As consumers, we’re always mindful of costs. The largest expenses Americans generally face on a monthly basis are mortgages or rent, food, gas and utilities. You might splurge occasionally on a nice dinner, perhaps a weekend getaway, or even 3 Frozen dolls for your little girls, because the non-financial cost of not doing it outweighs the actual monetary cost… Well, you get the point.
The decline in the price of oil, which sent gas prices lower, has had a substantial impact on the US economy. That’s more money in our pockets to spend elsewhere. Nearly 70% of US Gross Domestic Product is consumer spending. On average, the gas pump sucks away 4% of Americans earned income. And that’s before tax. It might sound small, but when you tally up the Dollars, it becomes a pretty big number. So cheaper gas is a big positive for the US economy.
Low oil has been well chronicled, but did you realize that the price of sugar, wheat and coffee are also at 1-year lows? Pork and beef prices have fallen too. We already know how low interest rates are. It’s cheaper to heat your home this winter, and those east of the Rockies know cold. It is a rare time where we Americans experience price cuts for food, gas and in the home while the US economy is growing. The main reason is the rest of the world has stalled economically. Demand overseas continues to struggle, which means lower prices. You remember Econ 101. The stronger US Dollar has certainly played a role as many commodities trade in greenbacks. China, Japan and Europe continue to deal with their economic challenges, and thus far it has been manageable. The big risk for us is whether the US can maintain its immunity from the international ailments. These issues have been going on for years, and the US economy continues to march ahead.
Despite today’s downward revision for last Qtr, the US economy is slated to grow 3% in 2015. Consumers are benefitting greatly from these low commodity prices. February was the strongest month for the DOW in 4 years, which now sits near its all-time high. We do expect volatility to return and are prepared for it. But we still feel good about the prospects ahead.
So when you’re sipping a coffee, making a sandwich or firing up the grill this weekend, feel free to have seconds. They are “on sale”, and your money is working hard for you. Enjoy the weekend. We’ll be back, dark and early on Monday.
Mike
