Tumbling Gas Prices Have Helped Cushion The Economic Blow From The Government Shutdown

The government shutdown took an estimated $US24 billion out of the economy.

But it could have been worse.

During the shutdown, gas prices saw solid declines. Between the week of Sept. 30 and Oct. 14, prices fell $US0.07, to $US3.35 from $US3.42.

Deutsche Bank’s Carl Riccadonna has a rule of thumb: “A one cent change in gasoline prices reduces annual household consumption by roughly $US1 billion.”

That’s a $US7 billion cushion to the economy.

The run-up to the shutdown provided an even greater lift. Since the first week of August, prices have come down a full $US0.27 cents, to $US3.35 from $US3.63.

That’s a $US27 billion boost on the Deutsche Bank scale.

Prices tend to come down around this time of year anyway, as refineries start making the switch to less expensive winter fuel blends from more expensive summer ones.

But they are already actually way down year-over-year, for a bunch of different reasons, including a non-existent hurricane season and reduced Middle East turbulence (as we’ve discussed many times, the effect of U.S. production is not that huge):

In general, gas prices have provided a huge lift to consumers this year.

Prices peaked way early, hitting $US3.78 in February and have come down since. Compare that with previous recent peaks:

And, of course, this all comes on the 40th anniversary of the worst energy crisis in the country’s history.

Anyway, even as Washington was draining the economy, consumers have enjoyed a silent but robust tailwind from the pump.

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