Sustained Lower Gas Prices Could Drive Economic Growth
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Let's talk next about the economic effects of oil prices. We've been reporting this week on oil prices that seem to drop measurably day by day. Eventually, that translates to cheaper gas. We asked NPR's Chris Arnold just how much that matters.
CHRIS ARNOLD, BYLINE: Gas prices are falling fast. In the Boston area over just the past week, one gas station was selling regular for $3.15, then $2.99, then $2.89 a gallon.
CARL JENKINS: I love it. It's the best, man.
ARNOLD: Carl Jenkins is filling up his black sedan, which he drives for Uber, taxiing people around.
JENKINS: So I drive all day.
ARNOLD: So that's, like, a big deal.
JENKINS: Yeah, yeah, definitely. It's great for me - hybrid plus low gas, more money for me.
At the next pump over, Anthony Keller says three months ago, he got a new job selling insurance in Rhode Island. So from here, that means a 60-mile commute each way and a lot of gas.
ANTHONY KELLER: It eats a big chunk out of my check. It's almost like I'm paying to go to work.
ARNOLD: OK, so people are saving 10 or 15 bucks when they fill up. But how much does that really add up to across the country? How significant is it in economic terms? Well, to get a handle on that, we decided to go back and look at the stimulus efforts passed by Congress after the recession hit.
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PRESIDENT BARACK OBAMA: It is the most progressive tax cut in American history.
ARNOLD: That was President Barack Obama back in 2009, talking about a payroll tax cut. It gave each American worker $400 over the course of a year with the hope that they'd go out and spend the money and boost the economy.
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OBAMA: This tax cut will reach 120 million families and put $120 billion directly into their pockets.
ARNOLD: It turns out that this drop in gas prices, if it's sustained, could reach even more people and put more money in their pockets than that big payroll tax cut. That's because, economists say, Americans spend so much money on gas that for every penny you drop the price and keep it there for a year, you've increased American spending power by $1.4 billion. That's for every penny the price of gas ticks down. And...
IAN SHEPHERDSON: We could end up with a peak to trough movement in gas prices of approaching a dollar a gallon, which is enormous. And it's going to put an awful lot of money into people's pockets.
ARNOLD: That's Ian Shepherdson, the chief economist at Pantheon Macroeconomics. And he says actually, back right after the financial crisis, people were less eager to spend money. They were nervous. Getting extra cash now, he says, people are more likely to spend it. Also, he says, the timing is good.
SHEPHERDSON: This money is arriving in people's disposable cash flow just in time for the holiday season 'cause it typically takes people a couple of months to respond to a dropping gas price. They get to the end of the month, and they go, oh, I've got a bit more cash than I thought I'd have. And at the end of two or three months, they go, right; now I've got a lot more cash than I thought I'd have. And so I'm going to spend it.
ARNOLD: Also, Shepherdson says the labor market is finally looking better. Job growth is improving. When you adjust for population growth, the number of people losing their jobs and looking to collect unemployment, that's near an all-time low. So it's not just gas prices, but all this together means...
SHEPHERDSON: Well, it means, I think, that the chance of breaking out of this weak growth that we've been stuck in for an extended period is better now than at any time since the crash.
ARNOLD: Other economists aren't quite so optimistic. They know even if consumers get an extra hundred billion or hundred-and-fifty billion dollars to spend because of cheaper gas prices, that sounds like a lot - but maybe not that much when you consider the entire $17 trillion U.S. economy. And, of course, to get a real boost, gas prices need to stay down for a while. Back at the gas station in Boston, Anthony Keller - he's the guy with the really long commute - he says he hopes gas prices do stay down.
KELLER: I hope, I hope. Even lower - lower would be better, you know? Let's go; let's keep it going, you know? Let's not stop.
ARNOLD: Right now, anyway, most analysts think the gas prices are headed even lower. And most signs point to them staying down for a while. Chris Arnold, NPR News.
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