Pulse Price Report: Consumer Spending and Gas Prices

As gas prices began to fall in the beginning of 2015 and the oil industry was dragging the markets down with it, the hope was that less money spent at the pump would translate to more consumer spending on goods. If it only costs $20 to fill up your tank, then go ahead and buy that new toaster.

But the first two months of 2016 have not shown that kind of balance. Retail sales declined 0.1 percent in February. Even more disappointing was the revision to January’s numbers, which turned a 0.2 percent gain into a 0.4 percent drop.

Household purchases include food, clothing, cars, rent and personal services. They make up around 70 percent of gross domestic product, driving the United States economy more than anything else. These household purchases climbed two percent in the last three months of 2015, fueling the hope of continued gains into this year.

Economists say one reason consumer spending is sluggish even if Americans have more gas money in their pockets is the volatility of the markets. The first two months of 2016 have seen dramatic gains and losses in the major U.S. markets and that can scare people into not spending money.

Those who have more money that is susceptible to volatility in the markets, typically higher income individuals, make up a majority of consumer spending. When they are sheltering their money from the volatile markets, consumer spending struggles to gain momentum.

The Federal Reserve is trying to understand why consumer spending has not strengthened as the job market and gas prices incentivize household purchases. Hints of interest rate hikes from the Federal Reserve have not yet been realized, indicating that this stagnation in consumer spending may have more power than the Fed thought.

So go ahead and buy that toaster. The Federal Reserve will thank you.

Crop prices (March 29)

Rio Creek Feed Mill – Algoma

Fox River Valley Ethanol – Green Bay

Basis: The difference between the local cash price for a commodity and the Chicago cash price (where the Board of Trade sets national futures price).

Gas Price Averages

United States: $2.04

United States one year ago: $2.42

Wisconsin: $2.02

Wisconsin one year ago: $2.47

Northern Door: $2.08

Sturgeon Bay: $2.08

Other Commodities

Gold: $1,227.00/troy ounce

Silver: $15.23/troy ounce

Oil: $38.31/barrel

Sources: aaa.com, agweb.com, gasbuddy.com, cnn.money, Bloomberg.com/markets