Are Americans On A Shopping Spree With Their Gas Savings?

Morgan Stanley analysts Ellen Zentner, Ted Weisman, and Robert Rosner issued a report on the U.S. economy as the fall in gas prices has led to increased savings which has soured sediment regarding the labor market and wages. They compare this situation to the economic theory of Ricardian equivalence which states that household consumption is based on the lifetime present value of disposable income. While consumer spending is above normal, households appear to be saving their disposable income from low gas prices rather than spending it. The BEA reported that real personal consumption expenditures increased by 4.3 percent in the fourth quarter which is above the 5-year average of 2.4 percent. However economists believe that if US households had spent a majority of their savings at the pump, real personal consumption would have risen even higher. At the December FOMC press conference, Janet Yellen compared the impacts of lower energy prices to a tax cut by saying, "the decline we have seen in oil prices is likely to be, on net, a positive. It's something that's certainly good for families, for households. It's putting more money in their pockets. Having to spend less on gas and energy, and so, in that sense, it's like a tax cut that boosts their spending power." However, the analysts believe that households are expecting to see higher energy prices in the future, thus they are less likely to go and spend their gains in income from lower gas prices. Currently crude Brent oil is priced at $61.31.