Fuel prices are heading
downward to the merry of consumers and corporations alike. At the pump are some
of the lowest prices we have experienced in over four years. Low fuel prices
are not only helpful for families trying to balance their budgets but also businesses
that benefit from lower costs of building, manufacturing, and distributing
products. Low fuel prices could potentially have a positive influence on
economic growth in many of the same ways as a stimulus.
Consumer
Disposable Income:
Fuel is an expense that families must pay in order to get to work, drive their
kids to school events, or go to the grocery store. Families may cut back on
traveling in lean years but generally rely on their automobiles for daily errands.
When fuel prices decline the amount of money families must spend also declines
creating greater disposable income for purchasing other products.
Lower
Business Costs: It
costs companies to truck products from one location to the other. It also costs
business to run lights, equipment, and other aspects of their operations.
Lowering fuel prices also lower costs on everything that is included in the
process of obtaining resources, manufacturing items and distributing.
Acts
as a stimulus: Lowering energy
and fuel costs is one way to encourage businesses to grow and development. The
rewards are exclusively held within the country even though international
consumers reap benefits from cheaper American products. Just like interest
rates encourages investment so does lower business costs that way on profit
margins.
A study by Aucott and
Hall (2014) analyzed the effect of the price of fuel on GDP from 1950-2013.
Their study included fossil fuels and nuclear ore on the growth of the economy.
They found that the cost of energy has a significant impact on national growth.
If the percent of GDP spent on fuels rises above 4% there are implications for
slowing economic growth.
Consumers may be happy
with the lower gas prices but companies are also clicking their heels. The more
their businesses are tied to the cost of fuel like the airline, manufacturing,
and distribution industries the happier they are. Lower fuel costs act like a
mild stimulate on the economy that encourages businesses to expand operations
and consumers to get out of the house and spend.
Aucott, M. & Hall, C.
(2014). Does a change in price of fuel affect GDP growth? An examination of the
U.S. data from 1950-2013. Energies, 7
(10).
