The Savings Ripple Effect

Many people have bemoaned the average American's low rate of savings. "We spend too much and save too little" to paraphrase the critics, and so news that Americans are spending less and saving more, likely because of job uncertainty, is sure to please some.

Here's an interesting potential ripple effect of that increased savings rate: the price of crude oil futures will continue to decline despite an increase in American consumption of refined petroleum products such as gasoline. Here's why...

American consumers were relied on for a long time to buy goods made in other countries, most notably China. As the WSJ reported yesterday, an estimated 20 million workers lost their jobs in China. With Chinese factories not producing as much, they are consuming fewer petroleum products (e.g., less fuel for factory machines, less oil for plastics) and so global demand will decline. When demand declines, so do prices.

So maybe there's unexpected good news to be had when Americans save more?