Tallahassee Journal

Gas prices fuel fourth quarter spending

Gas prices fuel fourth quarter spending

Retailers are preparing to report results from their most important quarter of the year — the fourth — in the next few weeks. Those might be the first concrete signs that lower gas prices are paying off for both shoppers and stores. Retailers’ fourth-quarter results are riding on high expectations that cheaper gas led consumers to splurge during the important holiday shopping season. Consumers already benefited last year from steady growth in jobs and low inflation.635588297423794725-AP-Gas-Prices

With gas prices plummeting in recent months, consumer confidence soared just in time to deliver retailers what’s expected to be the best holiday season of the past three years. Most major retailers report fourth quarter results in mid to late February. Gas prices were “the cherry on the cake,” says Greg Daco, head of U.S. macroeconomics at Oxford Economics. He and others stress that other positive economic factors in place before gas prices dramatically fell laid the groundwork for higher spending.

“People are less concerned about saving or paying down debt and more willing to spend overall,” says Louise Keely, senior vice president at Nielsen. “There’s a longer term trend of recovery and the confidence reflects that.” Retailers’ same-store sales reported for November and December already point to a strong quarter. J.C. Penney said sales at stores open at least a year, a key metric for retailers, were up 3.7% in those months. Macy’s reported sales up 2.7%, and Gap and Target both said their sales increased 3%.

By Nielsen’s calculation, the average American is saving about $70 a month because of lower gas prices. “For many American households, that’s a significant amount of money,” Keely says. In a survey conducted in mid December, Nielsen found that nearly 40% of consumers said they have more money to spend due to falling gas prices. While most people said they’d use the savings to pay down debt, almost a third said they’d spend it on entertainment or clothes.

Gas prices steadily declined during the latter half of 2014, beginning to bottom out in November and December, just in time for holiday spending. The overall average price for the month of January was $2.11 for a gallon of self-serve regular, the lowest monthly average in nearly six years, according to AAA. “Whatever economic segment that you’re from, you’re paying attention and saying, ‘Wow, it only cost me $40 to fill up versus $60 to fill up,’ ” says Bob Drbul, retail equity analyst with Nomura. It’s likely lower-income households, and the discount and dollar stores that cater to them, will benefit most from fatter wallets, says Brian Yarbrough, senior analyst with Edward Jones.

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