Towards the end of 2014 and beginning of 2015, just as investors were glued to their screens watching the price of oil drop, bringing with it a subsequent decline in the price of gas at US petrol (better known in the US as gas) stations, many analysts were revising their forecasts for US GDP growth for 2015 higher, to well above 3.0%. However, after the plunge in the price of oil abated (and began a short-lived upward trajectory), data does not seem to point towards this improved growth scenario.

In fact, most of the recent news suggests that in the first few months of the year growth has actually slowed. But how come? Weren’t households meant to have more disposable income and hence meant to consume more? Reports suggest that households in the US consumed 6% more gasoline than in January 2014, but it cost them significantly less, with analysts estimating this to be as much as $100bn less.

So what has become with this $100bn? Where has it all gone? It is evident that the drop in gas at the pump stations left US consumers richer. This, coupled with the large rises in employment since the decline in brent began to gain momentum in summer 2014 and an uptick in average hourly wages, it comes as no surprise then that US consumer’s disposable income and purchasing power has risen. However, economic data seem to indicate that the extra money has not made it back into the economy, and consumers are not spending their excess cash.

What appears to be plausible is that US households seem to have saved rather than spent their excess cash from cost-savings in the day-to-day running of their cars, as the saving rate rose from 4.5% in November to a two-year high of 5.5% in January. It is encouraging and healthy too for consumers to save, and that was the case during and immediately post the 2008 financial crisis, but this time round, the US economic situation is by far different and in clearly a healthier and saner state than it was 7 years ago, with an even brighter outlook.

Furthermore, the positive performance in the US real estate market of late coupled with the sharp rally in US equities over the past 9 months has taken the value of household net wealth to pre-2008 recession levels.

The lack of consumer consumption, despite lower gas prices, indicates a relative source of uncertainty that US consumers feel on whether lower prices are here to stay or whether it was rather a short term phenomenon. They seem to have learnt from the large fluctuations in the price of oil during the 2008 crisis where it took US consumers a good 12-15 months to regain confidence and begin to put money to work.

So based on the premise that lower oil prices are more of a permanent thing, and that $100 a barrel is a thing of the past, it is now only a matter of time before US consumers jump on the band wagon, open their wallets a start shoring up their economy through higher consumption.

This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.