It’s tricky linking up gasoline prices and consumer spending

In case you haven’t noticed: It costs more to fill up your gas tank these days.

Gasoline prices nationally have risen from $1.73 per gallon in February 2016 to $2.24 last month, and consumers are forecast to spend $50 billion more on gasoline than they did last year. Theoretically, that’s $50 billion they won’t have to spend on other things. So what does that mean for the economy?

We now have decades worth of data on how gasoline prices affect consumer spending. For example, a 2009 study found that between 1970 and 2006, a 1 percent increase in energy prices caused a 0.15 percent decrease in total consumption a year later.

People’s spending decisions are affected by more than just gasoline prices. How they use savings at the pump often depends on where they think the economy is heading.

But those effects haven’t been uniform over time. The consumption response to energy price shocks weakened from the 1970s to the 2000s, due in part to what the study’s authors theorized was a change in the U.S. auto industry. As manufacturers started to produce more small cars, consumers looking to save on gasoline didn’t have to buy imported vehicles, which preserved American jobs.

Fundamental business conditions like that are still shifting, so it’s difficult to predict how today’s mounting costs will ripple through the economy. For example, energy has been a declining part of consumer budgets for years, so price increases have a smaller effect than in the past.

The response to gasoline prices also depends on the economy’s strength. If people are earning more, their home values are increasing and their jobs seem secure, they might not cut back so much when gasoline prices go up.

That’s why consumer spending moderated only slightly in 2005 and 2006 but took a turn for the worse in 2007 as the economy tanked, even though gasoline prices rose at about the same rate.