Tumbling oil prices were supposed to be gamechanging stimulus for the American consumer.
However, the data suggest spending has been on the disappointing side. In January, retail sales excluding autos and gas climbed by just 0.2%, missing economists’ expectations for 0.4% growth.
There are several theories floating around explaining what’s going on. Wells Fargo’s Mark Vitner argues that while the incremental savings are meaningful, they’re not yet big enough to trigger a big spending spree. Vitner also points to fewer Americans than usual driving to work or looking for work.
Perhaps the most telling explanation comes from the consumers themselves.
According to Friday’s University of Michigan consumer sentiment survey report, consumers don’t expect today’s low gas prices to stick.
“While lower gas prices have helped enhance households’ personal finances recently, consumers appear to believe that lower energy costs are only transitory and are waiting for a more permanent increase in income,” Morgan Stanley’s Ellen Zentner noted. “Indeed, households expect gas prices to increase by more than 25 cents over the next year — the largest expected increase since March 2012. A 25 cent increase in retail gas prices this year would reverse about 25% of the decline since the end of September. Over the next 5 years, households expect gas prices to increase by 99 cents — the largest expected increase since March 2011.”
Zentner speculates that an increase in wages, which remains subdued, would be more significant in boosting spending.
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