerned Scientists and the U.S. Energy Department, consumers spent four percent of their pre-tax income on gasoline in 2012 – the highest percentage in the past 30 years.
That shakes out to about $2,900 per year spent in each U.S. household, which is a pretty large expense. With many consumers on limited incomes, this increase has to be followed by a decrease in another area, which will likely disposable income expenditures. Housing, food and utilities are all needs that can’t be skipped out on. And because many people need fuel to get to work, they will likely dial back extraneous purchases on things they want and take pleasure in doing.
How spending on gas can hurt businesses
For business owners, this trend hurts in two ways: one, less consumer disposable income leads to fewer sales, and two – higher fuel costs correlate with higher costs of business for entrepreneurs. And unfortunately, when owners raise their prices to compensate for the additional costs, it deters consumers from making a purchase even more as they are already strapped for cash themselves.
One way to combat these effects is by having a contingency budget to help cushion the blow of unexpected expenses such as emergencies, impromptu opportunities or increased fuel prices. Having this funding to fall back on when costs of business rise can help you maintain favorable prices that will hopefully encourage consumers to shop.
Gas prices generally tend to ebb and flow, so this cushion may be able to keep costs steady until prices even out. But if consumer spending on gas continues on this record breaking trend, you may need to re-evaluate your supply chain and all the entities that operate within it, and find ways to transport your products at a more economical price in order to keep attracting customers.
