Haven’t we seen this before? The average price for a gallon of gas dropped to $3.53 last week, down 10 percent from 2012′s peak of $3.94 back in early April. The American Automobile Association and Oil Price Information Service pegs the average price of fuel to be even lower at $3.42. This is the 11th straight week with a decline.
So where’s the public jubilation?
So why, as gas prices shrink in size, doesn’t the public go out and fill up with premium fuel as often as possible. The peak summer driving months are right around the corner and oil is being sold at under $80 a barrel. Usually, fuel prices climb rapidly during the summer, but that’s not the case at the moment. In theory, it would make sense for the public to take advantage of lower fuel prices during this time, but that’s just not the case.
Wall Street Journal reporter Neil Shah says when gas prices recede during the summer months this acts as a quiet stimulant for the economy. Usually, as we head into peak driving time, gas becomes more expensive, not less. So will people capitalize on this trend? Shah says it’s early to tell but he doesn’t expect people to flock to the pump. Instead of spending extra money on fuel, Shah expects people are hanging onto their funds to pay for something else. This frugal spending can be attributed to the recovering economy and put simply, companies aren’t hiring like they used to.
“If companies don’t hire, people don’t make paychecks. If they don’t have income, they can’t spend it and you get a weighing effect on consumer spending,” Shah says. “On the consumer side, it’s unclear if people will pocket this cash they’re saving on gas or go out and spend. The problem is that they’re not necessarily getting jobs the way they were earlier this year.”
Earlier this year, while gas prices were volatile, people were still spending money at the pump as the economy showed new signs of life. Now that we’ve seen a bit of a slow-down, people are pulling back at the pump and not spending as much. Even while gas prices continue to decrease it’ll still be tough to tell the difference in price until the economy returns to a healthy level. A quick fix would be if the economy recovered to levels seen before the downturn in 2008. Shah also recommends that if people just push through and continue to spend money on fuel, prices will level out.
Source: Wall Street Journal