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You've Saved Money At The Pump. Why Aren't You Spending It?

A customer fuels his car at a gas station in Pembroke, Mass. Economists say Americans have been slow to spend the money they saved from lower energy prices.
Stephan Savoia
A customer fuels his car at a gas station in Pembroke, Mass. Economists say Americans have been slow to spend the money they saved from lower energy prices.

Even though it's crept up in the past couple of months, the price of a gallon of gasoline is still about $1 less than it was a year ago. That's saving drivers $15 to $20 every time they fill up.

Economists were quite convinced late last year that would boost growth because consumers would go out and spend that extra money. But things have not unfolded exactly as forecast.

There's no doubt the plunge in oil prices and the lower costs for gasoline, heating oil and natural gas gave consumers a big windfall.

"They saved about $116 billion," says John Canally, chief economist at LPL Financial. He figures that means a savings of about $83 per month per household on average — or about $1,000 a year. Lots of economists predicted Americans would go out a spend most of that, but Canally says they didn't.

"Consumers, since oil prices peaked back in June, have done what they've been doing this entire recovery, which is essentially they've spent a little, they've saved a little and they've paid down some debt," he says.

Seasonally adjusted annual rates
Avie Schneider/NPR / Source: Bureau of Economic Analysis
Source: Bureau of Economic Analysis
Seasonally adjusted annual rates

Canally says he thinks many Americans learned a lesson during the financial crisis and are now being more prudent with their money. But in the short run, that's meant less consumption and less economic growth. So the growth dividend from lower energy prices has been elusive.

"I don't think it's completely materialized," says Laura Rosner, U.S. economist at BNP Paribas. For one thing, she says, the negative effects of the energy bust came faster than expected, with quick cutbacks in exploration and drilling and big job losses. That was a drag on the economy. And wicked winter weather from Virginia to Maine kept the energy windfall cash in people's pockets.

"Actually, 20 percent of all U.S. households live in either the Mid-Atlantic or the Northeast," Rosner says.

That meant tens of millions of shoppers stayed at home and contributed to a near stall-out of growth in the first quarter — far underperforming hopes that the oil price windfall would fuel faster growth.

Rosner says she thinks there's another reason the benefits of the windfall have been muted: Americans have been skeptical that the low energy prices will be lasting.

"We're seeing evidence that consumers actually expect gasoline prices to rebound ... almost back to their prior levels within a year or two," she says. "So that's an important reason why they may not be spending more of the windfall, today."

While Rosner believes consumers have reacted cautiously up to now, she's seeing signs that they are ready to start spending more of the windfall.

"You know, really the consumer sentiment data show that consumers are feeling better about the outlook," she says "They're feeling more secure in their jobs and they're relatively optimistic."

Their added spending will help lift the U.S. growth rate this year, she says. Canally agrees, and he believes with more prudent U.S. consumers the current expansion will be longer-lasting.

Copyright 2020 NPR. To see more, visit https://www.npr.org.

John Ydstie
John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.