We saw a sub-$50 oil trade blip on CNBC briefly, though for the moment the brown stuff is hanging on to the half-century mark. If it weren’t an indicator of how fast the economy slowed, the fall in oil prices might actually be good news. Now it’s just a sign. But for the people who still have a job to drive to, the fall in oil/gas prices does mean more money left in the bank account.
Econ prof. James Hamilton recently looked at how much energy price movements mean to consumers:
Americans consumed 142 billion gallons of gasoline last year. That means that when gasoline prices rose $1/gallon last spring, if consumers and fuel-using businesses had not reduced the quantity of gas they purchased, they would have had to reduce other expenditures by $142 billion. That’s a bigger negative shock to spending power than the $90 billion that the federal government was trying to put back into consumers’ hands through last spring’s fiscal stimulus.
The run-up in gasoline prices hurt the economy not just by reducing consumers’ spending power. The abrupt drops in spending on key sectors of the economy exerted significant effects of their own. As higher gas prices caused consumers to shun Detroit’s gas guzzlers, U.S. production of motor vehicles and parts fell by 15% between 2007:Q4 and 2008:Q3 (BEA Table 1.5.6), subtracting an average of 0.6% from the annual GDP growth rate over the first three quarters of this year (BEA Table 1.5.2). The BLS reports that 135,000 fewer Americans were employed in motor vehicles and parts manufacturing in October 2008 compared with a year ago. And rocketing gasoline prices surely also contributed to plunging consumer confidence over the spring and summer.
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