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In Search of the Cheap Oil Dividend

Mark Whitehouse writes editorials on global economics and finance for Bloomberg View. He covered economics for the Wall Street Journal and served as deputy bureau chief in London. He was previously the founding managing editor of Vedomosti, a Russian-language business daily.
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Given all the money that U.S. consumers have been saving at the gas pump, they should be boosting the economy by spending more on other stuff. If such a "cheap oil dividend" exists, though, it's very hard to see it in retail sales.

QuickTake Oil Prices

When oil prices started falling last year, most economists expected gas-guzzling countries such as the U.S. to benefit. Indeed, cheaper gasoline has freed up a lot of potential spending money. After increasing at an average annual rate of almost 5 percent from 2010 to 2014, sales at gas stations declined about 20 percent in the first nine months of 2015 from the same period in 2014 (when gasoline prices peaked). That represents a cumulative savings of more than $100 billion.

Consumers, though, don’t appear to be taking that money to the mall. They spent about $170 billion more on non-gasoline items in the first nine months of 2015 than in the same period of 2014, but that wasn't enough to keep up with the average pace of growth over the previous several years. In other words, there was no added gain in non-gasoline retail sales. Here's how that looks:

To be sure, retail sales are just one of many indicators, some of which do suggest that consumers have been spending their gasoline savings. A careful study of credit-card data by the JPMorgan Chase Institute, for example, found that consumers spent about 80 cents of every dollar in gas savings on other goods and services such as groceries and restaurants.

Why the discrepancy? One possibility is that other economic forces have obscured the boost from cheaper gasoline. The U.S. currency's rising exchange rate, for example, might have lowered the prices of imported goods, making retail sales look smaller in nominal dollar terms. Also, JPMorgan looked at spending during a specific window: December 2014 to February 2015, versus the same period in 2013-2014. It's possible that the strong year-on-year gains of early 2015 quickly petered out, as the data in the chart above suggest.

In any case, particularly given its negative effects on the U.S. shale industry, it's still not clear that the benefits of cheap oil will outweigh the costs. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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James Greiff at