HARRISBURG, Pa (WHTM) — Gas prices are at the lowest level in years across the Midstate. However, the economic reality is beginning to set in.
Sustained low oil prices, partially driven by increased U.S. oil production from fracking, has sent foreign sellers elsewhere looking for buyers. At the same time, political tensions in the middle east, and this week’s Chinese stock market calamity are triggering copycat reactions from American investors.
“I think it’s good,” says Brent Chatterton, while pumping gas for $2.07 a gallon at a Gulf station near Harrisburg. “I can’t understand why people are always saying its bad for the economy. If I’ve got more money in my pocket, I’m willing to go out and spend more money because of it.”
According to Bob Caplan, a financial adviser with River Wealth Advisors, confusion on the issue is common, and understandable. But he says it boils down to supply and demand. And with oil prices and profits low, oil producers are less likely to spend money. China is a possible victim of the situation, as the country reports a nearly year-long decline in steel production and other manufacturing sectors.
“I think the Chinese economy affects every country’s economy,” says Caplan. “China is the second largest economy in the world. And they do an incredible amount of spending overseas.”
With less cash on hand, oil companies across the globe have been investing fewer dollars in exploration and new equipment. Fewer orders for Chinese exports could be directly or indirectly related, driving markets down, according to Caplan. Both domestically and worldwide, the massive transportation industry would also suffer from fewer exports coming from China and other manufacturing countries.
“All of these industries are going to feel some reduction in spending from the oil sector, that will ultimately reduce their profitability,” adds Caplan.
With US stocks expected to fall further in trading on Friday on the heels of more volatility in China, Caplan says there are benefits for investors. Those with many years of investing ahead of them should see the decline of stock value as an opportunity to buy certain stocks “on sale.”
“I still feel if your time horizon is ten years plus, this is a good time to add to the market,” he says. “As long as your personality can handle the volatility, because we are in very volatile times. And you need to have the stomach to stay the course.”
Also pumping gas on Thursday, was Mike Meck, a chauffeur with Harrisburg-based Unique Limousine. He says his company has benefitted from low gas prices, for obvious reasons.
“It keeps our prices competitive, and keep prices flat,” says Meck. “So we don’t have to increase to keep up with the price of gasoline.”
But a microcosm of the Wall Street sell-off may be perfectly illustrated in Meck’s towncar. While cheaper gas has meant more affordable and more frequent use of Unique’s fleet over the past year, those same customers could be seeing declines in their investments, and could re-evaluate their use of luxury services to keep pace with the slowing market. While Chatterton says the extra cash in his pocket is nice, he realizes it may have to offset the loss in his portfolio.
“I’m very, very nervous,” he says. “At my age (40’s), the older I get, the harder it is to recover. And I don’t understand the whole system. I just don’t get it.”