Thursday, October 16, 2008

How Falling Gas Prices Help the Economy

After peaking in July 2008, gas prices fell by 20 percent over the next three monthsGiven the stock market's recent performance, it's not surprising that gasoline's falling prices are garnering very little attention. That doesn't make it any less relevant, however.

Since peaking in July, gas prices are off by 20 percent.

Falling gas prices are an important positive for the U.S. economy because less money spent at the pump means that more money is saved per household for everyday items including food and other staples.

In addition, consumer spending makes up two-thirds of the economy. 

Therefore, falling gas prices may lessen the impact of a forecasted recession.  Because Americans are notoriously poor savers, the extra cash-on-hand is likely to get spent which will, in turn, push the economy forward through the upcoming holiday shopping season.

So, just as inflation can bad for mortgage rates, so can recession.  And while recession won't always cause mortgage rates to rise, right now, it's one of the factors driving rates higher.  Falling gas prices may help keep that scenario at bay.

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