WEST CHESTER, PA (TheStreet) -- The enormous upward revision to third quarter U.S. GDP is the highlight of today's barrage of economic data, but it is backward-looking. New data on consumer spending, durable goods and new-home sales helped us assess the economy midway through the fourth quarter.
The good news is that the economy is ending 2014 on a better than expected note, with consumers doing the heavy lifting. Real spending rose 0.7% in November, a brisk 4.5% gain annualized over the prior three months. This added more than a percentage point to our tracking estimate for fourth quarter real consumption.
The tailwind to consumer spending from lower gasoline prices is just beginning. Our rule of thumb is that each penny change in the price of a gallon of motor fuel saves or costs consumers $1 billion over the course of a year. Gasoline prices have fallen by 86 cents per gallon over the past year, so consumers should save nearly $86 billion, or 0.7% of annual nominal consumption. For perspective, this is noticeably more than consumers spent on household appliances in 2013, and could increase if gasoline prices continue to slide.
Lower gasoline prices will free up cash for consumers to spend elsewhere, and what households do with the savings will determine the direct economic impact. Some will pocket the difference, while others will pay down debt. New data on the savings rate suggest consumers are spending rather than pocketing the savings. The savings rate fell from 4.6% to 4.4% in November.