Save or splurge, Where does savings at gas pump go?

CEDAR RAPIDS — Cheaper gas prompted Becky Meyer of Waterloo to drive rather than fly her 3,000-mile round trip to Captiva on Florida's Gulf Coast.

Rolling into the rest area just south of Cedar Rapids for a final pit stop before home, she'd already pumped 85 gallons worth about $160 into her Hyundai Sonata, according to GasBuddy.com. That's a savings of more than $100 from last year's prices.

Meyer appreciates the lower prices, sure. most people do. But like many others, she struggles to pinpoint where the $20 or $30 saved per fill up, or $450 to $700 per year, goes.

'We don't go out to eat, and we don't go shopping,' Meyer said. When pressed, she added, 'It'll probably go into more vacations.'

The best guess is savings at the pump trickles into other aspects of life and, in some cases savings accounts. But economists say, taken together, the lowest gas prices since 2009 are having a subtle but widespread impact on the economy.

How far $30 takes you at $3.87/gal. and $2.05/gal.

Midwest gasoline prices averaged $3.87 per gallon on June 16, 2014 and $2.05 per gallon on January 16, 2015. At $2.05, one can drive to Saint Louis with eight miles to spare. Calculated for a vehicle averaging 20 mpg.

Consumers can splurge a little on things they enjoy. Vehicle sales, and notably gas guzzlers, are climbing, national sources show. It appears people are driving more.

Even attitudes are a little better these days.

"The bigger effect gas prices have is psychological," said Jeff Lenard, a vice president for Alexandria, Va.-based National Association of Convenience Stores. "People spend more money when they feel good about gas prices. Consumer optimism is way up, as high as it's been in a long time, and it has an effect that goes beyond the price of the fill up."

The association's January 2015 monthly consumer fuels survey of 1,108 participants found 57 percent of respondents felt somewhat or very optimistic about the economy, the highest mark since the survey began.

Dave Swenson, an Iowa State University economist, said it may be hard to detect, but the price break is having more than a psychological influence.

"In the short run, yes, it's having an impact on behavior," Swenson said. "It's like a tax cut ...

We are not going to be consciously realizing, 'I am two percent richer,' but it allows us to have a little more disposalable income at end of the week, and we can go out and buy a little more of this or that."

And the low prices is a boost for the economy as a whole, said Luciano De Castro, University of Iowa associate professor of economics. As transportation costs decrease, the economy as a whole benefits, he said.

"The net impact for the global economy, and specially for U.S. economy, will be very beneficial," De Castro said. "We will have a stronger economic activity as a result of this. This should also benefit the stock markets world wide."

Oil producing countries such as Russia, Saudi Arabia and Venezuela will struggle, he said.

In the short-run, say three months, prices have a small impact on habits, but they may shape planning for the future on choices such as a new car or a family vacation, he said. In the medium run — up to a year — prices will start to increase, oil producers will slow supply, and thus dampen the economic impact. Beyond a year, the pace of exploration for new wells, particularly in the United States, will scale-back, he said.

This past week, averages across Iowa continued trending down to $1.92 for regular or $1.73 for ethanol blend. That compares to $3.21 and $3.10 a year ago, according to the AAA Daily Fuel Gauge Report.

Cash to savings

Troy Andrews of Coralville, who had stopped for gas along First Avenue in Coralville on Tuesday, said the savings is a brief coup but disappears quickly.

'I just put the money into other things, mostly groceries,' Andrews said. 'I am just putting it into other places in the economy.'

Andrews said his driving habits haven't changed, but the convenience store association survey found 24 percent of respondents planned to drive somewhat or a lot more in the next 30 days, while only 8 percent said they planned to drive somewhat or a lot less. Those were the highest and lowest rates, respectively, through all of 2014.

Gas supply also continues to grow.

The United States saw 9.5 million barrels of finished motor gasoline supplied in the week leading up to Christmas 2014 and 9.6 billion in the week after, according to the Energy Information Administration (EIA). That was the most of any week since July 2010, and the most for a Christmas holiday since at least 1991.

In January, the gas supply was higher than the corresponding week in any January since 2011, according to the EIA.

For Jim Larimore, who recently relocated to Iowa City from Massachusetts, low prices would be incentive for a family road trip to explore his new territory once winter passes.

"Since we are new to the Midwest it gives us license to check out the region," he said as he filled his SUV on $36 at BP in Coralville.

Meanwhile, the extra money is rolling into his savings account, he said.

August Nicklaus, 16, who drives from North Liberty to West High in Iowa City, said he, too, is saving what had gone to gas.

However, economic data doesn't indicate piggy banks are getting fuller. 

Americans on the whole are saving less, not more, according to research from the Federal Reserve Bank of St. Louis, or FRED.

The saving rate was 4.4 percent, as of November 2014, which is the second-lowest rate since 2008, and 9.9 percent of disposable income goes to pay off debt, as of November 2014, which was the second-lowest rate since 1980.

On the other hand, consumer spending has been climbing since 2009, according to FRED.

ISU's Swenson explained this as a sign consumers are working through a backlog of needs that have been building since the recession. Factors such as more jobs and an improving economy also factor into increased spending, but low gas prices don't hurt, Swenson said.

The low gas prices have some people looking to new vehicles, and fuel efficiency seems to be less of a priority.

University of Michigan Transportation Research Institute researchers Michael Sivak and Brandon Schoettle found fuel efficiency of vehicles purchased in December was down from 25.3 miles per gallon to 25.1, and down from 25.8 in August.

The National Automobile Dealers Association projects 16.94 million sales in 2015, up from 16.4 million in 2014, with strong growth in SUVs and pickups, declining market share for mid-sized and small cars, and flat sales for hybrids.

"The drastically lower price can only help boost consumer confidence, which was already rising," said Bruce Anderson, president of Iowa Automobile Dealers Association. "Consumer confidence is a key factor when making a buying decision as important as purchasing a new car.

'When consumer confidence goes up, so do automobile sales. That seems to be happening now."

The low prices are not here to stay, though, Swenson and De Castro said.

The Energy Information Administration's short-term energy outlook projects average prices to reach $2.44 a gallon in September and $2.90 in June 2016. GasBuddy predicts the price will hit $3 in May.

A former Shell Oil executive, John Hofmeister, predicted prices will begin to rise later this year and hit $5 later this decade.

For some, it's not about saving, buying or driving more. The lower prices are just relief, and they plan to enjoy it while they can.

"It doesn't seem like it's extra money, it just hurts less each time," said Jennifer Schultz of Marion while filling up her tank with diesel in North Liberty.

It was is down about $1 from last spring.

Gas prices: 1994-2015

* Gas prices have been adjusted for inflation. To download the data, click here