Why Lower Gasoline Prices Are Not Stimulating Economy
Fed officials and financial news reporters are collectively wondering why the economy seems to be slowing down, even though lower oil and gasoline prices ought to be a stimulative factor. If consumers are spending less of their money on gasoline, then they ought to have more to spend on other stuff, or so goes the reasoning. So why is it not working?
The problem is one of magnitude, and most analysts fail to take the time to do the math. So at the risk of boring you with arithmetic, let’s look at some important numbers, with a bit of back-of-the-envelope math.
The EIA publishes data on consumption for a variety of energy products, including gasoline. In November 2015 for example (the most recent month for which there are data), Americans consumed gasoline at a rate of 358 million gallons per day. The 12-month average is 360 million gallons. That sounds like a really large number, but when you realize that there are roughly 322 million resident Americans, that works out to 1.11 gallons per day for every American.
The chart above shows the trend for that data. The high prices of just a couple of years ago sent people into dealerships to buy Priuses, Volts, Teslas, and other electrified cars to avoid paying high gasoline prices. But the falling prices for automobile fuel are making consumers eschew those more efficient choices, and consume more gasoline. They are also consuming more diesel, which is not part of these computations, but it is nevertheless a real factor.
Looking at the math, if the price of gasoline drops from $3.00 to $2.00 (round numbers to make the math easier), that means an extra $1.11 in your pocket every day, assuming you are the average man, woman, and child in America.
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