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By New_Deal_democrat November 14, 2014 1:18 pm
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Gas price declines offset consumer stagnation

At the beginning of this year, noting the increase in interest rates, and the stalling of the housing market, together with "less positive" corporate profits and real money supply, i.e., a flattening of the long leading indicators, which take a year or more to filter through to the economy as a whole, I wrote that I expected 2014 to be a year of deceleration.

On the other hand, gasoline prices have declined in the last few months to near 4 year lows.  This frees up money for consumers to spend on other goods and/or to save.

So have we seen deceleration?  Or have declining gas prices freed the consumer?  The answer appears to be, both.

This morning's retail sales report shows that, over the last two months, total retail sales have increased by 0.1%:

After inflation, this is going to be basically unchanged (as inflation will be approximately zero for October.  The below graph shows real retail sales through September:

Gasoline sales, however, have declined by -2,5% in that same time.  So consumer spending on all other products and services over the last two months has increased by 0.3%.

There has been some concern that rising food costs would eat up all of the savings from declining gas prices;  however, while over other the last two months grocery spending has increased by $300 million, gasoline purchases have declined by $1.1 billion.

In short, the increased money in consumers' pockets from declining gas prices has offset the deceleration in spending due to other factors in the economy, maintaining the upward trend.

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