Tuesday, June 5, 2012

High Gasoline Prices--Again--Mug Jobs and Economic Growth:

How many times does the economy have to be damaged by high gasoline prices, before we break our addiction to oil, still America's number one source of energy, supplying about 34% of our total energy?

The May jobs report shows that the US economy slowed substantially this Spring; just as it did in the Spring of 2011; and just as it did in July 2008, when oil hit $147 per barrel, and then plunged into an 8% GDP contraction, during the fourth quarter of 2008.

The connection between rising gasoline prices and falling economic growth and lost jobs is plain to see.
At the end of 2010, gasoline prices averaged $2.83 cents per gallon; then hit $3.96 by April 2011; fell to $3.19 by December 10, 2011; and then surged to $3.92 by April 2012. All data from gasbuddy.com.

Put simply, consumer demand in the USA cannot withstand $3.90 gasoline, and so the economy slows to a crawl, when gasoline prices rise to that level.

Since peaking in April, gasoline prices are heading downward quickly, already averaging about $3.59 across America.  In my home area, prices are down to $3.30, while they are below $3.00 in South Carolina.

The difference between $3 and $4 gasoline is $500 to $750 per year for many Americans.  Rising gas prices take that much out of pockets, and falling prices put that much back into the economy.  These flows of cash are big enough to impact consumer confidence and spending and hence economic growth and jobs.  Indeed, the on-going fall in prices--the return to $3 gasoline or lower--could fuel another burst of job creation in late 2012.

While we remain painfully vulnerable, getting repeatedly mugged by rising gasoline prices is finally causing significant moves to lessen the impact of oil on our economy.  The country is becoming more fuel efficient, having cut its oil demand to 1999 levels.  Substitutes like biofuels, natural gas, and electric vehicles are growing but too slowly to prevent the most recent damage.

Domestic oil production too is increasing, but it is priced in the global market.

Few things are as important to our future and security than breaking our addiction to oil and ending the repeated beatings of our economy by $4 gasoline. Uncle Sam just got another painful lesson why.

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