Gas prices keep dropping as crude oil slides to multi-year lows. The chart below from GasBuddy.com shows how the average price nationwide has dropped by more than 40 cents a gallon over the last three months. Consumer savings at the pump should help buoy the U.S. economy, leaving more money in drivers’ pockets as the holiday shopping season nears.
Just how big of a boost can lower gas prices provide? Joseph LaVorgna and Brett Ryan, economists at Deutsche Bank, offered one answer in a note to clients Tuesday. “According to our calculations, every one cent annual change in gasoline prices is worth approximately $1 billion in annual U.S. household energy consumption,” he wrote. “The bottom line is that if the current 40 cent decline in energy costs is maintained, then consumer cash flow would improve by roughly $40 billion; this is equivalent to almost three-tenths on annualized GDP growth.”
Just how much of that extra money consumers actually spend on goods and services may depend in part on how confident they are that the economy and job market will continue to improve. But with stagnant wages still holding back consumer spending, every extra dollar will help.
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