Oil dip may fuel spending
Cheaper gas giving consumers worldwide more money for later
Sinking oil prices have cratered the stock market. But a silver lining could appear eventually.
Cheaper gasoline and heating oil are giving consumers worldwide more money that they can use to step up spending later — and perhaps energize economies in the U.S., Europe and much of Asia.
The questions are: Will they? If so, when?
“It’s definitely a plus for consumers,” Sara Johnson, an economist at forecasting firm IHS Global Insight, said of the deep savings being accumulated from sharply lower energy prices. “We should see a pickup in spending in the first quarter.”
The price of oil reached a 12-year low of $28.15 a barrel by the end of trading Wednesday before closing at $29.53 Thursday. As recently as June, the price was about $60.
Retail gasoline prices have sunk to a national average of $1.86 a gallon, the lowest since 2009, according to AAA.
Oil prices began falling in mid-2014 but have so far failed to deliver the kind of boost to U.S. growth that economists had expected. One factor is that layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending.
Also, many Americans have saved, rather than spent, the money left over after filling up.
Michael Gapen, an economist at Barclay’s, forecasts that consumer spending will grow at a 3 percent annual rate in the first half of this year, lifting growth back to a decent 2 percent to 2.5 percent range. In the final three months of 2015, most analysts think U.S. growth slowed to an annual rate below 1 percent.
Lower oil prices should also bolster Europe’s fragile recovery, according to economists at Citi. And many Asian countries are also optimistic about the long-term impact
“The country has really benefited from the lower oil price,” Prime Minister Nawaz Sharif of Pakistan said at the World Economic Forum in Davos, Switzerland. “People have a sort of sigh of relief.”