GOLDMAN: Maybe this explains the 'puzzling' lack of consumer spending

Economists spent much of the latter half of 2014 and the early part of 2015 jazzed about crashing oil prices. Their thought was that the related plunge in gas prices would translate into all sorts of discretionary spending by the American consumer.

But the American consumer turned out to be much more sceptical of their newfound wealth, opting to save rather than spend.

“The puzzling lack of impact so far is likely explained in part by consumers’ initial scepticism that low gasoline prices would last,” Goldman Sachs’ David Mericle and Karen Reichgott explained. The economists pointed to survey data collected by the University of Michigan that revealed consumers expectations for much higher gas prices in the years to come.

However, more recent results from that same survey have Mericle and Reichgott more optimistic about the coming quarters.

“[O]nly over the last couple of months have consumers come to believe that lower prices are here to stay,” they noted.

After tweaking their forecasting models, they concluded that much of the spending gains we didn’t get in the beginning of the year were likely to come later. From their note to clients: “We find that low gas prices should have boosted Q1 consumption growth by 0.5-1pp, reinforcing the Q1 disappointment. However, the models also imply that only one-fourth to one-half of the eventual consumption impact should have been felt by Q1, suggesting plenty of remaining upside in coming quarters.”

So far, the April numbers suggest Q2 is off to a weak start.

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