As Wall Street falls deeper into a black hole of its own making there’s a glimmer of hope for the economy in lower gas prices.

Lower gas prices, the theory goes, should translate into a bump in spending. This would be a big boon to the retail sector in the run-up to the Christmas buying season.

Andrew Gordon is skeptical of this analysis. He says the real savings per household will be too small to make any real difference to consumer spending, even though he expects gas prices to continue their fall.

A quick look at the numbers might suggest otherwise. After all, every penny increase for a gallon of gas equals more than $1 billion in consumer spending over a year, according to Citigroup (NYSE:C).

But let’s break down the numbers a little more.

On June 1st, American households were spending an average of $83 a week for gas. Gas peaked around mid-July along with crude’s peak. American households were spending $86.50 per week for gas. Since then the price of gas has dropped roughly 12 percent to $76. So families are now saving $10 per week from the peak in mid-July.

But gas is still falling. And it’ll continue to fall as crude bursts under the $100 per barrel barrier. Gas is right now averaging $3.65 a gallon. I believe it’ll easily go below $3.50 by the end of the year. That’s another four percent drop. But let’s be conservative and raise gas savings by two percent. So families will be saving $12 per week from now until the end of the year.

There are 12 more weeks to go before the holiday season begins. The savings for families before they hit the stores on “Black Friday”? It’s a grand total of $144.

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And, mind you, this is not a check you get in the mail. The savings will accrue gradually. People will hardly notice the savings. Of course, they might notice that they’re still paying high prices for food and other goods - despite a drop in commodity prices. Take a look at the CRB commodity index…

Commodity prices are down an average of 25 percent from their peak in June. They’re hitting a support level right now and are oversold (according to the Slow Stochastics).

But with the rest of the planet following the U.S. economy down the toilet, prices could easily continue to fall. The real test will come when (and if) prices fall to the 200-week moving average support at about 340.

They haven’t fallen below that level since mid-2002 when the economy was just coming out of a recession. Of course, back in 2002, you didn’t have trillions of dollars of hedge fund and other institutional money fleeing the commodity markets, either, like you do today. So the drop in commodity prices is happening much earlier in the economic cycle.

These falling prices, however, will take a while to reach the stores. You see, manufacturers have been swallowing the bulk of input price hikes over the past few months when these prices were surging. Now that they’ve fallen back, these companies have a chance to build their profit margins back up.

PS: Yesterday, Wave Strength Options Weekly editor Adam Lass recommended investors to short the retail sector. Read on here to learn more about how to profit from the retail sector’s woes.

Source: The Hype Behind Cheap Gas