Good news hidden behind the bad

Wednesday May 1, 2013

The latest report on consumer spending was released this week by the U.S. Department of Commerce. And depending on how you look at the numbers, the report could be either good news or bad.

On a more positive note, consumer spending increased 0.2 percent in March. However, spending weakened toward the end of the January-to-March quarter. Consumers increased their spending by 0.7 percent in February and 0.3 percent in January. This could indicate a downward trend, and indeed Fox News reports that the U.S. may be heading back toward a recession.

But if you look at the first quarter as a whole, the government said consumers spent 3.2 percent more on an annual basis than in the previous quarter -- the biggest jump in two years. The Associated Press reports that these spending increases highlighted a broader improvement in Americans’ financial health that is blunting the impact of the Social Security tax increase and raising hopes for more sustainable growth.

Economists also note that Americans saved less in the first quarter, which was likely a temporary response to the higher Social Security tax. Most expect the savings rate to rise again in the coming months, which could limit spending.

Now back to the good news: Economists say several longer-term trends are likely to push in the other direction and help sustain consumer spending. Gasoline has gotten cheaper, rising home values and record stock prices have restored household wealth to its pre-recession high, and employers are steadily adding jobs, which means more people have money to spend, according to the AP.

Among those positive trends, the most immediate benefit for consumers is the price of gasoline. Over the last week the national average price for a gallon of regular unleaded gasoline dropped to $3.50. This is 2 cents less expensive than one week ago, 14 cents less than one month ago and 32 cents less than one year ago, according to the AAA Fuel Gauge Report.

In April, the national average gas price was $3.55 per gallon, the least-expensive monthly average since 2010, AAA reported. Prices dropped about 13 cents per gallon during the month, or 3.5 percent, the largest monthly decline in 10 years. One year ago, the average gas price per gallon in April was $3.89 and in 2011 it was $3.79.

"Gas prices in much of the country have declined this spring because of lower oil costs, ample refinery production and continued weak demand," stated Avery Ash, AAA spokesman. "Gas prices have fallen faster and earlier than ever before for this time of year, and it is saving motorist millions of dollars per day in lower fuel costs."

What’s more, analysts expect the price of gas to drop an additional 20 cents over the next two months. That’s certainly encouraging for drivers with long-distance vacation plans over the summer, including our southern New England neighbors who are planning get-aways to Vermont.

It also could help buffer the 5.9-cent-per-gallon tax increase that the Vermont Legislature recently approved.


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