Gas Prices Are Declining, And It's Turning Into Real Wealth Gains For Americans

We recently told you how falling gasoline prices provided a cushion to the U.S. economy during the government shutdown
Now Macroeconomic Advisers has further quantified the gains from falling fuel costs.

In a new note, they revise their Q3 GDP estimate up 3/10ths to a “solid” 2.7%.

A major reason, they say, is lower-than-expected consumer prices, thanks in part to declines in gasoline:

Falling energy prices are contributing to gains in real wealth and income: Retail gasoline prices have declined more than 30 cents / gallon over the last two months, to $US3.28/gallon as of Thursday, according to the national average pump price compiled for AAA. November gasoline futures have declined by a similar amount. We estimate that the CPI for gasoline declined by roughly 3% to 4% in October, after seasonal adjustment. If retail prices hold near current levels, the CPI for gasoline in November would be roughly unchanged after seasonal adjustment. Over the last eight weeks, the spot price of WTI has declined approximately $US15 to near $US95/barrel.

They go on to say that final sales to private domestic purchasers will improve from 2.3% in Q3 to 3.2% in Q4 thanks to a jump to 3% from 1.7% in personal consumption expenditures, which in turn should be, “aided by falling energy prices and large increases in housing and equity wealth.”

The group is holding Q4 GDP forecasts at 1.7%, citing “the government shutdown, ongoing and previously anticipated declines in federal spending, and a negative swing in inventory investment that we expect will subtract approximately 3/4 of a percentage point from GDP growth.”

Overall, they say, GDP growth will remain “moderate in the near term.”

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