We just got some good news about the impact of cheap oil on American consumers in 2014, and the likely effects in 2015. In the process, we got an important lesson in presenting data in context.
According to no less than AAA, last year, cratering oil prices saved Americans $14 billion on motor fuel, and the total could reach $75 billion this year. What’s not to like?
But these figures also warn against viewing cheap gas as a game-changer for the U.S. economy. The reason? In the third quarter of this year – during which the economy grew by an excellent annualized 6.27 percent before inflation – consumer spending was running at an annualized rate of just over $12 trillion. So the gasoline savings equaled less than 0.12 percent of that total.
Even if the gasoline savings do hit the AAA’s most optimistic $75 billion level, they would only amount to 0.62 percent of the 2014 consumer spending total. And if the growth of overall consumer spending matched this year’s 4.20 percent pre-inflation rate over the third quarter of 2013, the cheap oil effect will be even smaller proportionately.
The $75 billion in gasoline savings is of course a bigger (21.50 percent) share of the annualized $348.7 billion in consumer spending growth from quarter to quarter. But it’s only a little over a tenth of the $727.5 billion in total annualized growth during that period.
Moreover, the gasoline savings will only boost growth if they result in even more spending on goods and services generated domestically. As indicated in this previous post, that’s far from the case. In fact, even if consumers simply substituted non-gasoline spending for spending on other domestic output, the growth effect would be nil. And every dollar of imports bought with these savings, or put into the bank or under the mattress, actually slows growth.
Further, the gasoline bonanza may actually move America farther from President Obama’s goal of creating “an economy built to last” – i.e., less reliant on binge-borrowing and buying, and financial gimmickry, and more on turning out conventional goods and services. For although cheap gas might in theory boost spending on net on domestic goods and services, it’s at least as likely that it will reduce the value of domestic energy production – and leave the economy more consumption-heavy than ever.