Falling oil prices could lead consumers to spend more later

Associated Press

WASHINGTON

Sinking oil prices have cratered the stock market. But a silver lining could appear eventually.

Cheaper gasoline and heating oil are giving consumers worldwide more money that they can use to step up spending later – and perhaps energize economies in the United States, Europe and much of Asia.

The question is, will they – and when?

“It’s definitely a plus for consumers,” Sara Johnson, an economist at forecasting firm IHS Global Insight, said of the deep savings being accumulated from sharply lower energy prices. “We should see a pickup in spending in the first quarter.”

The price of oil reached a 12-year low of $28.15 a barrel by the end of trading Wednesday before poking above $29 on Thursday. As recently as June, the price was about $60.

Retail gasoline prices have sunk to a national average of $1.86 a gallon, the lowest since 2009, according to AAA.

The timing and size of the economic benefit many analysts expect to result from cheaper oil and gas isn’t clear. Oil prices began falling in mid-2014 but have so far failed to deliver the kind of boost to U.S. growth economists had expected. One factor is widespread layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending.

And many Americans have saved, rather than spent, the money left over after filling up. That has depressed growth because consumer spending drives about 70 percent of the U.S. economy. At some point, though, continued savings from cheaper energy could fuel more robust investment and spending.

“It’s a question of, do they spend it now, or do they spend it later?” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics.