More Money in Most Pockets

The wave of collapsing oil prices might not have crested yet, but it is already having profound effects on U.S. consumers and businesses. The most immediate result is dramatic cuts in the prices of gasoline, heating oil and diesel fuel. When it comes to oil-based products, ranging from plastics to pesticides, the effect will be more gradual and unpredictable. And the saving in the energy-cost component of virtually every kind of manufactured goods will be even more subtle. Ultimately, though, the U.S. is headed for a sweeping shift in the way Americans spend their money, as dollars saved on energy are invested or consumed elsewhere. Says Maryann Keller, an auto analyst at Vilas-Fischer Associates: “The real impact of declining oil prices is what you are going to do with the extra money in your wallet after you’ve visited the gas station. Maybe you’re going to go out and buy a pair of shoes. Maybe you’re going to take a vacation. It’s going to mean a big increase in real disposable income.” The sheer size of the potential petroleum “tax break” is stunning. Last year the U.S. economy consumed some 15.7 million bbl. of crude oil a day, at an average price of $27 per bbl. Total cost: $155 billion. A Department of Energy economist estimates that if the average price of crude stabilizers this year at $15 per bbl., the savings would be $69 billion.

The slump in U.S. heating-oil prices from an average of 66 cents per gal. in January to 51.5 cents last month was worth an estimated $2 billion to consumers and businesses. The Washington Analysis Corp. projects that Americans could save as much as $12.5 billion on heating oil over the entire year.

Transportation industries can expect substantial relief. Commercial airlines, which used 12 billion gal. of jet fuel last year, could save around $120 million for every penny per gal. drop in fuel prices this year,

Utilities, businesses, homeowners and others who still burn natural gas are winning lower costs as their fuel suppliers try to compete with oil. 1.5 million customers are already enjoying savings of up to 20 %.

Farmers have a lot to gain from the oil-price slump. Agriculture absorbs 3 % of all energy consumed in the U.S. each year for diesel- and gasoline-powered machinery, for petroleum-based fertilizers and pesticides, and for pumps used to lift and distribute irrigation water.

The country’s office and apartment landlords and builders are clear winners. Many developers are saving up to $1 per sq. ft. in energy costs for many buildings. Residential home builders, who are enjoying the double benefit of lower interest rates and the oil-price cuts, are also feeling giddy. It did not seem coincidental that of the 20 biggest gainers on the New York Stock Exchange in the first quarter of this year, six were home builders.

For Detroit, the big question is how the oil-price decline will affect car-buying habits. Most industry experts do not expect a sharp shift toward big cars. They believe that the sticker price of a car, rather than how much it may cost to operate the auto, is what customers now think about most when they enter a showroom. Whatever models consumers choose to buy, they may spend more time behind the wheel because of cheap gas. Economists expect to see an increase in cross-country driving this summer, which will benefit businesses around vacation spots from Disney World to the Grand Canyon.

No expert can predict exactly how the oil price savings will filter through the rich complexity of the U.S. economy. Many companies will lower prices; others will increase workers’ salaries; some will fatten their profits. Adroit managers will try to do all three. But there is no doubt about the net result: Americans will have more money in their pockets, and they will be able to find fresh ways to spend, invest and enjoy their newly recovered wealth, at least for now.

(Time. April 14, 1986.)

Key terms.

1. Price

2. Buying power

3. Demand

4. Supply

Unit 4