Energy Economy

Gas Prices Slide Lower, Threat of $4 Disappears

Douglas A. McIntyre

Gasoline prices have started to drop in earnest, as many economists suggested. Nationwide, after peaking at $3.66 two weeks ago, the average price of a gallon of regular has dipped to $3.62.

According to GasBuddy, the drop-off has been significant in many of the states with the highest prices. They have fallen recently in California, Connecticut, Ohio and Pennsylvania. And the price increases have flattened in New York and Illinois.

While most experts suggest the drop will continue until Memorial Day, crude oil still trades above $100. And it would not take much more instability in Ukraine, Nigeria or several other hot spots in the Middle East or Central Africa to press that price higher.

READ MORE: Gas Prices Move Toward $4

However, in the meantime, as prices fall, their threat to the American economy recedes. Gas prices at $4 have often been considered a psychological barrier that causes consumers to pull back because their discretionary income disappears or is threatened. The math is not that simple. Gas does not have to get to $4 to damage consumer spending among low-paid and some middle-class Americans. But, on balance, the drop will free up money households might have spent on fuel, and perhaps allowing this money to flow into the consumer economy.

READ MORE: Can Refineries Help Lower Gas Prices?

While gross domestic product (GDP) and employment improvements have been robust, there is still a sense that the recovery has not taken hold entirely. Minorities, the young and the poorly educated continue to have trouble finding jobs. The housing recovery has stalled in many regions. Falling gasoline prices may offset some of these threats, although the threats have become persistent.

Gas may drop as low as $3.50 this summer. The price was $3.43 in early March. With GDP increases still hovering below 3%, the help would be welcome.