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Low gas prices have consumers willing to spend a little more cash. You see, consumer sentiment is going up as cheap gas spurs spending momentum elsewhere.
Chris Christopher, IHS Global Insight’s Director of Consumer Economics, explains exactly how elastic price and consumer spending are. It’s basic economics.
“Consumers are very, very sensitive to pump prices. Even though they are about 3% of disposable income, they play a very unwarranted role. However, prices are very visible, and that’s what makes consumers very, very sightful of them. ”
In just the past few months, consumer spending on gasoline has fallen by more than 10% – from a $381-billion annual rate in June (the highest all year) to just $241 billion in October.
Gassing up for the Holidays
And as we’re approaching the end of the year, all signs point to a very happy holiday season. Conditions are actually perfect for consumers to spend away…
“We are headed into the holiday sales season, so the first thing is… people are going to have to buy turkey, the turkey dinners, and all that kind of stuff. However, the sort of big ticket durable items, large screen TVs, fancy phones, etc. They should do very well.”
And it’s not just middle-class consumers who will make out big this season, cheaper gas will benefit the rich and the not so rich.
Think of it this way: When consumers spend less on gas, they have the perception that they have more money in their pocket. This psychology is going to affect low-end consumers the most. As a result, we’ll see them spending this “extra” money at discount stores, like dollar stores.
Moreover, consumers will keep the up-spiraling trend of purchasing big cars – SUV and pickup truck sales are expected to continue rising.
And “the chase” continues,
Commodities Research Team