- by New Deal democrat
There’s no new data of note today or tomorrow, so in the meantime (aside from observing Martin Luther King’s birthday) let me take a look at a very important, if small piece of economic data: the “real” price of gas.
Gas price shocks have been important precipitants of a number of recessions in the past 50 years. Conversely, sharp declines in the price of gas (most notably at the end of 2008) were important factors in the bottoming out of recessions and the beginning of recoveries. This also includes summer of 2022, when gas prices declined from $4.93/gallon in June in the aftermath of Russia’s invasion of Ukraine, to $3.70 in September (and ultimately $3.21 in December). When almost all of the other signs of oncoming recession were flashing warning’s the sharp declines in commodity prices, including for gas, completely overwhelmed the negatives, and the robust economic expansion plowed ahead.
But $3/gallon gas means something entirely different in 2026 than it meant the first time it breached that threshold in 2005 in the aftermath of Hurricane Katrina. That’s because incomes are vastly different. In September 2005 the average hourly wage for nonsupervisory workers was $16.19/hour. As of last month it was almost double that, at $31.76.
Which means that the “real” cost of gas was much lower in 2025 than it was in 2005. And in the last two months it has declined significantly again. Throughout most of 2025 it ranged between $3.00 and $3.20/gallon, but as of last week it was $2.78.
And although the mal-Administration in Washington has done many things that have sabotaged the economy, this is a strong countervailing force. How strong? Here’s a link to the long-term “real” price of gas, i.e., gas prices divided by average hourly nonsupervisory wages, going all the way back to the beginning of the 1990s:
As of December (the last available period for wages), when gas prices averaged $2.89/gallon, it took just over 9% of an hour, or just over 5 minutes, for workers to earn enough to buy a gallon of gas. That is lower than at any point since the start of the Millennium except for the immediate aftermath of the 2001 recession and the pandemic lockdowns, and briefly in 2016.
And so far this month, the price of gas has declined even further, to $2.78 as of last week. While of course I have no crystal ball with which to forecast the future price of gas, should the new even lower range be sustained, that is going to put yet another powerful tailwind behind the consumer economy (in part because we know that consumers pay a lot of attention to the very noticeable price of gas), possibly saving it one more time from going into recession.