Bruce Grindy is the National Restaurant Association's chief economist Check out Bruce's past articles.

Retreating Gas Prices Expected to Reduce the Strain
on Consumers' Wallets

June 20, 2007

After shooting up to record-high levels in May, gas prices eased somewhat in recent weeks, and with it the pressure on consumers' disposable income. According to the Energy Information Administration, the nationwide average price for a gallon of unleaded gasoline stood at $3.01 on June 18 - down 21 cents from the record high of $3.22 reached on May 21. Although prices edged down in the weeks since the record high, they still remained 14 cents above the previous year's levels, and marked the 7th consecutive week above the $3 barrier.

Weekly U.S. Retail Gasoline Prices, Regular Grade
Dollars per gallon, including taxes

Source: Energy Information Administration

Although gas prices have been above year-ago levels for most of 2007, restaurant sales remained relatively solid. While sales dropped off somewhat from the seasonally- and inflation-adjusted record high reached in December 2006, volume still remained well above corresponding 2006 levels each month. In May, eating and drinking place sales totaled a seasonally-adjusted $37.2 billion in May, their second-strongest month on record, after adjusting for inflation.

However, that doesn't mean all segments of the industry are performing equally. Restaurants that are highly dependent on roadside traffic may be more affected by the negative impact of elevated gas prices than local neighborhood restaurants. Consequently, an extended period of elevated gas prices can potentially alter historical spending patterns within the industry. But clearly, although there has been some dampening in real sales growth in recent months, the overall restaurant industry continues to post sales above 2006 levels.

Total Monthly Eating and Drinking Place Sales
Figures are Seasonally-adjusted and Adjusted for Inflation

Source: National Restaurant Association, based on Census Bureau data; in May 2007 dollars

Household Impact

In general, lower-income households are disproportionately impacted by rising gas and energy prices. According to an Association analysis of data from the Bureau of Labor Statistics, gasoline expenditures for households with annual incomes of $100,000 or more represented just 1.9 percent of their pre-tax income in 2005. In contrast, households with annual earnings of less than $30,000 made gasoline expenditures that averaged 7.0 percent of their pre-tax income — more than three times the proportion of their higher-income counterparts.

In terms of restaurant sales, this suggests that over the longer-term, if gasoline prices remain at elevated levels, restaurants with lower average check sizes could feel a corresponding impact, if households are not able to fully absorb these additional costs.

Annual Expenditures on Gasoline as a Percentage of Total Household Income

Source: National Restaurant Association, based on data from the Bureau of Labor Statistics; 2005 data

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