According to statistics, the American economy is projected to grow as a result of the reduced fuel price. In December 2014, consumers’ spending declined due to the extra money saved as a result of reduced fuel price (Reuters par. 2). However, the declining factory activity is a clear indication that the rate of economic growth will be slow in the first quarter (Reuters par. 3). This is because consumers’ spending accounts for two-thirds of the total economic activities in America (Reuters par. 3). In this case, the economy has experienced a reduction of 0.3% in consumers’ spending, even though a low rate was recorded the previous month. This shows that there is a likelihood that the economy is improving.
The last time a decrease in consumer spending was recorded in a similar proportion was in 2009. According to the national factory activity index, the manufacturing industry is expanding. However, there was a decline from 55.1 to 53.5 units (Reuters par. 5). It is imperative to understand that 50 units and above indicate that the sector is doing very well. Reduction in the price of gasoline has resulted in several advantages in favor of consumers. Economists also project a brighter future, especially in the first quarter. First on the list is the amount of individual savings that are expected to rise due to the cheaper retailing fuel price. The extra income saved from cheap gasoline can be used in other expenses such as paying debts (Reuters par. 5). Household income has consequently increased by 0.5 percent. This is the highest increment to be recorded since March last year.
Another equally significant economic indicator of a decrease in consumer spending is the total saving rate. In December last year, the American economy recorded a 4.9% increase in the total savings which was an improvement from the previous month (Reuters par. 10). However, the reduction in retail prices was only experienced in food and fuel products. The prices of other products in the market remained unchanged. One of the major impacts that the decline of fuel prices has had on the economy is the stalling of inflation below the expected target. This is projected to cause a delay in the anticipated increment of interest rates by the Central Bank (Reuters par. 10). Apparently, the Central Bank will have to delay its midyear interest rate increment due to the price pressure that is building up as a result of cheap fuel prices. The drastic fall in fuel price has significantly increased households’ personal income in the first quarter and this is expected to remain the same for some time.
The economy and the consumers are gaining a lot from this reduction. Gasoline price influences all other products, since it is the major contributor to the nation’s energy resources. Consumption growth in 2015 is expected to rise and remain high throughout the year due to the reduced fuels price. The assumption in this article is that the economy’s dependence on fuel will influence stakeholders to review the prices of major products. If this happens, the consumer will be the greatest beneficiary of reduced fuel prices. This will also increase the rate of saving and better rates are likely to be recorded in the next few months. According to this article, low gasoline prices and firm labor markets will greatly reduce consumers’ spending (Reuters par. 6).
Works Cited
Reuters. Consumer Spending Falls in December, Despite Cheaper Gasoline, 2015. Web.