Gas prices have dipped to their lowest point since Labor Day 2004, as domestic oil production has increased and shows no sign of dropping.
With prices below $40 dollar-a-barrel, gasoline has become substantially cheaper — just in time for end-of-summer travels. Consumers feel they have a little more money in their pockets when they only have to pay $30 to fill the tank instead of $50. Further, according to a recent article in the Wall St. Journal, oil-producing nations such as Russia, Saudi Arabia, and the U.S., show no signs of slowing production or raising prices.
This disposable income is “found money” for most people since they did not expect prices to plunge so low. That translates into good news for small business owners. Vacationers may buy that extra T-shirt or order another round of drinks at dinner when they feel they have saved in other areas. The average cost per gallon nationally is $2.46, while the price in New Jersey is about $2.18 per gallon and in South Carolina it is even lower at just a shade over $2.00.
Big businesses make out as well. Detroit is selling more vehicles, airlines benefit from lower fuel prices, and the transportation costs for all types of goods — from peaches to dish washers — go down because trucking firms are paying less for fuel.
Is there a downside? Not one that most Americans will notice immediately. Lower prices do hurt the economies in big oil-producing states, such as Texas, North Dakota, and Alaska, and could result in higher unemployment in those areas. Additionally, alternative energy companies that promote solar and wind energy will have a hard time selling when fossil fuel prices remain so low.
Long-term, there could be a threat to the global economy if countries such as Mexico, Russia and Venezuela collapse. Here in the U.S., deflation also is bad for small business owners. When costs are low, it also means the prices you are able to charge may also decline.
Lower oil and gasoline prices provide many benefits for consumers and small business owners alike. For now, entrepreneurs can reap the benefits. It’s a cautionary tale, however. Long-term, deflation can have a negative impact on the overall economy.