Lower Gas Prices, Delayed Effects

Gas prices peaked in early April at just under $4 a gallon. That meant that for a few weeks gas prices were a major political issue. A series of ads attacking the President were issued and Newt Gingrich announced a proposal to get gas back to $2.50 a gallon. In response to the criticism President Obama called for more regulation of oil speculators.

However recent declines in oil prices have caused gas to drop about 40 cents, about 10 percent off the April high. Some are predicting the trend will continue through the fall, with prices as low as $3 per gallon by Halloween. If so, then against all expectations, gas prices couldĀ turn out to be a rare bright spot in the economy for the Obama campaign.

On its own, a return to lower prices isn't an issue the Obama campaign can use, so much as one less headwind they have to deal with. The real question is whether the cut in prices could act to boost the sagging economy as consumers take the money saved on gas and spend it elsewhere. Nigel Gault of IHS Global Insight tells USA Today "You're talking about roughly $114 billion in extra consumer spending power..."

But Neil Shah at the Wall Street Journal says falling prices have not translated into additional consumer spending so far. In an interview about the piece, Shah suggests consumers may be putting the additional money toward savings because of uncertainty about the economy.

Backing up Shah's contention, new numbers released by Nielsen show consumer confidence dropping five points to a score of 87. Anything below 100 is considered a sign of consumer pessimism. Also, a majority of consumers, 78 percent, believe the U.S. is in a recession.

If there is a stimulative effect to lower gas prices it could take several months before the effects show up jobs reports. Right now, that's the metric Americans seem to be focused on as they approach this election.


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