The price of gas has nearly halved, putting more money in consumers' pockets — but just how the cash seeps into the economy is less...
The price of gas has nearly halved, putting more money in consumers’ pockets — but just how the cash seeps into the economy is less clear. Every $1 drop in the average price of gas adds $150 billion a year to consumer spending, says IHS Global Insight principal Jim Osten.
The cost of gas has fallen by $31 billion in the past four months, estimates research firm TrimTabs. But it says losses on home equity more than offset the savings.
Airlines, retailers and vacation destinations such as theme parks are poised to benefit from extra consumer spending, Osten says, though a meaningful uptick will take time.
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“Maybe one in 10 people would consider taking the airline trip they’ve been putting off, but a year from now, it might be more like five out of 10,” Osten says. “It takes sustained price (decreases) to work their way through.”
Both Osten and Deutsche Bank energy economist Adam Sieminski say discount retailers and fast-food restaurants may see faster gains. This will boost Wal-Mart Stores (WMT) and McDonald’s (MCD), which have already seen strong sales.
Sieminski says some savings could be stashed in bank accounts, or go toward paying off credit cards or mortgages.
“But I think that lower energy prices are one of the necessary factors on getting the economy off the ground,” he says. “We’re seeing a little bit more gasoline consumption than in the past, and vehicle miles traveled have picked up. That’s probably a good sign.”