Consumer Spending Cushioned by Drop in Gas Prices

Excerpt from Raymond James Economist Dr. Scott Brown's latest economic commentary:

The February Employment Report reinforced the view that the economy is still contracting at a sharp pace. There has been no moderation in the pace of job losses. However, consumer spending appears to be falling at a slower rate than in the fourth quarter.

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There has been one bright spot in recent economic data reports. The drop in gasoline prices since last summer has boosted the purchasing power for those who still have jobs (which is most people). Between July and January, the drop in gasoline prices acted like a 2% cut in the income tax rate. The drop in gasoline prices has a lagged impact on spending, which means that much of it was felt in January and February. The impact has not been enough to offset the effects of job losses and tighter credit, but it has prevented inflation-adjusted consumer spending from falling at a faster pace in 1Q09 (note: it fell at a 4.3% annual rate in 4Q08).

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Smack in the middle of the current downturn, it is difficult to see the end. The near-term outlook is poor, but recent consumer spending has not been terrible. Fiscal stimulus will hit later this year and in 2010.

Comments

[banzaigtv8525:]

Consumers should enjoy the low gas prices while it lasts because gas prices are still expected to skyrocket to $5 per gallon this summer. I am in the process of moving to a house much closer to work expecting that to happen.

Mar 12 08:51 PM