Lower prices at the gas pump are putting American consumers in a spending mood-and some are getting a bigger bonus than others.
After years of pain at the pump, American drivers are enjoying a holiday from pricey fuel. Thanks to a slide in global oil prices, the cost gasoline has fallen since June by an average of nearly 79 cents a gallon to $2.90-or about a 20 percent discount. Prices are expected to stay lower-averaging $2.94 a gallon next year, according to the latest forecast form the Department of Energy.
The drop is helping to boost consumer spending on other goods, lifting retail sales last month by 0.3 percent. Lower gas prices showed up in the numbers as a 1.5 percent drop in receipts at gasoline retailers. Consumers are spending those savings on other products and services; among the gainers last month were clothing and sporting goods.
"(Lower oil prices are) going to be a big boom for consumer spending," said Frank Holmes, CEO and CIO at U.S. Global Investors.
But the added spending power from lower pump prices is being tempered by higher costs for food, which make a much bigger share of overall spending. Food prices are up 2.9 percent in the year ended in September, according to the Labor Department. While the average household spends 5.3 percent of income on gasoline, food accounts for 51.3 percent of spending.
Consumers are also getting some help from a stronger dollar-up more than 10 percent since June-which boosts Americans' spending power when they buy goods made overseas. The Labor Department said import prices fell 1.3 percent in September, the biggest drop in more than two years.
More spending power is translating into higher consumer confidence, based on a widely watched survey by the University of Michigan, which hit an eight-year high in November.
"It shouldn't be a surprise that confidence is riding high when job growth is strong, equity prices are back at record highs and gasoline prices are plunging," said Paul Dales, an economist with Capital Economics. "Both the current conditions and expectations indices of this survey rose to levels not seen before the recession began in late 2006."
All of which bodes well for the overall strength of the U.S. economy. While the global economy shows signs of slowing, forecasters expect the U.S. to power ahead at about 3 percent next year, the fastest average pace since the Great Recession ended in 2009. That's largely due to the rebound in consumer spending, which is the biggest driver of gross domestic product.
Just as higher gas prices act like a tax on consumers that dampens spending, lower pump prices are a windfall that helps boost purchasing power. If pump prices remain at current levels, the average household will gain about $700 to spend on other goods and services, according to Wells Fargo Securities economist Jay Bryson.
Read More U.S. consumer sentiment rose in November
The bonus at the gas pump will likely be felt most by those at the lower ends of the income ladder, who spend a higher share of their household budget than wealthier consumers. That could help retailers like Wal-Mart (WMT) who cater to shoppers on tight budget.
The retail giant said Thursday sales in the latest quarter were stronger than expected, paced by demand for home goods and apparel.
"Our sense is that consumer confidence is reasonable out there and there is no doubt that lower gas prices are probably giving us a bit of benefit as well," Greg Foran, president and CEO of Walmart U.S., told reporters.