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Recession trauma: Why cheap gas isn't fueling consumers

Says Visa boss Charlie Scharf

Are cheap gasoline and home fuel helping working Americans to finally start spending more on the good things of life? No, says Tom McCrohan, financial tech analyst at Sterne Agee & Co., citing federal data for January 2015: "Consumer spending continued its weakness into January," he noted.

So where does all the consumer savings from cheap fuel end up? McCrohan cites Visa CEO Charles Scharf's comments to investors last week (transcript from Financial Times' Seeking Alpha here): "U.S fuel prices are down approximately 30% since June. This drop amounts to approximately $60 per month for the average consumer. According to our surveys, approximately 50% of the savings consumers are seeing is being saved, 25% is being used to pay down debt and approximately 25% is being spent (on) groceries, clothing, and restaurants." That's what store spending records are showing, too, Scharf added.

So, for every $100 in savings from cheaper gas, something like $75 is being spent to pay down credit cards or mortgages, or put into the bank, retirement account or cookie jar; and just $25 is going for consumer items. Business had hoped to grab more, says McCrohan: "The general thinking was that lower gasoline prices would spur spending. But it's actually spurred saving. It's kind of an interesting commentary on the lasting impact of the Great Recession. People still remember. It seems like the average person is behaving in a more fiscally conservative manner."

If cheap gas lasts, Visa's Scharf added, accumulated savings should eventually boost spending on "home improvement, electronics, and travel and entertainment." But not yet.