Debt-Wary Consumers Cautious in Spending Savings from Cheap Gas, Lower Prices Overall

Debt-Wary Consumers Cautious in Spending Savings from Cheap Gas, Lower Commodity PricesLower consumer prices, lead by near or below $2-per-gallon gas, is helping middle-income and working-class families who have struggled in the aftermath of the Great Recession, even as many others have rebuilt lost equity in homes and affected nest eggs.
“Cheaper gas prices have helped to improve the economy by boosting both consumer confidence and disposable income,” AAA spokesman Avery Ash said in a statement. “It would not be surprising for U.S. consumers to save $50 billion to $75 billion on gasoline in 2015 if prices remain low.”
Wall Street is nervous about the negative impact of falling oil prices on energy producers. Moreover, there will be negative economic fallout in U.S. communities, such as those in Texas and North Dakota, where energy companies are dominant.
But cheaper prices overall for commodities and fuel products are delivering substantial benefits to Americans, especially those who struggle financially. And many households that are able to put aside income are not necessarily spending those savings on non-essential products or services. They are adding to savings or reducing debt loads.
U.S. consumers have been on a rough ride since the financial crisis, housing meltdown and recession. They realize that pockets of economic prosperity can close up quickly.

Sales at retailers and restaurants decreased a seasonally adjusted 0.9 percent in December from a month earlier, the Commerce Department said last week. The drop was the largest since last January 2014. Steady job growth and relatively strong confidence spurred an upward trend in consumer spending throughout most of 2014, but the December pullback was a surprise, especially with the lower fuel prices.
Economists say the level of spending in an environment of lower prices varies by income class.
“Depending on your income level, your spending will most likely be a little bit different,” Tom Potiowsky, who chairs the Economics Department at Portland State University, told the Statesman Journal. “Lower-income people hardly save at all because they’re just getting by, paycheck-to-paycheck. So this is like getting a little boost, and they’re likely to spend it. And it might be necessities where they’re probably spending it.”

Typical Household Projected to Save $750 in Gasoline

The federal Energy Information Administration estimated this month that the typical American household would save $750 because of lower gasoline prices this year. That’s $200 more than officially forecast a month ago.
“It may not have a huge effect on the top 10 percent of households, but if you’re earning $30,000 or $40,000 a year and drive to work, this is a big deal,” Guy Berger, United States economist at RBS, told the New York Times. “Conceptually, this is the opposite of the stock market boom, which was concentrated at the top.”
Meanwhile, Federal Reserve officials have said they expect cheaper energy to bolster household spending, expanding the economy. The slump in consumer prices also keeps a lid on inflation, which has been under the Fed’s policy maker’s 2 percent target for 31 straight months. Inflation held in check would further delay the Fed’s long-anticipated interest rate increase from its “near zero” stance which has been in place for more than six years.
All this bodes well for consumers. However, consumer spending, a huge part of an economic recovery, has not made a significant move as gas prices have fallen over recent weeks.
A Federal Reserve survey released last week showed that most U.S. regions saw “modest” or “moderate” economic growth fueled by gains in consumer spending. Not surprisingly, the energy-rich Dallas district slowed as oil prices plunged.
“Consumer spending increased in most districts, with generally modest year-over-year gains in retail sales,” the Fed said in its Beige Book, based on reports from its 12 districts gathered on or before Jan. 5. “Auto sales showed moderate to strong growth.”
Overall, U.S. consumers are hesitant to quickly spend the savings achieved through cheaper gas and other commodities.
Average daily spending in December was $98, matching the upper reaches on this measure since 2008, Gallup reported in a survey released this month.
“While strong relative to the recent recessionary period, it is similar to the $95 found in November, as well as the $96 in December 2013,” Gallup said. “This indicates that even though spending is stronger than in the past, some U.S. consumers are still cautious amid positive economic news and growing consumer confidence.”

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