As a small business, your success depends greatly on how American consumers are spending their money. If you don’t have a product that Americans want or need, or one that they can justify spending their money on, it’s difficult to maintain and grow your business. Unfortunately, your products aren’t the only things that can affect the way consumers purchase from your business.
Consumer spending is affected by many different factors, but rising gas prices is one of the biggest. As Americans pay more to power their homes and run their vehicles, they have less money in the budget to spend on your products and services.
Rising gas prices may also affect the faith consumers have in the economy to recover and stabilize. For many years, gas prices have been a clear indicator of how the economy is doing, and gas prices often rise in direct response to tensions with other nations. Particularly over the last decade, Americans have been extremely concerned with tensions between the United States and other nations, and many fear the hit they are taking at the pump.
Plymouth Rock Energy reports that gas prices rise 20%, spending on other consumer goods must fall by 1%. Close to 5% of the average consumer’s budget is spent on motor fuel, and Americans are finding that they can’t really go without gas. In order for Americans to afford the extra at the pump or on their utility bills, spending must fall in other areas to make up the difference.
As gas prices rise, many Americans opt for imported cars rather than domestic models. This is typically because smaller cars get better gas mileage and require less of an investment at the pump. Many domestic automakers have gotten the message and have started making smaller, more energy efficient cars.
Residential and Commercial Electric Costs
As the costs of oil and gas rise and supply fails to keep up with demand, many consumers are seeing a rise in their resident and small business gas bills every month. When consumers and business owners pay more for substances they can’t live without, there is less money available to pump back into a stagnant economy. Paying more for electrical services and power translates into less money to spend on frivolous, fun things. If your products aren’t considered a necessity by consumers, you may find that your services are the first thing cut from the family budget when gas and oil prices rise.
Gas Prices and the Average Wallet
Studies suggest that lower income households are more vulnerable to rising gas prices, and that a good chunk of the money from a lower income household is spent on energy costs. A small 10% rise in gas prices means that the average family will spend close to $100 more on fuel alone, not taking into account the increase in residential energy costs. For every ten cent increase in the price of gas, $11 billion is removed from the wallets of American consumers in one year. In short, that number represents a lot of money that could be spent to jumpstart the economy and sell your products and services.
The wallets of Americans aren’t the only things that are affected by rising gas prices. It appears that a huge hit at the pump may affect consumers psychologically also.