The drop in oil prices is proving to be a boon for U.S. households, according to government reports. Lower gasoline prices coupled with improvements in employment are lifting consumer confidence and spurring spending, economists say.
A report released Friday by the Commerce Department said consumer spending grew at a healthy 4.3 percent rate in the fourth quarter of 2014 -- a gain economists are attributing to the drop in fuel prices.
"Consumer spending is going up," said Jim O'Sullivan, chief U.S. economist for High Frequency Economics, adding that it will remain strong through the first quarter of 2015.
The florists at Tipton & Hurst, already preparing for Valentine's Day, expect to benefit from more spending by romantic customers and lower fuel costs for the company's delivery vans.
"We're hoping, as far as the retailers go, the biggest boon for us is that it gives people disposable income and hopefully they spend more money," said Howard Hurst, president of Tipton and Hurst.
Consumer spending makes up about 70 percent of the U.S. economy, which slowed in the final three months of 2014, according to the Commerce Department.
U.S. consumers are filling up at the pump with some of the cheapest retail gasoline in almost six years as a result of crude oil prices that have been cut in half since last summer.
Declining global demand for oil and an abundant supply, supplemented by record U.S. shale production, has put the oil market in turmoil.
West Texas Intermediate crude gained 8.3 percent to $48.24 a barrel on the New York Mercantile Exchange on Friday. Brent crude rose 7.9 percent to $52.99 a barrel on the ICE Futures Europe exchange in Europe. Despite Friday's jump, oil prices are down about 50 percent since last summer. And while the decline in oil is expected to help consumers, it is already taking a toll on the energy industry.
Energy companies, including Murphy Oil Corp., are planning to spend less this year. Other companies are idling drilling rigs. The number of rigs operating in the nation fell to a three-year low this week, according to a report Friday by oilfield services company Baker Hughes Inc.
There have been layoffs at some energy companies. Helmerich & Payne Inc. of Tulsa said Friday that it plans to cut 2,000 jobs, about 17 percent of its workforce.
The maker and operator of oil drilling rigs said the cuts were a result of the decline in crude prices, which has resulted in fewer rigs operating, the Associated Press reported.
Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said the drop in oil prices is not good news "when you have economies that are dependent on energy production."
Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, said a benefit is the lower cost of oil imports.
"That's a windfall for the resources we get to keep for the nation," he said, adding that it resembles a tax credit for residents.
"It's going to have a big effect on consumers' budget," Pakko said.
Prices at the pump averaged $2.05 a gallon nationwide and $1.91 in Arkansas on Friday. The lowest average price in the state was $1.84 a gallon in the Fort Smith metro area, according to auto club AAA.
The drop in gas prices is expected to mean $750 in savings for each U.S. household this year, according to the U.S. Energy Information Administration.
"For the consumer ... obviously they are spending less of their money on gasoline," Deck said.
On Friday, Adrienne Bennett was able to fill up her car's gas tank for $31 at a Shell station on Cantrell Road in Little Rock.
"I'm used to it being close to $50 to fill up my tank," said Bennett, who noticed the increase in savings at the pump during a recent trip to Fayetteville.
She said the trip across the state was less expensive than one she took last summer.
"I honestly just noticed it recently," Bennett said about the change in gasoline prices. "I might be more inclined to take trips around the state."
Tipton & Hurst is also enjoying lower the fuel prices.
"We're kind of excited about that," said Hurst, president of the company. "It should save us a couple thousand dollars."
With a fleet of 18 delivery vehicles, Tipton & Hurst spends between $5,000 and $6,000 a month on gasoline, he said, adding that he's now eager to open the gasoline bill for January.
Hurst said the flower shop, which has five locations in central Arkansas, hasn't seen the full effect of lower gas prices on the balance sheet -- yet.
But he said the company saw a sales increase of 20 percent in December, compared with the previous year, which Hurst attributes evenly to a new store and an increase in customer spending.
"That's probably been the biggest increase since like 2008," he said.
The 40 or so contract drivers the company hires temporarily for the Valentine's Day period will also benefit from reduced prices at the pump. They pay for their own fuel.
"I think they'll be a lot more excited this year to deliver for us," Hurst said.
Business on 01/31/2015