It turns out not all of the spare change from lower gas prices has been lost in couch cushions: As much as 80 percent of it was spent elsewhere, the JPMorgan Chase Institute says.
Gas prices started to slide in the middle of 2014, plunging to a low of $2.03 a gallon in January of this year. The price this week is around $2.25, down from an average of $3.34 last year, according to the American Automobile Association.
At the end of 2014, the savings rate began a four-month climb, leading some economists to project money saved from cheaper fill-ups was just finding its way into household piggy banks. It turns out that most of the savings at the pump actually was spent elsewhere.
Almost 20 percent of the gas savings in the peak-to-trough period of pump prices were cashed in at restaurants, with purchases close behind at grocery stores (10 percent), entertainment outlets (7 percent) and department stores (6 percent), the think-tank wing of JPMorgan Chase & Co. reported.
Americans in the South and the Midwest, who tend to spend more at the pump, were the biggest regional winners when gas prices declined, while the gains were smaller for states in the East and West. Counties in Louisiana and Texas topped the charts. Four counties in New York and New Jersey, plus Washington, D.C. — areas where public transportation is more commonplace — made up the five smallest gainers.
It also paid to be young: Those aged 18-29 saw the biggest gas savings boost since 3.4 percent of their incomes are typically spent on gas, the data show. Among those earning less than $30,000 a year, cheaper pump prices provided as much as a 1.6 percent lift elsewhere to monthly income, or about $31 that would have otherwise been spent filling up the car.
While the individual savings appear modest — an extra $31, even for small spenders, won't exactly pay for even one fancy night out — the group projects the savings will be durable, as gas prices are projected to remain low at least through the end of 2015. That also won't boost GDP since the consumption on balance is just shifted, not increased. One dollar that was needed for gas might now be used toward a cup of coffee. Spending that dollar of fuel savings ensures that growth is sustained.
"Depending on who you're talking to, there are two angles to it: One is this is great news, people are consuming and therefore GDP is sustained and we should be happy about the consumer confidence," said Diane Farrell, the institute's founding president and chief executive officer.
Those seeing the glass half-empty will point out that because that consumption has already shifted, we shouldn't expect more gas savings to be imminently pushed into consumer spending.
"To the extent that people were expecting that the savings would lead, after a long period of gas prices staying low, to people sort of turning to consumption — that we had additional wind in the sails coming, so to speak — we would say it's already built into GDP," said Farrell, former deputy director of the White House's National Economic Council from 2009 to 2011.
JPMorgan Chase Institute used a customer sample of 25 million debit or credit card account holders to analyze the spending geographically. A pool of one million debit card holders who don't hold a gas station-specific card, and who live in a zip code with more than 140 individuals in the sample, were considered in analyzing gas and non-gas spending patterns.