Lower oil prices lead to lower gas prices which leads to greater retail spending in other sectors. According to a February 13th Jefferies Franchise Note, U.S. consumers say they are currently putting more of their savings from lower gas prices into paying off debt and beefing up their savings instead of buying a new household or luxury item, but that may change soon.
Jefferies analyst Randal J. Konik and team highlight the top line results of their 1000-consumer nationwide survey of consumers who drove at least 10,000 miles a year in the introduction to the report. “Our survey showed personal savings and debt repayment are likely to remain top priorities for consumers as gas savings accumulate, but retailers could start to see a meaningful benefit as 55% of survey participants expect to spend more in consumer discretionary categories over the next six months, assuming gas prices remain low. Interestingly, we also found that consumers plan on altering their spending patterns within consumer categories over the next six months, with recent top categories restaurants and groceries unlikely to pick up incremental spending share, whereas home goods/improvement, apparel/accessories and electronics are bound to see a ramp up in spending share, according to our survey.”
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Highlights from Jefferies 2015 Consumer Gas Prices Survey
Konik et al note that that their survey showed personal savings and debt repayment are likely to stay as top priorities for consumers as savings from lower gas prices accumulate. The survey also suggested that retailers might begin to see increased sales soon as 55% of survey participants said they anticipate spending more in consumer discretionary categories in the next six months with low gas prices in place.
Consumers also reported they planned to change their spending patterns within consumer categories in the next six months, with current top segments restaurants and groceries slipping, and home goods/improvement, apparel/accessories and electronics likely to see increased sales in the near future.
The Jefferies analysts argue that their “survey findings validate our initial assessment that lower gas prices combined with an improving macro-economic backdrop could lead to an increase in consumer spending and thus, be a meaningful tailwind for retailers in 2015.”
Rare historical situation for gas prices
The report also notes that gas prices typically track many other measures of economic health including GDP and weekly earnings. Konik and team argue that these historical relationships are essentially created by demand. That is, decreasing demand from weaker economic activity leads to falling prices. However, since dropping gas prices this time are being driven by oversupply rather than less demand, the historical relationships between economic metrics are diverging.
They point out this unique historical clearly provides a tailwind for consumer spending. “Looking at the relationship between weekly earnings growth and gas prices, one can see a clear divergence in recent trends creates a unique tailwind for consumers. There haven’t been too many historical periods where a prolonged decelerating trend in gas prices has coincided with an accelerating trend in weekly wages.”