Since the typical US household uses about 90 gallons of gas a month, the $1.10 drop in prices equals a savings of $98.82.
The impact of the extra cash could be a substantial boost to an economy that is showing signs of consumers pulling back on purchasing nonessential items, such as clothing, electronics and household goods.
But lower gas prices could help revive spending on those nonessentials.
Savings equal ‘real money’
“And that’s just a direct benefit. Lower diesel prices bring down the cost of transportation for all goods, including food,” he said. “If you add in the indirect benefits, it’s real money.”
The impact on the broader economy can go beyond just straight dollars and cents, Zandi said. No economic metric is more prevalent in public consciousness than the cost of gasoline, with signs on so many street corners advertising those prices.
Zandi still thinks there’s about a 50-50 chance the US economy falls into a recession within the next year to 18 months, but his expectations for when the downturn might hit has been pushed back because of falling gas prices. Back in June, when gas was $5 a gallon and still rising, Zandi expected a recession to come within six to nine months.
Consumers are spending their gas savings
Executives at both Walmart and Target said on calls with investors this week that they’re seeing signs the cheaper gas is boosting consumer demand for nonessential goods. That is one of the reasons they’re not prepping for a recession quite yet.
One thing consumers clearly aren’t spending their gas savings on is buying extra gas to drive more. Gas consumption fell very little as gas prices shot up, and it’s increased very little as prices have come down, said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices for AAA.
That’s because gasoline is what economists refer to as an inelastic good, one where price has relatively little impact on the amount purchased — unlike the aforementioned nonessential goods.
“I don’t know what the consumer is spending the savings on. I have a hunch it’s staples, normal things,” Kloza said. “But we’re not getting a rush of additional demand for gasoline.”
Cheaper gas is now easy to find
The national average is somewhat inflated by states with high prices, such as California, where the average is still $5.33 a gallon. The price there is also down more than a dollar a gallon since the peak.
The median US price stood at $3.76 per gallon as of Thursday, meaning half of the gas stations in the nation are charging less than that. In fact, 28% of the 130,000 gas stations tracked by OPIS are now charging less than $3.50 a gallon.
And the slide in prices shows no signs of letting up for the time being.