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Labor Day paradox: Cheap gas not fueling spending

Pras Subramanian

If you’re hitting the interstate this weekend on a Labor Day trip, don’t say we didn’t warn you. Americans are returning to the roads in droves this holiday weekend, with the American Automobile Association (AAA) claiming it will be the biggest Labor Day travel weekend since 2008. AAA forecasts 35.5 million Americans will travel 50 or more miles for the holiday, a 1% increase over 2014, and the fourth year in a row that travel has increased over the Labor day weekend.

What could be driving the tick up in holiday travel? It could be gas prices. Gas-pricing research site GasBuddy expects the national average for a gallon of gasoline this weekend to drop to $2.44, the lowest reading it’s seen since 2004. GasBuddy calculates American travellers will collectively save $1.4 billion due to lower gas prices compared to last year.

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While it sounds like a lot, in the grand scheme of things those collective savings may not translate into spending. “We're expecting something like a 1% increase in cars hitting the road - not a huge increase,” Yahoo Finance’s Rick Newman says in the attached video. For Newman, that means Americans are still conscious about spending on travel, despite the savings they’re getting from cheap gas. “I mean we're seeing incremental improvement, people are very cautious as they should be, and they're doing what they ought to be doing.”

Dominick Tavella of Diversified Private Wealth Advisors agrees that this is a good thing. “I saw some statistics recently that said that basically for every dollar that the consumer’s saving on energy prices, they’re putting a third of it to pay down credit card debt, a third of it is actually go into savings, and a third of it is spending,” he says. “I think that [consumers are] being a lot more conservative with their dollars, and I don't know that that's a bad thing, especially if they're paying down debt.”

Newman is incredulous when he hears economists claim we need more spending from the consumer for the economy to be considered healthy. “People are behaving the way financial advisers want them to behave, and we're wringing our hands because we need them to spend all their money on consumption - I mean, come on.”

If we need more spending, Newman suggests we look to those stingy millennials. “Millennials supposedly don't buy cars and don't like to drive, they just want to ride their scooters around the metropolis,” he wryly surmises. “So maybe we need more millennials hitting the road, taking advantage of that two dollar gas and that'll be the consumption boost we're all looking for.”

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