Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Tuesday, August 4, 2015

Lower gas prices are good for Atlanta economy

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.