Lower pump prices to fuel holiday travel and spending, AAA says

The good vibes that Arkansas and U.S. consumers are getting from lower pump prices this holiday season will also make for hectic highways and busy airports as Americans with more disposable income plan getaways for Christmas, AAA officials said Wednesday.

“Tis the season for holiday travel, and this year more Americans will join with friends and family to celebrate the holidays and ring in the New Year than ever before,” Marshall Doney, AAA President and Chief Operating, said in a statement. “While the economy continues to improve at an uneven pace, it seems more Americans are looking forward with increasing consumer confidence, rather than looking back at the recession. This is helping to drive expected travel volumes to the highest level we have seen for the year-end holidays.”

AAA projects 98.6 million Americans will journey 50 miles or more from home during the year-end holiday season, up 4% from the 94.8 million people who traveled last year. Air travel is forecast to grow 1% from 2013, with 5.7 million travelers taking to the skies.

This upward trend marks the highest forecast growth rate for the year-end holiday season since 2009 and the highest travel volume for the holiday period on record. Low gas prices continue to boost disposable income this holiday season, the AAA said, with today’s national average price of gas at $2.53 per gallon, 70 cents less than a year ago.

“Lower gas prices are filling stockings with a little more cash to spend on travel this year as travelers are expected to pay the lowest prices since 2009,” Doney added. “Lower prices are increasing disposable income and enabling families to set aside money for travel this year.”

ENERGY PRICES BOOST ECONOMIC EXPANSION
At the same time, an economist with a top Wall Street investment and banking group said the sliding crude oil and pump prices will boost the current economic expansion at both the local and national level well into the New Year.

"The fall in energy prices could hardly have come at a better time,” James Marple, senior economist at Cherry Hill, N.J.-based TD Economics, told Talk Business & Politics. “Just as the job market is hitting its stride and wages are moving up, energy prices are falling, reducing inflation and leaving more money in consumers' pockets."

The optimism in the U.S. economy is also reflected in TD Economics’ updated economic outlook released on Wednesday. The Wall Street research firm forecasts that the U.S. economy will grow by 3% in 2015 and also predicts the U.S. unemployment rate will fall to 5.5% by the end of next year.

So far in 2014, real gross domestic product (GDP) – the value of the production of goods and services in the United States, adjusted for price changes – increased at an annual rate of 3.9% in the third quarter, according to the U.S Bureau of Economic Analysis. In the second quarter, real GDP vaulted to 4.6% after contracting in the first quarter to -2.1%.

Overall, U.S. Commerce Department officials expect fourth quarter GDP growth to come in at 3.5%, closing the year out at a modest expansion of 2.3%. The final numbers will be tallied just ahead of Christmas, when Commerce Department officials release quarterly GDP estimates on Dec. 23.

Marple said it was hard to ignore the improving fundamentals and momentum of the U.S. economy over the past two quarters. He named off a long list of positive developments in the U.S. economy as key reasons why the current expansion will not fizzle out. 

“Consumer and business confidence is steadily recovering and balance sheets look increasingly healthy. The labor market recovery is built on a strong foundation of rising job openings and increasing turnover,” Marple said. “This is the recipe for stronger wage growth.”

Still, the TD Economics forecaster said the “tide is turning” in the U.S. economy largely because falling price of crude oil and energy prices are lifting the outlook for consumer spending. He said energy prices over the past three months will save the average American household $500 a year.

“By far the biggest change to the economic outlook over the past three months has been the decline in energy prices,” Marple wrote in his economic forecast. “The price for a barrel of crude oil had already been declining at the time of our last forecast in September, but the descent has turned into a rout over the last several weeks.”

SOME ARKANSAS PUMP PRICES BELOW $2
According to U.S. Energy Department, the price of crude oil has dropped more than 40% since June, when both international Brent and U.S.-based West Texas Intermediate crude oil futures were price well over $100 a barrel (bbl). In trading Wednesday on the New York Mercantile Exchange, crude oil futures for January delivery fell as low as $54.21 in early trading, the lowest level since May 2009. Prices settled to close at $56.47.

In its short-term forecast on Dec. 9, the U.S. Energy Information Administration forecasted that international Brent crude oil price will average $68/bbl in 2015, $15/bbl lower than projected only a month ago.

Like Brent crude oil prices, U.S. West Texas Intermediate (WTI) prices have decreased considerably, falling by more than 28% since reaching their 2014 peak at an average of $106/bbl in June. The EIA now expects West Texas premium light crude to average $75/bbl in the fourth quarter of 2014 and $63/bbl in 2015.

Those lower crude oil prices, of course, are the primary driver for declining pumps prices that Arkansas drivers and travelers across the state will see during the busy holiday season. On Wednesday, the national average price for regular unleaded gasoline dropped to $2.50 per gallon, 72 cents cheaper than a year ago.

In Arkansas, motorists today are paying in average of $2.36 per gallon to fill up their tank across the state, according to AAA’s daily fuel gauge. Pump prices in the state’s metropolitan areas range from a low of $2.17 per gallon in the Fayetteville-Springdale-Rogers area to a high of $2.50 in the Pine Bluff area.

Motorists in the Fort Smith area are seeing prices at an average of $2.20 per gallon, and travelers and residents at the Texarkana state line are paying about $2.23 per gallon. Residents in the Little Rock-North Little Rock area are paying an average of $2.44 a gallon to fill up their tanks.

Drivers choosing to fill up the tanks with a higher-grade of gasoline should expect to pay an average premium of $2.74 a gallon across the state. Big rig drivers and other diesel fuel users will see pump prices at about $3.16 a gallon, down five cents from only a week ago.

LOWER WINTER HEATING BILLS
Despite the lower stocks at the start of this winter's heating season, the EIA expects the Henry Hub natural gas spot price to average $3.98 per million British thermal units (MMBtu) this winter compared with $4.53/MMBtu last winter, reflecting both lower expected heating demand and higher natural gas production this winter.

The EIA also expects the average household heating bill in all regions of the country will be lower this winter. Homes that heat with propane and heating oil will see the biggest savings, with propane expenditures down 27% and heating oil bills down 15% from last winter.

Average natural gas bills will be 5% lower, while households that rely on electricity for space heating will see their costs decline by 2%. The expenditure forecasts are based on EIA projections of residential prices and the National Oceanic and Atmospheric Administration forecast of winter heating degree days, which average 12% lower for the United States compared with last winter.