The combination of rising gasoline prices and the steepest increase in the cost of food in a generation is threatening to push the US economy into a recession, according to Craig Johnson, president of Customer Growth Partners.
Johnson looks at the percentage of income consumers are spending on gasoline and food as a way of gauging how consumers will fare when energy prices spike.
With gas prices now standing at about $3.90 a gallon, energy costs have now passed 6 percent of spending—a level that Johnson says is a "tipping point" for consumers.
"Energy is not quite as essential as food and water, but is a necessity in today's economy, and when gasoline costs more than bottled water—like now—then it takes a huge bite out of disposable spending," he said, in a research note.
Of the six US recessions since 1970, all but the "9-11 year 2001 recession" have been linked to—of not triggered by—energy prices that crossed the 6 percent of personal consumption expenditures, he said. (During the shallow 2001 recession, energy prices had risen to about 5 percent of spending, which is higher than the long-term 4 percent share.)
What may make matters worse this time around, is there has been a steep increase in food prices that occurred as well. In other recent recessions food costs were benign, at between 7.5 percent and 7.8 percent of spending.Page 1 of 2 | Next Page