Lower gas prices lifting hopes for holiday sales

Experts predict cost of a gallon to reach $3.05 by end of year
Associated Press
Nov 28, 2013

No one begs Santa Claus for cheaper gasoline. Yet falling gas prices are shaping up as an unexpected gift for drivers — and for people on their holiday shopping lists.

The average price of gasoline has tumbled 49 cents from its peak this year to $3.29 a gallon, putting it on track for the lowest average since 2010, according to AAA. Because many Americans have had no pay raises, whatever money they're saving on gas has freed up a bit more for other purchases.

And history shows that when gas prices drop, consumers become more likely to splurge on dinners out. Impulse buys at the mall seem like less of a stretch. More people buy a gas-station gift card after fueling up.

Many retail analysts have forecast a ho-hum sales gain of around 2 percent this year; others predict an increase of up to 3.9 percent. But steadily cheaper gas could send holiday sales shooting above 5.4 percent, analysts say.

"Every little thing moves the needle at this point," said Carl Riccadonna, senior U.S. economist at Deutsche Bank. "The benefit at this time of the year certainly helps retailers, since it is not spread evenly throughout the year."

Tom Kloza, chief oil analyst at the Oil Information Service, foresees the average price drifting down, as it typically does this time of year, to as low as $3.05 by year's end.

For retailers, the best-case scenario would be for the national average to breach $3 a gallon, a psychological barrier that could help accelerate spending.

Cheaper gas could help build on the momentum of 2 million more Americans finding jobs this year. It might also help shore up consumers' fragile confidence in an economic recovery that's lumbered along for 4½ years.

Riccadonna estimates that breaking $3 gas would lead the average shopper to spend $47 more over the holidays. That figure would translate into $15 billion worth of extra shopping — possibly the difference between lukewarm and red-hot sales growth.

Prices briefly dipped below $3 in five states — Arkansas, Kansas, Missouri, Oklahoma and Texas — before rising above that threshold again.

Some service stations have been charging less than $3 around Tucson, Ariz., where Seth Nilson, a high school teacher, and his wife, Cristi, are enjoying more time at restaurants.

"We have definitely gone out to eat more lately," Nilson said. "She tends to cook less when gas prices are low."

Many consumers think of gas prices in 50-cent increments, said Britt Beemer, head of the consumer behavior consultant America's Research Group. Based on his firm's research, shoppers would spend more freely if gas settles below $3 or $2.50. They would likely step up purchases at grocery stores or spend $35 on a gift instead of the $25 they might have planned, Beemer said.

"A 10-cent drop doesn't really change the equation much," Beemer said.

Still, smaller declines in gas prices matter, too, even if they don't register as clearly with consumers.

Economists say lower prices disproportionately benefit lower- and middle-income consumers who must commute to work. Cheaper gas makes their trips more affordable and provides the equivalent of a tax refund that frees up spending money.

Given the still-sluggish economic recovery, many shoppers are expected to tilt toward practical gifts, like gas station gift cards, said Pam Goodfellow of Prosper Insights & Analytics, who polled consumers for the National Retail Federation.

Her survey found that the average gift card this year is expected to be worth $45.16, up from $43.75 a year ago — for a rough total of $1 billion more. Twelve percent of shoppers say they intend to buy gas station gift cards this year, compared with 9.3 percent in 2010.

The potential economic boost comes at a low point for consumer confidence. Confidence was battered by the partial government shutdown and the troubled launch of President Barack Obama's health care law, which led insurers to cancel coverage for millions.

Many major chain stores have acted aggressively to generate sales. Macy's will open on Thanksgiving night for the first time in its history, while Wal-Mart kicked off its usual Black Friday discounts a week before the holiday.

More consumers have not only been turning to Internet retailers like Amazon.com. They've also been browsing store websites ahead of time so they'll need to make fewer stops at the mall. But this year may bring a wrinkle: Falling gas prices tend to cause consumers to drive to brick-and-mortar stores more frequently, increasingly the likelihood that they'll expand their shopping lists.

"They become less surgical in their shopping behavior," said Bill Martin, executive vice president of retail analyst ShopperTrak. "That opens the door to more impulse buying."

Lower gas prices also tend to encourage a big-ticket purchase that a growing number of Americans make during the holidays: cars. Steep discounts and aggressive advertising helped sales increase 9 percent last December to more than 1.3 million, up from an 8.7 percent increase in 2011, according to Autodata Corp.

Market data tracked by Edmunds.com found that the share of SUVs, crossovers and trucks sold has ticked up a few percentage points to 18 percent or more in December, compared with as low as 14 percent in spring, when gas prices usually spike.

Edmunds.com chief economist Lacey Plache expects a slightly more modest increase this December. But she said auto dealers are adopting the same strategies as big box retailers eager to lure customers at year's end.

"We've seen the rise of the whole Black Friday phenomenon," Plache said. "There's this mentality that all the good deals are available in the latter part of the year."

Many consumers also know that lower gas prices this time of year are usually short-lived. So holiday-time spending typically provides a temporary lift, a short-lived chance to enjoy a new restaurant or buy another stocking stuffer.

"Now, if gas went to 99 cents a gallon," said Allena Portis, an accountant in the San Francisco area, "that would mean something."

Comments

No Wake

The '11 model Nissan Leaf has an EPA rated 73 mile range, and gets an EPA rated 2.94 miles per kilowatt hour (kWh) in varied traffic. As of last month's electric bill, I'm being charged .059 dollars per kWh I use. If I drove 73 miles and charged the car afterward, I would consume 24.83 kWh and be billed 1.46 dollars.

If I repeated this 30 times and drove 2,190 miles, I would consume 744.90 kWh and be charged 43.95 dollars. This is in addition to whatever you're charged for distribution of the power, which is a flat fee around $40 on my bill no matter how much power I consume.

If the car salesman couldn't give you this pitch when you stepped on the floor asking about electric vehicles, he truly is an idiot.

2cents

Diesel is the best for mileage per gallon. It is the standard across Europe and a lot of the world. Diesel small aircraft on their way!

FlyBoy86

You realize that aircraft already run on Kerosene...right?

2cents

This is the diesel cycle, please listen to the reasons here on availability. We are working with another company to put our patented technology on these aircraft.

http://www.youtube.com/watch?v=5...

FlyBoy86

I'll stick with Jet-A....

2cents

"A" works, but globally fuel is not so good so there is a need for an engine that can burn the diesel that is prevalent in most locations.

kURTje

Further the VW-XL1. Motor Trend did a test with the vehicle. Over 200m.p.g. Why aren't they being made? Godda wonder.......

Dr. Information

These "savings" sure are nice, but for the avg driver, it doesn't add up enough to make ones shopping experience that much better because they have a ton more cash. Facts are the avg driver who drives 1000 miles a month and gets 20 miles a gallon will save about 25-30 bucks for the month. Enough for one more cheap present.

miktoxic

well then why you right wing morons...didn't bush just bomb the hell out of the middle east and make it a runway for our planes to land and fill up, or our tankers to pull into port and fill up and bring us back this cheap oil.

keep talkin windbags.

Dr. Information

English please.

OSUBuckeye59

Alternative fuels and higher mpg delivery in vehicles is great, *BUT*, states have either already started charging additional fees to register green-cars or soon will because a reduction in gasoline purchases means a reduction in taxes which are used to repair and maintain roads. The government always gets their money. Always.

I will be interested to see 2 phenomena in the coming years . . .

#1. The increase in vehicle fees as compared to the increase in higher efficiency & alternative energy cars hitting the roads coupled with the decrease in conventional gasoline and diesel vehicles on our roadways.

#2. If this can be measured, any increase in pollution from fossil fuel electric generation plants as a result of an increase in electricity required for electric car charging vs. a potential decrease in auto exhaust, if that even occurs. I fear that any decrease in gasoline and diesel consumption in the U.S. will be offset by an increase in gasoline and diesel consumption in China.

No Wake

#3 Implementation of tracking devices so you're tolled depending on how much and where you drive. It would be simple to integrate into new EV cars rolling off the line, but it would be a legal nightmare to implement. Older cars would have to be grandfathered in, much like pre-'68 cars without seatbelts, pre-'86 cars without center-mount 3rd brake lights, and pre-'98 cars without airbags.

I'm all for per-use tolling as long as it makes sense and the data is anonymized, it would do a lot to encourage people to combine trips, carpool, use mass transit, and live closer to where they work instead of out in the suburban sprawl. On the engineering side, it would ensure heavily-traveled routes receive the funding they need to be properly maintained, instead of divvying road funds indiscriminately out of a communal pot.

kURTje

Heard that one before No Wake. It has merits though the need to know movement of said vehicle could be a tricky legal issue. Study Rudolph Diesel, bio-mass, pellet fuel etc. I feel their past has been thwarted by Big Oil. The gentleman on the west coast has been harvesting algae & making it "burn." See who one of his major backer is. Or look to Iceland & their abundant natural energy source (geysers) & BP's involvement.

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