Charles and Cheryl Saul are reaping a timely windfall: an extra $500 a month thanks to cheap gasoline.
The couple, both 56 and from Emmaus, Pennsylvania, drive a lot so filling the tank didn’t leave much room for fun. Now they’re splurging after years of staycations, minor-league baseball games and free concerts. In October, they visited Disney World, their priciest vacation in ages. They’re also planning to renovate, meaning more trips to Home Depot Inc.
“We’re finally starting to feel like we’re back in the middle class,” Cheryl Saul said.
Millions of Americans are benefiting from the collapse in gas prices, which Goldman Sachs Group Inc. equates to a tax cut worth as much as $125 billion. That’s potentially good news for a range of mass-market companies that have struggled while upscale establishments catering to wealthy Americans prospered. Family Dollar Stores Inc., Popeyes Louisiana Kitchen Inc. and McDonald’s Corp. all say they’re benefiting from lower gas prices or will in the second half.
Interviews with two dozen consumers around the U.S. captured a more ebullient—if wary—mood. Americans are starting to travel more, eat out and hit the mall. Buoyed by the biggest employment increase since 1999, they’re gaining the confidence to spend more freely, which will help the world’s biggest economy sidestep a global slowdown. While the economy expanded at a slower pace than forecast in the fourth quarter, consumer spending rose 4.3 percent, the most since 2006.
In recent weeks, the shares of such consumer bellwethers as Wal-Mart Stores Inc., Walt Disney Co. and American Airlines Group Inc. have flirted with record highs.
Still, even with gasoline selling for less than $2 a gallon in much of the U.S., the economic boost will take time to work its way through a $17.8 trillion economy. Last month, Family Dollar Chief Executive Officer Howard Levine said lower gas prices “are very much a positive for our customer” but acknowledged the impact is “hard to see yet.”
Having lived through so many false dawns, some Americans aren’t exactly spending with abandon. Evan Lee, a 42-year-old lab manager from Queens, New York, is going out more but most of the $20 or so savings per tank is going right in the bank.
“I’m afraid it’s gonna go back up soon,” he said. “This is too good to be true, right?”
Typically, it takes 12 months before shoppers start spending their gas savings at stores, according to Goldman Sachs. That means retailers should start to get a real boost in July, a year after gas prices started falling.
At the moment, many Americans are using the savings to fill up more often and drive further. In November, Americans drove 241 billion miles, the most for that month since 2007, the government said. Auto traffic to Las Vegas rose in the last quarter of 2014, after being down six of the previous nine months, according to the Las Vegas Convention and Visitors Authority.
The Greenlees of Saratoga, California, have been taking a lot more road trips. Janelle Greenlee makes as many as three 40-mile trips a week to Palo Alto for her daughter’s medical appointments. Her husband has a 45-mile commute. Thanks to lower gas prices, the family is saving almost $200 a month and taking more hour-long drives to San Francisco with their three kids to spend the day at the Embarcadero waterfront.
“Those day trips are a big deal to us,” said Greenlee, 38. “We’ve been eating ungodly amounts of food and watching our boys ride scooters and skateboards.”
On average, Americans save a paltry 5 or 6 percent of their incomes so about 95 cents of every dollar of gasoline savings will be spent, according to Michael Gapen, chief U.S. economist at Barclays Plc. Restaurants and retail stores will benefit most, he said in an interview.
Monica Gamble, 23, of Oakland, California, is a case in point. A waitress who is working toward a degree in health sciences, Gamble recently hit the local Walmart, where she spent some of her gas savings on additional school supplies, including notebooks and a graphing calculator.
“The extra money comes in handy,” she said.
Much of the impact of lower gasoline prices is psychological, largely because they’re posted in two-foot numerals at gas stations across the country. It’s much like the so-called wealth effect, except that in this case it’s not high earners feeling richer amid a bull market. It’s middle-class Americans feeling better about their prospects because low gas prices are providing a tailwind to an already improving economy.
It wasn’t simply the $40-per-month in gasoline savings that prompted Melanie Gold, 46, to buy a United Airlines ticket to visit a friend in New Mexico she hasn’t seen in 18 years.
“I can’t say I’ve been setting 10 bucks aside each week,” said Gold, who commutes to her editor job in New York from Bangor, Pennsylvania. “But that’s my justification for making the trip. Gas prices are very visible.”
That can cut both ways. In Houston, low gas prices are a reminder that the U.S. oil boom has hit a wall because a worldwide glut has made fracking less economical. Cordell Marshall, who has toiled in the industry for 30 years, is getting less work these days.
“It’s bittersweet,” said Marshall, who has worked for producers including ConocoPhillips. “I’d rather pay higher gasoline prices and be able to earn money to make ends meet.”
Some Americans wonder how long it will be before gas prices reverse course and are spending the windfall now while the getting is good. Raymond and Valerie Frost, a 20-something couple from Oakland, are spending most of the $80 a month in gasoline savings on clothes for their three kids or eating out.
“We have to enjoy it before gas prices go back up,” Raymond Frost said. “This isn’t going to last.”