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It's not just your wallet: How fluctuating gas prices affect the economy

Tracking economic data like gas prices helps transportation designers plan ahead

By Emily Valentino, transportation designer (New York, NY)

The price of gasoline affects us all, directly or indirectly. If you own a car, the reasons are obvious. But if you don't own a car, the effects may not be as clear. A change in the cost of shipping and manufacturing consumer goods will inevitably trickle down to the end user – you. For example, if the cost of gasoline is 25% more expensive, then the cost to ship goods is also 25% more expensive. This increase in cost must be absorbed somewhere, and it surely isn’t absorbed by the companies.

Luckily for those of us in the United States, gas prices are falling with the average regular unleaded gas price per gallon down $0.15 from last month and $0.74 from last year (GasBuddy.com). According to the US Energy Information Administration, the 2015 annual average is expected to drop 27 percent from 2014. There are a few reasons for this decline:

  1. Domestic oil drilling has increased in the Gulf of Mexico
  2. Crude oil prices are dropping, and gas prices tend to follow suit
  3. The Gulf of Mexico has not been subject to severe inclement weather since 2013 – hurricanes disrupt oil rigs and production
  4. In the winter months, the US government allows oil refineries to make gasoline using cheaper hydrocarbons

The 12-month gas price trend in the graph on the right demonstrates this phenomenon. Even California’s prices have dropped 31% from $3.89 to $2.69 in just four months, but there is still a large disconnect between California and the rest of the US. Recent news stories speculate this is due to strict greenhouse gas emissions laws coupled with reduced supply. The California Global Warming Solutions Act of 2006 is a step in the right direction in terms of climate change, but it limits the type fuel used in California to expensive low-carbon fuels. Many of the refineries producing this gas have had complications and malfunctions, leaving them operating at a very low capacity. 

Nonetheless, there is still hope. Last January, gas prices fell to the lowest point since the recession. According to BankRate.com, “lower prices could pump more than $100 billion into the American economy over the course of the year.” Information like this is valuable for those of us in the transportation planning field. Low gas prices across the board encourage increased use in all forms of transportation (see the vehicle miles traveled graph on the right). The recent drop in gas prices shows a slight uptick in VMT. Not surprisingly, one appears to directly affect the other, and that has an impact on future construction, maintenance, and operations of our roads, trains, planes, and other forms of transportation.

To get a deeper insight into the economy and how it affects our work as transportation planners, my team monitors gas prices in combination with other economic indicators such as employment and vehicle miles traveled. It is important to understand how they all work in conjunction with each other. While some say time equals money, we believe that transportation equals money. In fact, we currently track 15 economic indicators on a monthly basis.

Are plummeting gas prices a sign of economic recovery? Tell us what you think!

Emily Valentino is a transportation designer on our Traffic & Revenue Services team.

To get a deeper insight into the economy and how it affects our work as transportation planners, my team monitors gas prices and other economic indicators

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