Lower prices at the pump is good — but not great — news for retail overall.
As the price of gas fell to a $2 national average this past week, economists are shaking their heads at the lack of consumer pickup in other areas. With an economy that is growing at a sluggish rate, many had hoped that falling gas prices would bring more of a boost to overall spending.
According to a recent article in The Wall Street Journal, the price of a gallon of regular gasoline was well below $2 across much of the country this past Sunday (Dec. 20). AAA (American Automobile Association) said this marks the lowest price outside of a recession in more than a decade, and as a result, Americans reaped more than $100 billion in savings this year alone (that’s roughly $550 per licensed driver). Many had hoped these sorts of plummeting gas prices, which began their decent last fall, would constitute a sort of “tax break” and have the same resulting economic ripple effect through multiple sectors … but that has not come to pass.
WSJ goes on to point out that growth of consumer spending outside of gasoline has decelerated, gaining only 3.8 percent from a year earlier in October; this is far slower than the comparable 4.9 percent gain in Oct. 2014, according to Commerce Department data.
“You see the impact at gas stations, but you’re not seeing the pickup in other areas,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, told WSJ. Many consumers view lower gasoline prices “as a temporary windfall and are using this as an opportunity to sock away savings.” Baird’s theory proves true as October witnessed the highest personal saving rate in nearly three years, while household credit continued to expand at a historically slow pace.
The WSJ article also points out a pullback in spending in the first half of the year, largely attributed to reduced outlays by middle- and upper-income Americans and those older than 65, according to data from the JPMorgan Chase & Co. Institute, which analyzed credit and debit card transactions. Meanwhile, spending among the 35-and-younger set, as well as those with lower incomes, held up fairly steady, the JPMorgan research found. These consumers tend to spend most of what they earn and benefit greatly from the reduced fuel costs.
There are some things that Americans are buying more of — trucks and SUVs, for example. The large number of sales of those vehicles in 2015 has propelled the auto industry to one of its best sales years on record. And purchases at restaurants, a relatively budget-friendly splurge, are outpacing retail sales.