Archive for Thursday, October 23, 2008

Cheaper gasoline doesn’t spur spending

October 23, 2008


— It's almost like a surprise stimulus check: Gas prices have fallen so fast that the nation has found itself with an extra $125 billion to spend. But don't expect the freed-up cash to pump much life into the economy.

Filling up for less than $2.50 a gallon in some places hasn't done much to boost confidence - not when disappearing jobs, sagging home prices and the financial meltdown are everyday worries.

"Let's try six months. Let's try a year. Then we can talk about how much it's saving me," said Jacob Curtis of Columbus, Ohio, who paid $2.48 a gallon this week. "Right now, I'm just trying to make ends meet."

One in three Americans fears losing a job, half are worried about keeping up with mortgage and credit card payments and seven in 10 are anxious about shrinking stock and retirement portfolios, according to a recent Associated Press-Yahoo News poll of likely voters.

With worries like that, saving $20 or $30 on a tank of gas doesn't amount to much of a silver lining.

Make no mistake, the drop in gas prices has been dramatic. A gallon of gas is 30 percent cheaper today than it was when prices peaked this summer. On July 11, a gallon of regular averaged $4.11. On Wednesday, it was $2.86. That's almost as cheap as the $2.82 reading of a year ago.

As lawmakers debate whether to send a second round of stimulus checks to Americans to lift the economy, the decline in gasoline prices could amount to as much as a $125 billion stimulus all by itself, according to calculations by Lawrence Goldstein, the director of the Energy Policy Research Foundation Inc., which studies energy economics. That figure takes into account the amount of fuel used not only by drivers and households but also by businesses.

"We already have the equivalent of an invisible stimulus package going if (oil) prices bottom out in the $75 to $80 range," Goldstein said. Oil prices tumbled close to $66 a barrel Wednesday as fear of an extended global economic slowdown outweighed a likely OPEC crude production cut later this week.

The difference is that the couple of hundred bucks that in previous years might have turned into a holiday splurge will probably be tucked away for safekeeping this time.

Gasoline prices could tumble as low as $2 a gallon if oil falls to $50 a barrel, as some analysts suspect it will.


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