Oil prices have been decreasing from the record-high of $150 this summer, as Caity’s post from last week mentioned (Gas prices down 10 cents in 4 days). This article further elaborates on the potential impact of falling prices. You’d think falling oil prices would be met with cheers all around, and maybe that’s a good thing. But for the US economy as a whole, are falling prices something to worry about?
The article argues that the decline actually reflects lower consumer demand and indicates that an economic recession is right around the corner, if not at our doorstep. With recession comes less jobs, which will further pressure demand. Americans are driving 4% less than the previous year, and are using 2% less energy. The economy – the industrial sector in particular – suffered huge blows from the recent crude-price surge. After slashing output and jobs, and shifting production focus from oil guzzlers to smaller cars, companies like General Motor might view a fall in gas prices to be like trying to stick a Band-Aid on a sinkhole – too little, too late. Those jobs are gone. The market that made them money (trucks, etc) is floundering.
Also, because people are starting to realize they can’t keep living beyond their means due to a shrinking credit window, they’re not going to demand SUVs and trucks just because gas is cheaper. They’re not going to be demanding much of anything, actually. However, the article ends on a (slightly) optimistic note, saying that oil prices may continue to fall, and fall hard. This may alleviate some of the pressure on the average American wallet, and allow people to spend, save, or repay debts.
Are falling oil prices enough to offset some of the impacts of an economic recession? I think probably not to a great extent. But it’s something that will help out the everyday population, which I think is significant. It’s something that will alleviate some of the stress placed on households, small businesses, and anyone who is waiting for the trickles of a $700 billion bailout to reach them. Oil prices – along with Wall Street’s wake-up call – may provide America with an opportunity for a breather: to stop, sit back, evaluate spending habits and reliance on credit, and prepare for a very possible recession.
2 comments:
Also, I think that it would be a boost to American confidence if gas prices were to fall; even if the economy isn't doing better, the fall in gas prices may cause the American public to think that it is, which may increase their spending.
I think it is hard to determine if a falling gas price is a reflection of recession or a remedy of it.. kinda like the chicken-egg problem. Again, it brings us back to the business cycle, and how we can always find the positives among the negatives. A falling gas price certainly will increase disposable income, which could be used to fuel aggregate demand.
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