Some relief as gas prices fall

When the price of gasoline crested over $4 a gallon, it threw a bucket of cold water on the economy: Americans scaled back their driving, parked the SUV, and even cut back their spending at the mall.

But last Friday, gasoline prices fell below $4 for the first time since June 5, and they continued to drop during the weekend. As of Sunday, the average price of gasoline was $3.94 a gallon, according to GasPriceWatch.com.

Will it help revive the economy?

So far the drop, though modest, has been noticeable. In California, for example, prices are off 18.7 cents in the past month, a 4 percent decline. That's probably not enough to send consumers streaming back to the mall immediately. But if Americans continue to see gasoline prices fall, it could be a psychological boost, some economists say. And if consumers perceive the price decrease as more than a short-term drop, it could help retailers as they gear up for back-to-school sales. It might even help the Detroit automobile companies.

"One of the first things the falling gasoline price does is potentially help consumer confidence," says Dennis Jacobe, chief economist at the Gallup Organization in Washington. "Even though prices are still high, if they are going in the right direction, that helps a little bit."

The economy may also benefit from some help on the housing front, which has been beset by soaring foreclosures. On Saturday, Congress passed a housing relief bill that could provide up to $300 billion to restructure mortgages and to shore up Fannie Mae and Freddie Mac, bulwarks in the mortgage business. The housing legislation, which President Bush has indicated he will sign, could help provide some relief for home­owners who qualify for restructured government-guaranteed loans. And it might assuage some concerns on Wall Street, which has been worried about Fannie and Freddie.

As for the energy front, the price of gasoline is now down 18 cents a gallon, on a national basis, from its peak of $4.12 a gallon set on July 16. In some markets, the fall has been far greater. In Dayton, Ohio, where GasPriceWatch.com is located, the price has fallen almost 27 cents a gallon in the past month.

If the price of gasoline were to continue to fall, it would help beleaguered consumers. On Friday, the Reuters/University of Michigan Surveys of Consumers showed a rebound from a 28-year low. The reading – 61.2 in July, up from 56.4 in June – was higher than expected on Wall Street, but it was still considered low.

Falling gasoline prices may help bolster the stock market. In recent months, stock prices have been under pressure as investors have worried about the effect of high energy prices on the economy.

A continuing decrease in gasoline prices might also help Detroit, which has large stockpiles of SUVs. And retailers are watching as they prepare for the back-to-school season.

"If parents start to see this drop in prices, it might give them an extra $20 to $30 towards their child's back-to-school expenses," says Kathy Grannis, a spokeswoman for the National Retail Federation in Washington.

Gasoline prices are falling in part because demand for gasoline is down. According to the Energy Information Administration, gasoline consumption fell 2.5 percent in the first six months of the year.

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