The Energy Information Agency (EIA) released a Today in Energy piece on October 21, 2014, detailing how everyone is benefiting from domestic energy development whether they realize it or not. According to the EIA, latest disposable income data predictions estimate that consumer energy expenditures will only be 5% of disposable income this year, which is below the long-term average.
Disposable income is economically defined as personal income minus personal income taxes. The remaining income after accounting for a household’s local, state and federal tax liabilities, in other words, is the amount of money available for discretionary spending and saving. If, for example, a household’s income includes $100,000 from salaries and is subject to a 35% total tax rate its disposable income would then be $65,000.
Obviously, the majority of this disposable income is allocated to expenses such as mortgage or rent payments, clothing, meals, credit card bills and family expenses, but what you may not realize is this; a large portion is dedicated to energy when you add together the cost of electricity to power your home appliances, fuels (or electricity) to heat your home and gasoline to power your vehicle.
Using the EIA estimated 5% energy expenditures, the household from the example above could expect to spend roughly $3,250 in energy related expenses. That’s $325 below the long-term average. If we were at the 1980 peak of roughly 8% in energy expenditures, the household would spend approximately $5,200 in energy related expenses. That’s a difference of $1,950 from where we are now.
So why are energy expenditures defying the inflation trend? Perhaps this picture provides a clue:
More energy efficient appliances in your home and increasing vehicle fuel mileages are making an impact, but it’s the shale energy revolution across the country that is making the biggest impact.
According to another Today in Energy piece by EIA published on October 10, 2014, net energy imports as share of consumption are at lowest level in 29 years despite a rise in consumption behavior. This decreased reliance on foreign, more expensive, sources of energy is, according to EIA, attributable to increased US production “almost entirely concentrated in petroleum and natural gas. Petroleum accounted for 52% of the 2014 year-to-date increase, natural gas for 27%.”
Here in the Marcellus Shale region, production is expected to surpass 16 billion cubic feet of natural gas per day, while oil production in the Bakken and Eagle Ford formations already amounts to roughly 1.2 million and 1.6 million barrels of oil per day, respectively.
Given the volatile nature of our economy in recent years, having additional disposable income for the good times and the bad is important to every household. Thanks to the burgeoning energy industry in this country, we can all be thankful for the extra spending money in our pockets.
