24 July 2019

Lower Gas Prices Benefit Middle Class

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Lower prices at the pump, down about 60 cents a gallon from a year ago, will have the equivalent effect of cutting taxes in the U.S. by between $100 billion and $125 billion, Goldman Sachs economists said Wednesday. Americans spent $370 billion on gasoline last year. The benefit will flow across the economic spectrum, but help the middle class most.

Goldman’s estimate was increased from a previous expectation for a $75 billion consumer stimulus. The revision came because the OPEC cartel last month choose not to cut production, a development that pushed down oil prices further.

Other economists have estimated lower gas prices could save the average household as much as $750 annually. According to AAA, the average price for a gallon of regular gasoline the U.S. was $2.64 per gallon on Wednesday. That’s down 30 cents from a month ago, and 62 cents from a year ago.

Increased consumer spending as a result of lower gas prices could add as much as a half-percentage point to economic growth in the next year, Goldman said. However, the effect will be partially offset by lower U.S. energy production.

Consumers should step up purchases first at gas stations and auto dealerships. When gas costs less, consumers buy more of it by volume. Consumers also tend to spend more on vehicles. The effect is primarily seen in buying more expensive rides–due to higher sales of pickup trucks and SUVs compared with small cars–rather than a higher total number of purchases, the report said.

Prolonged lower fuel costs would increase the number of vehicles owned per household, Goldman said. And the longer fuel prices stay down, the more shoppers will increase spending at other outlets beyond gas stations and dealerships.

Click here to access the full article on The Wall Street Journal. 

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