After an increase of more than 17% in the month of February, there was a lot of chatter among investors that the reversal in gas prices was going to run straight through March, acting as a headwind for the US consumer and consumer related stocks. Thankfully, that sustained pickup in prices failed to materialize and gas prices have essentially been flat since the start of March. What makes the lack of a follow through in gas prices even more notable is the fact that March is seasonally a strong month of the year for gas prices. In March going back to 2004, the national average price of a gallon of gas has risen ten out of eleven times for an average gain of 6.2%. The only year where gas prices fell in March was 2013.
In an average year, prices at the pump typically rise 12% on a YTD basis through 3/22. Due to the recent stall in gasoline prices, though, prices are now up just 8.2% this year. As shown in the table to the left, this year’s YTD gain ranks as the fourth lowest of the last eleven years. The only three years where the average price of a gallon of gas was lower was last year (2014), 2010 and 2008.
While the level of gasoline prices is important, their level relative to recent history is also important. In terms of consumer psychology, $2.42 per gallon sounds a lot more attractive after a period where prices were over $3 as opposed to a sustained period where prices were below $2. When prices are falling, consumers will feel more flush and willing to spend versus rising prices which cause consumers to tighten up on their spending. From this perspective, current levels of gasoline prices are even more attractive. The chart below shows the year/year change in gas prices going back to 2006. As shown, even after the increase we saw off the January lows, the national average price is still currently down 31% from where it was last year at this time. The only other period where gas prices were down more was during the financial crisis when prices fell more than 45% on a y/y basis. Going forward, even if we were to see a surge higher in gas prices to $3 per gallon by Memorial Day, the national average price would still be down 18% from where it was a year earlier. In other words, gasoline prices are going to have to see a monster surge before getting anywhere close to levels that would be considered really detrimental to the consumer.