Most will benefit but
the impact is mixed
Low gas prices may lead to no raise in Social Security
Anyone filling up at the pump has noticed the drop in gas
prices. The government reports that gasoline prices in the Atlanta area in June
dropped 21 % from a year ago, and that report comes before more recent price
decreases at local gas stations.
The lower prices are appearing due to an oversupply of oil
nationally and despite a higher state gas tax here in Georgia.
That is good news for motorists who can spend less on fuel but determining how lower gas prices impact the larger economy is harder to
calculate.
There is certainly a psychological boost to seeing a drop in
prices, but there are also some very real measurable advantages.
For instance, motor fuel represents about 6 % of expenditures
for the average Atlanta household, so a 21 % drop in costs translates to roughly
a little more than a 1 % increase in disposable income.
The current personal savings rate in the U.S. is 4.8 %, so
if the typical household saves 20 % of their gasoline savings, they will have
about $10 per week more to spend on everything else.
A nice addition to the economy, but not high enough to be
inflation-creating.
Seniors may not see lower gas prices as a benefit
Of course, that assumes that you live in a typical household.
Older citizens are likely to wish for higher gas prices as they impact raises in their Social Security monthly benefits.
Seniors, for example, tend to spend less on gasoline as they
retire and stop the daily commute.
Lower gas prices are taking a toll on inflation, and thus on any chance of an increase in the Social Security monthly benefit in January 2016.
If the adjustment to Social Security were to occur today with a current inflation rate of -0.4 % for the CPI-W index, there would be no change to Social Security benefits next year.
This comes at a time when other costs, such as medical, continue to rise.
Senior citizens, who are more likely to be impacted by
medical costs, have seen a 3.9 % in their health care costs in the Atlanta area since last June.
Without an increase in Social Security benefits, they may have to meet those additional costs out of their own pockets, although without a raise in Social Security benefits, Medicare will not increase its monthly fee for Part B for those having their payments deducted through Social Security.
Younger people may see less benefit to decline in cost of gasoline
Some millennials are choosing to live closer to their jobs,
so gas prices, both up and down, have less impact on their daily lives.
With
many of them renting rather than buying homes, they are more affected by rents,
which have increased 4.9 % since last year.
Beneficiaries of lower fuel prices
The real beneficiaries are those with long commutes, such as
families living in their own homes located in the more distant suburbs where
the car is a necessity, and there are few commuting options other than driving.
Other beneficiaries are automobile dealers selling large
SUVs and trucks, which are seen as more affordable now that gas prices have
declined.
After the recession, it appeared that people were choosing
to live closer to Atlanta but expect that trend to reverse as lower gas
prices encourage the building of homes in more distant suburbs where land and construction
costs are lower.
Georgia a non petroleum industry state
The lack of a petroleum industry has held back the state’s
growth in the past, but now is a boost that should see dividends paid in its overall
job growth compared to states’ economies more dependent on oil and gas
production.
North Dakota, which had been recording annual job increases of 4 % or more, is now losing jobs as oil and gas production slows.
Since Georgia lacks the oil and gas reserves found in other states, the decline in those industries will not affect it, while the state's industries that use petroleum benefit.
Lower fuel prices also have an impact on companies, such as Delta and UPS, where fuel costs make up a sizable portion of their total costs of doing business, not to mention trucking companies and railroads.
Lower costs should lead to higher profits and stock prices to the benefit of investors.
Even farmers will benefit from the lower fuel prices, although that might be partially offset by lower prices in commodities they produce, such as cotton.
Tax increase offset by lower prices
Even Georgia’s gas tax increase, coming at a time of lower
prices overall, is masked by the lower prices at the pump.
Motorists who fuel up will most likely not notice a small rise in prices after these large declines.
For a tax-adverse state like Georgia, that is good news for incumbent politicians.
Overall, Georgia’s economy benefits from these lower prices,
but, as always, it depends on how long prices stay lower, and how important
fuel costs are to the budgets of individual households and businesses.
