US Economy in Trouble Due to Lack of Consumer Oil Premium?

Photo of author

By Jacob Maslow

man pumping gasConsumers are currently enjoying an oil premium. Whenever the price of gas at the pump drops, this acts like a massive tax break on a typical American household. Instead of spending an extra hundred to $200 a month, the typical American household has that much extra money.

A lot of economists were hoping that consumers would use this gas premium to pump up the US economy. They were expecting that consumers would spend that extra hundred dollars to $200 a month buying stuff or services. Of course, for every dollar spent on the economy, it has a multiplier effect. It can create a lot of jobs and trigger other economic activities. Regardless of the process, it results in a net positive for the US economy. This is why the government is very big in trying to get people to spend more. While business investment and business spending make up a decent chunk of total American economic activity, the US economy still relies predominantly on consumption.

With this background, it’s understandable why many economists are worried regarding what Americans are actually doing with the gas pump premium that they are enjoying. Instead of spending this windfall, most households are actually using it for savings. They’re putting it away in the bank for later investment. A large chunk of American households is also using this gas premium to pay down their debt.

In normal times, this would be a good thing. If the economy is already humming along and has reached a really high point and is very solid like they say in the middle of the Clinton years, this would be a welcome behavior. However, the US is still trying to solidify its economic recovery and could use as much consumption as it can get. It’s not getting it from the gas premium. This has many economists worried. The recovery may not be as strong as it appears.

Images Courtesy of DepositPhotos