Cash saved at gas pumps staying in pockets

WASHINGTON – In recent months, the stage seemed set for American consumers to do what they’ve done best: spend money – and drive the economy.

The lowest gas prices in five years had given people more spending money. Employers added over 1 million jobs from November through January, the best three-month pace in 17 years. Businesses even raised pay in December. Economists had forecast last week’s retail sales report for January would show a healthy rise.

And yet – to analysts’ surprise – consumers held their wallets closely.

Even though Americans spent $6.7 billion less at gas stations in January than they had two months earlier, the extra cash didn’t get spent anywhere else: Retail sales, excluding gas, fell slightly from November to January.

The unexpected pullback provided evidence drivers had used their extra money to rebuild their savings and reduce debts – a trend that began after the financial crisis and recession.

For now, though, the slowdown in consumer spending likely means the economy will grow more slowly in the first quarter of the year than economists had previously envisioned.

In the meantime, many Americans are finding more money in their pockets. In January, the national average gas price fell to $2.03 a gallon, according to AAA, the lowest since 2009. Though the average has since risen to $2.24, it’s still nearly $1.10 cheaper than 12 months ago. As a result, the typical household will have $750 more in hand this year, according to an estimate by the government’s Energy Information Administration.

So why aren’t Americans spending more?

One key reason: The damage to Americans’ finances from the recession has left households more frugal than expected. Americans have shrunk their debt loads but still aren’t ready to spend as freely as they did before.