Will cheaper gas spur consumer spending?

Steve Tripoli Sep 13, 2006

KAI RYSSDAL: Whether your ride’s a Ford or just about anything else, surely you’ve seen you’re paying less at the pump. Gas prices are down about 40 cents a gallon from their $3 highs of just a couple of weeks ago. And AAA says it expects another dime drop soon. Granted it’s a relative drop in the bucket. But might it bring a collective sigh of relief to both consumers and the economy? We sent Marketplace’s Steve Tripoli to find out.

STEVE TRIPOLI: A 50-cent drop in gas prices is a $50 billion saving for consumers. But how much lower prices mean to individuals depends on who you are. Economist Mark Zandi at Moody’s Economy.com says cheaper gas really matters to one slice of America.

MARK ZANDI:“It helps lower, middle-income households the most. It’s coming at the right time in that many households are now facing a higher mortgage payment, they’re starting to sense that the job market is softening a little bit. So it is very good timing.”

Zandi says those households spend 10 percent of their income on energy. The price drops free them to do other needed shopping. But U.S. Chamber of Commerce economist Diego Saltes says that’s not the whole story.

DIEGO SALTES:“The decline is still leaving prices pretty high compared to just a couple of years ago.”

And to Saltes that means no big consumer impact. He does say that cheaper gas may improve consumer confidence. For the larger economy, lower oil prices may not be all good news. Doug MacIntyre, the U.S. Energy Department’s senior oil analyst, says gas price drops could hold an unsettling message.

DOUG MACINTYRE:“There’s a strong correlation between economic growth and oil demand. So, if you see economic growth start tailing off, it has a feedback impact and less oil demand will lead to lower oil prices.”

So MacIntyre’s worried that lower gas prices might stem from less happening in the U.S. economy. And belt-tightening here slows economies all the way to Asia.

So hold that urge to smile as you pass the gas-price signs. Those dropping numbers might be the first sign of a cold.

I’m Steve Tripoli for Marketplace.

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