Gas Prices slump, Retail Sales slump, What's happening?

With gas prices being low, many people are saving money that can be spent on other things. However, while gas prices are low, the retail sector has not seen an uptick in spending from consumers. As a matter of fact during January consumer spending was down 0.8% with December at a 0.9%. So where are consumers’ spending money or are they even spending money at all?

January and December saw the first back-to-back monthly declines for retail sales since mid-2012. Spending fell last month at clothing stores, supermarkets, auto dealerships, and department stores. Sales rose at restaurants, home-improvement stores, pharmacies, and so-called nonstore retailers like online sellers.

According to the Commerce Department, many consumers’ are saving their money. During the month of November, savings were up 4.3% and December went up further to 4.9%. Another reason for the slump in sales at retails is from consumers spending on health-care. The uptick of spending on healthcare could be from those who are trying to save money in order to pay for the possibility of receiving a penalty due to the Affordable Care Act (ACA).

However, on the other hand economists are not that worried about the consumer spending. Economists are being quite optimistic about consumer spending with the possibility of seeing spending occur in spring. One economist from BNP Paribas’s believes that the gains consumers are receiving from low gas prices will be spent in spring. The economist believes that it is a matter of timing and consumers are possibly reacting with a delay.

While economists are being optimistic about consumer spending, JP Morgan Chase had lowered their estimate in growth of gross domestic product (GDP) from 3% to 2.5% for the first quarter. Macroeconomic Advisors, a forecasting firm, is keeping their estimated growth stagnant at 2.4% for first quarter. With lowered estimates in growth and the slowdown in consumer spending, this could restrain the broader economy. Let’s not forget that consumer spending does account for a little over two-thirds of the U.S. economic output.

From my perspective, I think that many consumers are more cautious at spending money due to a few factors. The first would be from what consumers had experienced from the recession. While it may have been half a decade ago, I think that consumers had learned a valuable lesson and the importance of saving money. They definitely do not want to go back to that situation. Neither do I.

Another factor is from the ACA. Considering that if consumers are not covered by a health insurance company, they will eventually have to pay a penalty if they did not have health care. Saving up for this penalty can be a good deterrent for spending at clothing stores, supermarkets, department stores, and dealerships. It forces the consumer to weigh what is a priority. However, what stumps me is why spending money on going out when prices on dining out exceed what it would cost to eat at home? The gap on eating out to eating in is a good margin.

Fellow monkeys share your thoughts about this. What are your thoughts on why consumers are not spending at retail businesses? Why are the consumers saving money or spending money dining out? Do you think that consumers are delaying, possibly due to the holidays that passed or something else? Maybe it is due to the ACA?