CHICAGO — When gas prices swelled to $4 or more per gallon in June, traveling salesman Neil Kocsis paid $70 to $100 to fill up his tank, forcing him to make some sacrifices for the sake of his budget.
“I didn’t travel as much as I used to,” said Kocsis. “For work, I obviously had to, but if I didn’t have to go to a restaurant, I wouldn’t. I would stay in more or go somewhere in walking distance.”
Ready supplies of cheaper oil, however, have changed the economics for consumers such as Kocsis. With oil dropping to a six-year low, prices at the pump are down nearly 40 percent compared with last year, delighting consumers who are finding it a lot less expensive to fill up the tank. Those savings also are expected to fuel gains in a rebounding economy.
“This is actually a boon for me,” Kocsis said. “I’m going to pay off some Christmas gifts and do a little shopping splurge before they go back up.”
Diane Swonk, chief economist at Mesirow Financial, said if oil prices stay in the $50-60 range, consumers could save $300 billion this year, or about $1,000 per household on gasoline purchases.
“It’s an enormous windfall for consumers,” Swonk said. “They thought it was temporary and it wouldn’t pan out, but as oil prices continued to go lower, there was a shift (in consumer attitude). Not only have prices fallen quite a bit, but we see it’s real money.”
The average cost of a gallon of regular unleaded gas was $2.18 Thursday in Chicago and $2.03 in Illinois – the lowest prices in six years, and more than a dollar cheaper than last year, according to GasBuddy.com.
Gas was a tad more expensive at station where Kocsis filled up, but he said the price was still a bargain, shaving his gas bill in half.
Gas prices aren’t always a reliable predictor of how people will spend, economists say.
Also important is wage growth, which has remained stagnant. During 2014, average wages rose just 1.7 percent, not much above the inflation rate of 1.3 percent, Swonk said.
That might be one reason why new retail spending figures from the Commerce Department in December showed relatively flat gains after excluding the volatile categories of gas and cars.
Lower fuel costs could offset the effect of sluggish income growth and give the U.S. economy a boost in the second half of 2015, Swonk said.
“Wage growth is absolutely what you want, but it can be uneven,” Swonk said. “You want wage growth, but energy costs affect everyone across the board.”
Cheap gas generally has a strong psychological effect on consumers, said Jack Ablin, executive vice president of BMO Private Bank.
“They feel bold and spend more, buy a car, or do something with a fair degree of confidence,” Ablin said.
He said the recession “has left a meaningful scar across large parts of the country,” but the costs should be a welcome reprieve for low- and middle-class consumers.
“When there are low prices, it puts more money in peoples’ wallets,” Ablin said. “For those making the median income, they spend about 20 percent of their income on energy between cars and homes.”
Bede Bertalmio, 57, is one of many consumers who are struggling, even though the recession officially ended in 2009. Bertalmio said he has been underemployed since 2011, when he lost his manufacturing job. Now a part-time porter at a Chicago area Hertz Rent-a-Car, Bertalmio said lower gas prices are a small boon to his budget.
“I used to make $50,000 or $60,000 and now I’m down to $10 an hour, and I had to draw my pension early,” he said. “I do anything I can to make ends meet. . I think (lower gas prices are) good for the economy now that people don’t have to put $100 in their tank every week. Let the little people make some money.”
David Cohen, a part-time driver for Uber, an app-based ride-hailing service, said he likely will be among those shopping more now that he pays about $125 less per month on gasoline compared with last year.
“It means you can buy more (groceries), take your girl to Burrito House instead of Taco Bell, maybe even take a trip to Vegas,” Cohen said.
December data from the Commerce Department show the restaurant and beverage industry saw an uptick in sales from November, while auto sales declined, a sign that Americans are being more cautious when it comes to large ticket items, economists said.
“Some most interesting things in the downdrafting of gas prices is we’ve seen an increase in consumer spending without taking out a lot of debt,” Swonk said.
The last time prices fell this much was from 1997 to 1998, when prices dropped from $26 a barrel to $10. While prices have tumbled over the course of six months this time, Ablin said the economic environment resembles the “extremely strong” economy of the late 1990s.
This week’s gas prices are most likely nearing their lowest levels for the next two months after which refiners will shift to producing cleaner, “summer-blend” gasoline as required by the federal government, said Patrick DeHaan, senior petroleum analyst for GasBuddy.com.
“Prices will rise the next couple months, but it will still be considerably lower than last year,” he said.
That’s welcome news for Mike Gingras, 32, who frequently drives for his job managing breweries in Illinois and Indiana. He said he paid about $50 per tank last year, but only $26 most recently.
He said he laughed when he bought a gallon of antifreeze for $4.30 last week.
“This cost more than a gallon of gas,” Gingras said.