PATCHWORK NATION -- April 29, 2011 at 2:30 PM ET
Why Gas Prices Are Such an (Economic) Drag
Are the hopes for an economic recovery disappearing into our gas tanks? On Thursday the Commerce Department reported economic growth had slowed to an annual rate of 1.8 percent. It had been projected to be as high as 4 percent.
There are many influences on that dip - from trade imbalances to reduced government spending - but it's hard to ignore the influence of gas prices. The numbers are dramatic. A Patchwork Nation analysis of data from GasBuddy, finds prices are up over a dollar-a-gallon compared to last year in some places - and, as is usually the case, pain has not been spread evenly.
To be clear no one has been spared a hit at the pump, but some types of counties - like the sparsely populated Mormon Outposts in the Mountain West - have seen much smaller bumps than others. And as one might expect, the big city Industrial Metropolis counties, not only have the highest prices overall, sitting just shy of $4 a gallon, they also have seen the biggest increase. A gallon of gas is more than a dollar more than it was in April 2010.
How does that translate into economic pain exactly? Directly and indirectly. A recent analysis form Deutsche Bank finds that every penny increase in average gas prices at the pump in the United States equals $1.4 billion siphoned out of the US economy.
But a lot of the real pain depends on where you live, what stage of the "recovery" your community is experiencing and your driving habits.
The increase in gas prices has swamped the country, sparing no one. The bumps in most of our 12 county types are pretty uniform - between 92 cents and $1.01. The Mormon Outposts overall have managed well, with an increase of only 55 cents a gallon from last year.
Click on each bar in the chart above to see average gas prices in that county.
But there are some differences in what gas actually costs today because there are differences in what those communities usually pay. So, on average, gas in less-wealthy Minority Central counties is 20 cents-a-gallon cheaper than it is in the Monied Burbs. And the people who live in and around the nation's biggest cities - the Industrial Metropolis counties - pay the most of all.
Understanding the pain, however, is not that simple, because in the end what you pay for gas is only a part (sometimes a small part) of your actual gas bill and of rising prices. Among other things, taxes play a role, as well as the formula blends required in your area.
There are also bigger questions about what kind of car you drive and how long your commute is. No one likes $4-a-gallon gas, but it helps if you only have to fill up every other week, or even live car-less, as you might be more likely to do in a dense urban area.
And, of course, there is how much disposable income you have. Are you diverting money into your gas tank that was supposed to be going to your family vacation to London or that was supposed to be going to your grocery bill? That makes a difference in what the gas price hike means.
Where It Hurts ... And For How Long
Look at the higher prices in the small town Service Worker Centers and the African-American heavy Minority Central counties, where gas prices are up 94 cents-a-gallon and 93 cents-a-gallon respectively in the last year.
In both those county types, the unemployment rate is still over 10 percent. People there are, on average, were hit hard by the recession as we have noted in other reporting and are still in pretty bad straits. When they have to basically pay an extra dollar for every gallon of gas the headwinds for them get stronger. The pain in those places is felt directly and pushes any recovery talk off.
Add in the fact that they are more rural locales, places where driving tends to be more necessary, and you compound the problem. Kip Ward, who lives in Lincoln City, Ore., a Service Worker Center that Patchwork Nation visits, figures his daily commute, home and back, at 400-500 miles a week.
The Monied Burbs have bounced back some from the recession, but increase in gas prices there is going to eat away at the thing the U.S. economy needs to get going again - consumer spending. Most of the people who live in these counties aren't poor, but pulling an extra $50 a week away from them will make an impact. That's money that can't be spent at local and coffee shops restaurants.
And, yes, higher gas prices will take a toll on family vacations in the Monied Burbs, many of which are taken in tourist hubs like, Lincoln City and other Service Worker Centers.
Tractor Country counties, rural and not especially wealthy, rely on fuel not only for driving, but also for farming equipment. They would seem to be especially hard hit, but the agricultural economy in them shielded them from most of the great recession and rising food costs actually have helped them.
"At $7 a bushel for corn, they better not complain about anything," joked Dennis Walstra, Mayor of Sioux Center, Iowa, a Tractor Country community we visit. That was a few weeks back. Corn is now at $7.60 a bushel.
There is no sign as yet that the gas price increase is over. In fact, further political instability in the Middle East, could push it higher still - closer to $5 or more.
And, while it is early, all of this could end up being a big part of the coming presidential race. Much of your economic reality is perception. Whatever the national headlines say about the stock market or the job market, it's what you see and feel outside your door that makes the real impact.
The potential for a prolonged, painful recovery can't be welcome news at the White House. Even if gas prices have returned to earth by then, the impacts on the economy and the recovery will likely linger. The 2012 political field has not yet taken shape, but the economic landscape may be starting to and so far it is not pretty.