Falling oil prices are helping to boost the Long Island economy as consumers spend more on holiday gifts, eating out and other purchases, economists and business leaders said.
The key question: How long will oil prices stay low?
The cash price for regular gasoline on Friday averaged $2.893 a gallon on Long Island, down $1.14 since July 2, and a drop of 77.2 cents from a year earlier, the AAA said. And home heating oil, used by two-thirds of Long Islanders, averaged $3.41 on Monday, 68.7 cents a gallon less than a year ago.
IHS, a forecasting firm based in Englewood, Colorado, estimates that falling gas prices will provide an $80 million lift to the Long Island economy in 2015, mostly in the form of consumer spending, IHS chief regional economist Jim Diffley said.
Lower costs for commuting and heating "will leave a bigger margin of disposable income for Long Islanders to spend on the local economy, whether it's for bread and eggs or eating at a local restaurant or going for a weekend vacation to New York City, elsewhere on Long Island or the Caribbean," said John Tsunis, a local banker, hotel owner, lawyer and chairman of the New York State Hospitality & Tourism Association.
If prices of gasoline and fuel oil remain low for a full year -- as federal energy officials forecast -- the savings over last year could add up to more than $1,000 for a family with two cars and using fuel oil for heat.
A family with two cars, each of which is driven 10,000 miles a year and averages 20 miles to the gallon, would save $771 over 12 months. If that hypothetical family bought 900 gallons of fuel oil a year -- the average -- it would save $618 in a year. That comes to an annual total savings of $1,384.
The main reason for the savings: crude oil prices fell to about $55 a barrel last week from $107.95 a barrel on June 20. That's partly because of higher U.S. production, from relatively new methods such as hydraulic fracturing and horizontal drilling, and because economies in China, Europe and Japan are slowing down or shrinking, reducing demand for oil.
The impact on the U.S. as a whole is somewhat mixed. Lower crude prices might put some of the smaller domestic oil producers out of business, said Martin Melkonian, an associate professor of economics at Hofstra University. This would harm the lenders who have financed them and, ultimately, lead to a decline in U.S. crude output. The stock market dropped sharply on some recent days as oil stocks fell, but it rebounded strongly late in the week.
And slowing foreign economies could reduce U.S. exports, said Ken Goldstein, an economist for The Conference Board, a business research association in Manhattan. The biggest impact in this region would be a decline in shipments to Europe, which affects companies selling the products but also has an impact on banks financing the goods and insurance companies insuring the shipments.
Although there might be isolated local losers, overall the Island stands to reap gains as oil prices decline. "This will definitely help the consumer," said chief economist John Rizzo of the Long Island Association, the largest local business group. "The net effect in my opinion will be a benefit to the economy."
Plans for savings
Motorists refueling at a gas station in Smithtown said they were likely to make some small additional purchases, use the extra cash to pay other bills or save. Lois Lennon of Hauppauge said she'll probably buy more gifts for her four grandchildren. "I spoil them to death," she said.
Mike Kildale, 39, a marketing consultant from Hauppauge, said, "Most of it goes into savings rather than spending it. You don't know when gas prices are going to go back up again."
Goldstein of The Conference Board said most of the increase in consumer spending is likely to be in what he called "mad money" items -- small purchases, often on impulse, rather than big-ticket items.
"I think most consumers are smart enough to understand that nobody knows how long this is going to last," Goldstein said. "It may not be all that long. So, they may go more to McDonald's or the movies but I don't think this is going to affect whether they are going to replace the old washing machine."
There's some evidence that consumers have been spending more since the summer, though the motivations are unknown. Sales tax receipts, a measure of consumer spending, rose by 2.3 percent in Nassau and Suffolk in the three months from July through September, the latest period for which data are available, compared with the same period a year earlier, the state Department of Tax and Finance said.
A Siena College poll of 809 adult New York State consumers, released Dec. 8, showed falling gasoline prices had helped raise consumer sentiment to the highest level since early 2007. The college's research institute said purchase plans by consumers in November were higher than in the last survey, in June, for cars, furniture, electronics and homes.
"Consumers are celebrating falling prices with a collective sigh of relief," Douglas Lonnstrom, a professor of statistics and finance and founding director of the institute, said in a statement.
Higher consumer spending and lower gas prices translates into higher revenues and lower costs for businesses and, in turn, either higher profits or more available cash for expansion.
Butch Yamali, who owns catering halls, a food vending business and several restaurants, all in Nassau County, said lower gas prices have contributed to a 10 percent increase in his overall revenues this year compared with 2013, while reducing fuel expenses for his 60 company vehicles. "I'm saving $1,200 to $1,500 a week on gasoline," he said.
Local tourism officials also credit lower gasoline prices since July with helping boost revenues. The Long Island Convention & Visitors Bureau and Sports Commission estimates this year's revenues at $5.6 billion -- a 3.6 percent gain from 2013. "Everybody is talking about a banner year," said Yan Baczkowski, a former Colorado tourism official who replaced Moke McGowan this year as head of the commission.
Tepid jobs picture
Experts think higher consumer spending will lead to higher employment, but, for now, the local jobs picture is lukewarm. State figures show Long Island's unemployment rate declined to 4.8 percent in October, the last month for which a figure is available, from 5.8 percent a year earlier, Experts, however, said a large part of that improvement may be caused by people who would prefer to work but give up looking -- statistically, they are dropping out of the labor force. They are not counted as unemployed.
Big-ticket items may not get such a boost from falling oil prices. At Alure Home Improvements in East Meadow, president and chief executive Sal Ferro said he is saving thousands this year on the cost of fuel for his 28 trucks. But falling gas prices haven't spurred additional sales at his company, he said. "Gasoline prices going down is not going to do much for them," he said.
Sales of at least one big ticket item -- new cars -- are, in fact, increasing this year, but they've been on a gradual rise since 2010, the year after the recession's trough.
Long Islanders registered 3.3 percent more new cars and trucks this year through September, the latest month for which figures are available, than in the same period last year, according to a report prepared for the Greater New York Automobile Dealers Association.
Goldstein thinks, however, that the lion's share of that increase is due to "pent-up demand" from purchases postponed during the recession.
Types of cars change
President Mark Schienberg of the dealer group says, "I don't think for the short term gasoline prices are impacting the number of vehicles being sold. What lower gas prices are doing now is affecting the types of vehicles people are buying."
As evidence, registrations of SUVs, pickups and vans in the nine-county region covered by the dealer group were up 14 percent this year through October over a year earlier, the group said. Those of passenger cars were down by 4.6 percent.
At Sunrise Toyota in Oakdale, president Jimmy Berg said, "Now, when customers come in, they're not saying 'What's the gas mileage?' They're more interested in features like the electronics and the vehicle's size."