Traditionally, low oil prices have been a boost to economic growth in the United States. The crash in oil prices over the past two years, however, has produced a decidedly mixed picture—with potentially worrying implications for the economy as a whole.
When oil prices fall, consumers spend less on gasoline and have more disposable income to spend on other goods, which contributes to economic growth. Conversely, as oil prices have gone up, consumers have less disposable income to spend on other things, such as new cars, going out to eat, entertainment, and new clothes.
Consider the average family who logs 15,000 miles a year and owns a vehicle that gets 20–25 miles per gallon. If prices at the pump are $3.80 per gallon, this family would need to spend $2,280 to $2,850 per year, but if gasoline prices fall to $1.80 per gallon, then this same family would spend less than half that, saving $1,200 to $1,500 per year. This is a significant increase in disposable income, given that per capita household income in the United States is around $55,000 per year!
