Americans may be saving money on fuel, but instead of spending the excess they’re exercising caution and choosing to save and pay off debts.

As those who have seen it will likely agree, Netflix’s House of Cards makes for a most entertaining piece of fiction.

Yet, as elaborately engineered as some of the plots are, much of the context is based on reality. Something brought home to me by the gas (petrol) crisis portrayed during the latest series: as prices at the pumps shot up, Americans went into panic mode.

Illinois gas station

Illinois gas station

Gas prices plummeted in 2015 across the US

In truth gas prices really do matter. They are to Americans what the weather is to the British: something to be analysed, discussed and sometimes complained about.

Given that the average American uses more gas per year than almost any other nationality, this is hardly surprising.

As a result of this heavy reliance there has, traditionally, been a close correlation between retail spending and gas prices.

The maths is simple: the lower the price, the more money Americans have to spend on other things, and generally the more robust retail sales are.

Yet over the past year this relationship seems to have broken down. Gas prices plummeted in 2015. Over the course of the whole year the average household saved $739 compared with 2014. Across the country that added up to a collective saving of a staggering $91bn.

On its own this $91bn would have been sufficient to boost retail spend by 2.9% over the prior year, and that’s before population increases, inflation and other natural uplifts in demand are factored in. As such, 2015 should have been a strong year for retail spending.

In reality 2015 wasn’t a particularly good year. Indeed, retail growth came in at a modest 3.1%, the lowest rate of increase since 2011. Savings on gas did not, it seems, fully find their way into retailers’ cash registers.

Consumer caution

Understanding why this was the case provides some important insights into consumer psychology and the current state of retail.

While all of the evidence suggests that the United States economy is performing reasonably well, consumer sentiment remains stubbornly weak. Our own tracker shows that people’s confidence in the future of their own finances is only slightly higher today than it was back in early 2014.

The reason for this disconnect lies in the fact that despite the recovery, 90% of American households are, in real terms, poorer now than they were 25 years ago. Debt levels are higher and losses on assets like housing, which were chalked up in the downturn, have not been regained.

“Despite the recovery, 90% of American households are, in real terms, poorer now than they were 25 years ago”

Neil Saunders, Conlumino

So things may well be getting better overall; but for most Americans things are nowhere near as good as they used to be. This harsh fact, and the truth that the recession is still surprisingly fresh in people’s minds, colours everything in a rather pessimistic light.

Against this backdrop, while some consumers did spend their gas savings on retail, many more exercised caution and put the windfall aside or used it to pay off debts. Such action, while undoubtedly prudent, acted as a brake on growth.

Consumer caution doesn’t just impact on spending and savings decisions, it also affects what and where people buy. Here it is notable that many coping strategies adopted by shoppers during the downturn are still prevalent.

Buying more store brands, seeking out deals at dollar stores and coupon clipping remain key activities for many households. Again, all prudent actions but ones that dampen spending.

The challenge for retailers is that this subdued environment will not disappear any time soon. Indeed, uncertainty could well worsen as we progress through this year thanks to another rather entertaining political drama – that of the US Presidential election.

  • Neil Saunders is the managing director of Conlumino