https://www.cnn.com/2023/11/28/economy/gas-prices-drop-consumer-spending/index.html
Gas prices have fallen for 60 days (thus far).
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At the same time, it doesn’t change to total spendable amount, just on different things. Thus, I wouldn’t expect any impact on GDP, for example.
DB2
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Well by that logic it shouldn’t matter if it goes up either, because it will just be spent on Gasoline not on different things. My thought is if you have more money in your pocket, you feel richer, and you go out and spend it on other things. That gets the fly wheel spinning as more and more people spend money thereby raising the GDP.
Andy
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That is the general idea. If you make then sell, say, candles you would be affected by the price of gasoline but the GDP wouldn’t.
Which asks the question, is the velocity of money related to the price of gasoline? Here’s a graph of gasoline prices (red is inflation adjusted):
Here is the velocity of money graph
:
The higher prices of gas in the 1970s did not seem to have much of an effect on money velocity. However, low gas prices in the '90s were accompanied by higher money velocity. The drop in the velocity of money this century does not seem to have a corresponding long-term rise in the price of gasoline.
DB2
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This is a bit old (2006) but the CBO shows a direct connection between high(er) gas prices and less GDP.
Snip:
The recent increases in energy prices have dampened economic growth in the United States. The growth of real (inflation-adjusted) GDP was probably reduced by about a quarter of a percentage point in 2004 and by less than half a percentage point in 2005; so far this year, the reduction has been about a quarter of a percentage point. Therefore, GDP in 2006 is probably lower by about 1 percent than it would have been if energy prices had not risen.
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Interesting. So it does juice up people’s spending. At the same time, since the 2004-06 period of that study the US is no longer importing huge amounts of energy. Buying petroleum products from overseas reduces the D in GDP.
A study of the 2014-16 period of declining oil prices found that the change in consumer spending was offset by less spending in the oil sector:
“This stimulating effect, however, has been largely offset by a large reduction in real investment by the oil sector. Hence, the net stimulus since June 2014 has been close to zero.”
DB2
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