Stuck in the Seventies: Gas Prices and Consumer Sentiment

Using daily consumer survey data, we analyze the transmission of gas prices to consumer beliefs and expectations about the economy. We exploit the high frequency and geographic disaggregation of our data set to facilitate identification. Consumer sentiment becomes more pessimistic with rising gas prices. This effect is strongest for consumers who lived through the recessionary oil crises in the 1970s, consistent with models of learning from personal experience. For younger respondents, the sensitivity of sentiment to gas prices is stronger for college-educated respondents. Sensitivity is also higher in states with greater gas expenditures per capita.