Cheap Gas Prices Can Only Help Retailers So Much

Gas Prices
Matt Rourke/AP

Gas is cheap! And U.S. retailers are cheering.

Over the past six months, global oil prices have fallen 45 percent. Gas prices are plunging in tandem (sort of), with the price of petrol off more than 30 percent over the same time period. And to hear the pundits tell it, that must mean good things for retail store sales this year -- and perhaps retailer stocks next year.

After all, if all you had in your wallet in June was $50 and a hankering to go shopping, that might have been enough to fill up your gas tank and get you to the store -- but you'd have no money left to shop with. By Black Friday, though, that same tankful of gas cost only $40 -- and it's just $35 today. All of which suggests that this Christmas season, shoppers should have significantly more post-gas station cash in their wallets.

Big Savings = Big Spending?

For a while, that's how things seemed to be working out. While "Black Friday" numbers weren't all that had been hoped for, retail sales for all of November climbed 5 percent over November 2013 levels.

%VIRTUAL-WSSCourseInline-876%And the good times could keep on rolling. Citing data from the National Retail Federation, the Los Angeles Times recently reported that with spending on gas purchases down 0.8 percent year over year, Black Friday spending on electronics and appliances was up an almost-equal 0.9 percent. Department store sales rose a full 1 percent, building materials and garden supplies jumped 1.4 percent, and overall, spending increased in 11 out of 13 categories.

Quoting an analyst at the Economist Intelligence Unit, the Times predicted that if gas prices continue to fall, U.S. consumers could save as much as $100 billion on their automotive fuel bills next year. As much as "half of that windfall" could be pumped into the consumer economy.

Nearer-term, Experian (EXPN) Consumer Services (a unit of the credit ratings giant) just issued a report showing that 36 percent of shoppers expect to spend more this holiday season than last, versus only 25 percent who expect to cut back on spending. On average, Experian found that shoppers are planning to spend about $758 apiece on Christmas presents, up 5 percent from last year.

Big Numbers and Littler Numbers

But hold on just a sec -- gas is 30 percent cheaper, but retail sales were up only 5 percent in November? And Experian's saying the whole holiday shopping season will see only a similar 5 percent rise? Maybe we shouldn't look a gift horse in the mouth, but a 5 percent shift in shopping patterns doesn't seem like a lot to get excited about, relative to the big drop in gasoline.

So what's going on?

The answer could be that, according to the Bureau of Labor and Statistics' Consumer Expenditure Survey, the average U.S. household spent about $2,600 on gasoline in 2013. On one hand, that was near an all-time high for gasoline costs. On the other hand, it amounts to only about 5 percent of U.S. median household income ($51,900 in 2013, according to the Census Bureau).

As a result, even when gasoline prices fall 30 percent or more, this only adds, at most, 1.5 percent (30 percent of 5 percent) of household income to the average shopper's total disposable income. And if The Economist is right, and only half these gas savings will make it into the consumer economy -- then we're talking about just a fraction of 1 percent of household income becoming true disposable income.

Where Does the Money Go?

What's more, according to gas price information specialist, even The Economist's view might be too rosy: "A GasBuddy survey of more than 100,000 respondents finds that 83 percent of us say we will save or pay off debt with the extra savings, while only 14 percent say we'll spend it on holiday presents."

So is it possible that retail sales will jump like the analysts predict, generating a big boom in consumer spending and leading to massive profits for investors in retail stocks?

Sure, it's possible. But so far, it doesn't seem to be happening.

Judging from the pile of UPS and FedEx boxes accumulating on his front porch, Motley Fool contributor Rich Smith may be personally responsible for 1 of the 5 percentage points of sales growth this holiday season. He has no position in any companies mentioned above. The Motley Fool recommends FedEx and United Parcel Service. Is your portfolio ready for the new year? Check out our free report on one great stock to buy for 2015 and beyond.​

Originally published