Given the lower gas prices America has seen lately, consumer spending could get a big boost in the months ahead.
Which is kind of crazy, when you think about it, since gas prices aren’t that big of a deal when compared with big-picture issues like the stock market and housing prices.
But like it or lump it, gas prices remain very important to sentiment.
I’ll admit, consumer spending is a baffling beast, and it’s very difficult to draw reliable trends. For instance, given the fact that wages haven’t gone anywhere in a decade and that the housing rally is starting to fade, damaging the “wealth effect” that makes Americans feel like they are better off … you’d think spending would be weak in 2013.
However, consumer sentiment remains strong and household spending was up again in August.
So given the resilience of the American consumer, it’s not unrealistic to think we are about to hit a very favorable holiday shopping season this fall and winter. And given recent low gas prices, that consumer pop could be even more dramatic — especially for sensitive stocks like retailers Walmart (WMT), Target (TGT) and others.
Of all the moving parts in the consumer picture, gas prices are probably the least likely to be a problem in the months ahead. Relative stability in Syria and the election of a rare moderate leader in Iran have reduced the “risk premium” on crude oil. And given the continued sluggishness of the global economy — particularly in manufacturing powerhouse China — it’s unlikely a spike in energy demand would skew oil and gas prices significantly higher.
That should bode well for consumers.
There are other factors at play, of course, and clearly not having a job is a much bigger drag on consumers’ spending habits than what they pay at the pump. But all other things being equal, it’s hard not to see a bounce in consumer confidence in the works should lower gas prices persist.
Related Reading on Gas Prices
- Gas prices are down 35 cents year-over-year. (Calculated Risk)
- And those prices could drop another 30 cents by Christmas. (Los Angeles Times)
- Would the Keystone XL pipeline drive down gas prices even further longer-term? (Washington Post)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.