WASHINGTON – Gasoline prices began to plunge a year ago. They rebounded a bit this spring, and then they fell again. American drivers haven’t enjoyed prices this low, for this long, in at least five years. By most economic thinking, that should be a big boost to the economy, because when they’re paying less at the pump, consumers have more cash to spend elsewhere.
For much of this year, though, economic data suggested that boost wasn’t as big as you’d expect. Americans reported they were taking the money they would have been spending on gas and saving it, or paying down debt. Economists speculated that consumers weren’t convinced low prices were here to stay, so they were reluctant to spend the windfall.
“It may take a particularly prolonged period of relatively low gasoline prices to elicit a shift in expectations and thus a change in saving and spending decisions,” economists at Bank of America Merrill Lynch wrote this week in a research note, which suggested that such a shift may, finally, be around the corner.
Maybe it’s already upon us, and has been for some time. That’s the conclusion of a new report out Thursday from the JP Morgan Chase Institute, the think tank arm of the global financial behemoth. The institute studied millions of transactions from JP Morgan credit- and debit-card holders to track what happened to customer spending habits when gas prices started to fall.
Its findings suggest Americans spent, not saved, about 80 cents for every dollar they saved on cheaper fuel. That’s a lot more than customers reported they were spending on government surveys, and less than they reported they were saving, and it suggests there may not be much more of an economic growth boost waiting around the corner if pump prices stay low.
Diana Farrell, the president and CEO of the institute, wasn’t surprised by the result. “That’s just classic behavioral science,” she said in an interview. “People respond (to surveys) with what they intend to do, with what they hope to do, and not what they are doing.”
The evidence from actual spending patterns, however, “suggests that people are not bunkered up,” Farrell said. “They’re spending the money.”
Spending varies widely by region. Consumers in the South and the Midwest spend more of their monthly income on gasoline, up to a high of 3 percent of monthly income in West Virginia, according to the study. It’s an intuitive finding, which suggests people spend more on gas in places where drive times are longer (including largely rural states) and where gas-guzzling vehicles are more popular. It also means that when prices dropped, those regions saw the biggest benefit, especially when compared to consumers in coastal states where people tend to spend on gas.
As a share of their incomes, the biggest savings went to young and low-income consumers, the institute found. For the poorest consumers, falling prices added up to the equivalent of a 1.6 percent monthly wage increase.
Even in the institute’s data, though, there’s still some evidence that consumers don’t trust that low prices will last much longer. They don’t appear to be plowing their extra money into big-ticket items — instead, they’re indulging in, well, food. Ten percent of the savings was spent on groceries. Nearly 20 percent was spent on restaurants.
To read JPMC Institute report on oil prices and consumers: