Gasoline Prices Threaten U.S. Consumer Optimism: Chart of the Day

U.S. consumers are likely to take a dimmer view of the economy’s prospects as gasoline gets more expensive, according to James Hamilton, a professor at the University of California, San Diego.

“The correlation between consumer sentiment and gasoline prices is reasonably strong,” Hamilton wrote two days ago in a posting on his Econbrowser blog.

The CHART OF THE DAY demonstrates this relationship by comparing the Thomson Reuters/University of Michigan index of sentiment with the average nationwide price of unleaded gas, as compiled by the Department of Energy. The latter is inverted to highlight the effect on confidence. Hamilton’s posting includes a similar chart.

Confidence falls by half a percentage point for every 10- cent-a-gallon increase at the gas pump, according to Hamilton, who has studied the effect of higher oil prices on economies.

The Reuters/Michigan index dropped 1.8 points in January to 72.7, according to preliminary data. Economists were expecting a one-point increase on average, according to a Bloomberg survey of 72 forecasts. This month’s final figures are due on Jan. 28.

Regular gasoline has climbed 24.8 cents a gallon since the end of November, according to the Energy Department. The price has risen for seven straight weeks, the longest streak since June 2009. This week’s average was $3.104 a gallon, a 27-month high.

(To save a copy of the chart, click here.)

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