Despite Low Gas Prices, Consumer Spending at Lowest

Since 2009

Conventional wisdom says that consumer spending should increase as the cost of staples go down. For example, lower gas prices should lead to increased spending among consumers who now have more money in their pockets to be used on things other than fuel. Unfortunately, it has not worked out that way in recent months.

Numbers released by the Department of Commerce in early February show that consumer spending in December fell by 0.3 percent, marking the biggest monthly decrease since September 2009.

Adding to the concern is the fact that the economy grew by about 2.6 percent during the fourth quarter of last year. The combination of economic growth and gas prices that have fallen more than 40 percent since last June should have boosted consumer confidence and encouraged new spending. So why are we not seeing it?

The answer may be as simple as the job market. Every month the government releases its unemployment numbers that are then dutifully reported by the media. Yet those numbers are not truly reflective of the state of the US workforce. The problem with the unemployment figure is that it only counts the total number of unemployed workers receiving benefits and actively looking for work. It does not count those who have given up looking, those who are underemployed, and those who may work one or two hours per week at odd jobs while job hunting.

The reality in America is that of a country that still has not recovered from the Great Recession. Everywhere you look, from the stock market to the world of international finance, the confidence we would expect to see in the midst of an economic recovery just isn’t there. This lack of confidence goes well beyond corporate boardrooms, by the way. It reaches the kitchen tables and living rooms of Main Street, USA.

America’s working class has little hope of drastic improvement in the near future. Furthermore, the average middle-class family is struggling to make ends meet in an era of stagnant wages and part-time employment. Rather than spurring new consumer spending, falling gas prices have only allowed consumers to take a bit of a breather from an otherwise stressful economic situation.

Unfortunately, lower gas prices may be short lived. Already there is talk of higher prices in anticipation of refineries beginning the conversion to summertime blends and the coming travel season. So much for higher consumer spending.

Jeff Ramson is the CEO of PCG Advisory Group and an authority within the Investor Relations industry.