A Mini Collapse In Gasoline Prices

The price of regular gasoline never reached its all-time national record of $4.11  as some had feared. Several research firms show the price of a gallon of regular has dropped 5% or 6% over the last two weeks. The closely watched AAA numbers say that the price per gallon is $3.843. It was $3.955 a week ago. The improbable has become the possible with gas prices, and that may be just enough for Americans to view their financial prospects more optimistically than they did earlier this month.

The most obvious threat to consumer spending in the US has been that fuel prices would take a greater and greater portion of the weekly paychecks of most people. This theory has gone further to say that the money people got from tax cuts has been pumped into their gas tanks further undermining economic growth.

A fall off in gas prices might be enough to brighten the mood of consumers, but it cannot change their fortunes all by itself. The real test of the future of consumer sentiment will come when unemployment rates for May come out in two weeks. There will be more insight into the housing market around the same time. The lift that a drop in gas prices should give consumers could be gone before the middle of June.

The media tends to look at news that consumers may welcome by putting the information into categories. Home prices are different from gas prices. Gas prices are isolated from unemployment. People may travel more than expected over Memorial Day, but the trend could be reversed over the July 4th weekend and Labor Day.

There is no single test of how the average American, the key to US consumer spending, will view their financial world. Each new piece of good data causes many experts to forecast a recovery, and the stock market may rally for a day or two. Each piece of negative news worries economist and investors.

There has been no real advance in consumer sentiment at all if key economic indicators are measured as a whole . The third quarter may be the most telling of the year. Consumers will have a chance to digest what they have heard and what they have experienced in May and June. And, no one can predict with any accuracy how they will react.

Douglas A. McIntyre