Consumer Conundrum: Lower Gas Prices Not Adding to Retail Sales

Plummeting oil prices are supposed to act as a huge pay raise for consumers. After all, less money filling up your car means more to spend elsewhere. Needless to say, Wall Street and Main Street are both rightfully disappointed by a weak retail sales report for December. The long and short is that spending seems to have dropped off right as the holiday season came to an end.

The U.S. Department of Commerce reported that retail sales fell by 0.9% on a seasonally adjusted basis. Amazingly, and despite lower gasoline prices, that was the lowest reading since January of 2014.

If you exclude gasoline sales, the retail sales were still down by 0.4% — and they were down 1% if you remove all auto-related spending.

Now look at 2014 as a whole and sales were up 4.0%. This is lower than the 4.1% gain in 2013, and it was the lowest gain since the recovery began. If you back out gasoline sales, retail sales were up by 4.8% in 2014. Electronics stores were down 1.6% in December, followed by a 1.9% drop at home improvement stores.

On top of a weaker than expected December, November and October saw some of its retail spending metrics revised lower as well.

Keep in mind that gasoline was down $1 or so in many locations from the prior year in December.

As a reminder, consumer spending accounts for roughly two-thirds of gross domestic product (GDP) now. All in all, the case that the holiday spending will have added anywhere close to that 5% GDP gain in the third quarter seems to be disappearing. So, what are consumers doing with their money? Most likely, they are paying off bills — and hopefully they are saving more.

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