Lower Gas Prices, Delayed Effects

Lower Gas Prices, Delayed Effects

Gas prices peaked in early April at just under $4 a gallon. Thatmeant that for a few weeks gas prices were a major political issue. A series of adsattacking the President were issued and Newt Gingrich announced aproposal to get gas back to $2.50 a gallon. In response to the criticismPresident 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 could 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 asone less headwind they have to deal with. The real question is whetherthe cut in prices could act to boost the sagging economy as consumerstake the money saved on gas and spend it elsewhere. Nigel Gault of IHSGlobal Insight tells USA Today “You’re talking about roughly $114billion in extra consumer spendingpower…”

But Neil Shah at the Wall Street Journal says falling prices have nottranslated into additional consumer spending so far. In an interviewabout the piece, Shah suggests consumers may be putting the additionalmoney toward savings because of uncertainty about the economy.

Backing up Shah’s contention, new numbersreleased by Nielsen show consumer confidence dropping five points to ascore of 87. Anything below 100 is considered a sign of consumerpessimism. 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 takeseveral months before the effects show up jobs reports. Right now,that’s the metric Americans seem to be focused on as they approach thiselection.