December 20th, 2015 8:13 pm | by John Jansen |

The WSJ has posted an insightful article on the failure of the collapse in oil prices (and gasoline in particular) to stoke consumer spending. Take a gander at this chart from the Saint Louis Fed as it shows the savings rate since oil began its descent last November. At that tine the savings rate was 4.8 percent and the most recent data shows that rate is 5.6 percent.

It would appear that the consumer psyche has not fully recovered from the financial near death experience of the Great Recession.

Via the WSJ:
By Eric Morath
Dec. 20, 2015 1:48 p.m. ET
22 COMMENTS

American consumers are getting a windfall of billions of dollars a week thanks to low fuel prices. The U.S. economy has little to show for it.

The price of a gallon of regular gasoline fell to $2 nationally Sunday and was well below that in much of the country, AAA said, marking the lowest price outside of a recession in more than a decade. As a result, Americans reaped more than $100 billion in savings this year alone, or about $550 per licensed driver, according to the motorists group.

When gas prices began plummeting last fall—they were above $3.50 a gallon as recently as August 2014—many economists predicted the savings would act as a giant tax cut by jolting long-weary consumers into stronger spending and pushing up sluggish economic growth.

Instead, the economy remains mired in the slow-growth trajectory that has marked the economic expansion over the past 6½ years. Consumer-spending growth outside of gasoline has decelerated, advancing 3.8% from a year earlier in October, far slower than the comparable 4.9% gain in October 2014, according to Commerce Department data. Consumer spending accounts for more than two-thirds of U.S. economic output.

“You see the impact at gas stations, but you’re not seeing the pickup in other areas,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. Many consumers view lower gasoline prices “as a temporary windfall and are using this as an opportunity to sock away savings.”

The personal saving rate in October hit its highest level in nearly three years. Household credit is expanding at a historically slow pace, a sign many Americans are still paring down debt. And the annual gas savings alone may be seen as modest on an individual basis—about three days of wages for the average worker. That might buy a new tablet computer or pay for a road trip, but isn’t likely to fundamentally alter spending habits.

While the pace of consumer spending is easing, it’s still increasing. That has insulated the U.S. economy from shocks tied to a slowdown in China and retrenchment in the manufacturing and energy industries, which have suffered from a stronger dollar and falling commodity prices even beyond oil.

The negative effects tied to falling oil prices, including declining investment in what had been a burgeoning domestic energy industry, may have been stronger than anticipated. Overall business spending has slowed from a year ago, and employment in the energy sector has fallen.

Bank of America Corp. Chief Executive Brian Moynihan said this month that for many consumers, paying less for gas is “a huge benefit,” but for people whose jobs depend on oil, it can be a different story. The bank is closely monitoring the 9% of its consumer loans in ZIP Codes that are heavily dependent on the oil industry. “Am I concerned about that?” he asked. “Everybody should be.” But the bank has yet to see any drastic consequences, Mr. Moynihan said.

A stronger dollar also puts downward pressure on inflation by making imports cheaper. Retail spending at places such as clothing and electronic stores climbed very modestly this year, in part reflecting lower prices. Apparel prices were down 1.5% from a year earlier in November, according to the Labor Department. Televisions cost 12% less.

The pullback in spending in the first half of the year was largely attributed to reduced outlays by middle- and upper-income Americans, and those older than 65, according to data from the J.P. Morgan Chase & Co. Institute, which analyzed credit- and debit-card transactions.

Higher earners may have investments or jobs that make them more nervous about a shaky global economy and turbulence in financial markets. With interest rates low, retirees are seeing little return from savings accounts and certificates of deposit. And the Social Security Administration announced this fall there will be no benefit increase in 2016 due to a decline in consumer prices, led by cheap gasoline. But that does little for Americans facing larger medical bills and rent payments.

Meanwhile, spending among those younger than 35 and those with lower incomes held up fairly well, the J.P. Morgan research found. Those consumers benefit most from low gasoline prices because they tend to spend most of what they earn.

Spending in some sectors is stronger. Americans are buying trucks and SUVs in larger numbers, propelling the auto industry to one of its best sales years on record. Services spending, less affected by deflationary pressures, remains firm. Purchases at restaurants, a relatively easy splurge, are outpacing retail sales.

Unless gasoline prices tumble much further—something not anticipated by most analysts—consumers won’t see similar savings in 2016. But if prices remain persistently near $2 a gallon, over time, family budgets could realign toward other forms of spending.

That would be a positive for consumers’ outlays—and the broader economy—especially if a falling unemployment rate exerts upward pressure on wages. Relatively low gasoline prices alone failed to cause the economy to accelerate, but if they’re coupled with stronger fundamentals, they could sustain stronger growth.

—Christina Rexrode contributed to this article.

Write to Eric Morath at eric.morath@wsj.com

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