As Gas Prices Fall Toward $3, Does the Economy Get a Lift?

24/7 Wall St.

The media is full of analysis of why a drop in gasoline prices may help gross domestic product (GDP). Most of that analysis is flawed because it does not look at the numbers state by state. The price of a gallon of regular nationwide has fallen toward $3.22. It has not been that low since the end of 2012.

Actually, the price per gallon has dropped below $3.00 in five states, according to GasBuddy: Missouri, Oklahoma, Texas, Kansas and Arkansas. The only one of these states with a population of any size is Texas. The others have too little GDP for their consumer or business activity to help the national economy.

The same kind of analysis can be applied to cities. Of 29 cities with gas prices below $3, the only large ones are in Texas -- Dallas, Houston and San Antonio. The rest of the list is made up of small cities in South Carolina, Kansas, Missouri and Oklahoma.

Gas prices still are historically very high in most of the largest states as measured by population. The price in California is $3.64. In New York, the figure is $3.55. In Illinois it is $3.38, and it is $3.30 in Pennsylvania. Those figures are close to the most recent significant price peak nationwide in August.

The data get worse for drivers who need to use premium. In most states, the price per gallon is closer to $4.00 than to $3.50. In California, the price is $3.87, and in New York it is $3.94. Filling the tank of many cars and light trucks at these rates usually costs more than $50, and can get closer to $100.

The theory that low gas prices will be a major driver of economic growth does not get much beyond theory in many parts of the United States. Where most of the population lives, gas prices are still higher than what consumers have been used to most of the past decade. Gasoline will need to drop closer to $2.50 a gallon before it reaches the levels of the earlier part of the decade or the recession. Americans still do not have lots of discretionary income. Gas price relief, for the time being, is only the stuff of headlines.

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