Americans will be very happy if the recent drop in gas prices is maintained.
According to Deutsche Bank’s Joe LaVorgna, every one cent change in the price of a gallon of gas is worth approximately $US1 billion in annual US household energy expenditures.
Since June, retail gas prices went from around $US3.70 per gallon down to $US3.30 on October 6. By LaVorgna’s estimate, consumer cash flow will be juiced by an approximate annualized rate of $US40 billion.
“This is equivalent to almost three-tenths on annualized GDP growth,” LaVorgna notes.
As you can see in the chart, there’s a very tight correlation between the change in retail gas prices and the change in household energy consumption.
In 2009, gas prices fell by 91 cents, and household energy consumption was down by $US105 billion. Then in 2010, gas prices rose by 44 cents and the energy consumption went up by $US49 billion.