High gasoline prices are supposed to be an indication of a prosperous economy. They also are supposed to be a significant threat to future economic prosperity. If that is true, the U.S. economy is in relatively good shape now, but it may not last.
The carefully followed Lundberg Survey showed that gas prices rose 3.48 cents to $3.3944 in the two weeks that ended on January 20. That is $0.28 higher than a year ago. The margin does not seem like much — an increase of only 10%.
The 10% is not much, if real wages in the U.S. had improved over the past two years. That has not happened. And there probably will be no improvement again in 2012. Unemployment is too high and employers are too reluctant to add workers. Also, Americans spent a substantial portion of their discretionary income over the holidays, based on retail industry statistics.
Americans ran out of spare cash three years ago, when the value of most people’s home equity disappeared. Then, in increasing numbers, people lost their jobs. The recession that began in early 2008 could have been worse than the terrible one that it was. But oil prices that peaked at more than $140 that summer then collapsed quickly to less than $50 in 2009. The relief probably was enough to help in what has been the most modest of GDP recoveries.
There is no hope that gas prices will fall soon, even if the economy should slow. OPEC leaders and senior Saudi officials have signaled that they believe oil prices at about $100 are what they need to support their own economic growth. If that robs oil-consuming nations of some of their recovery prospects, so be it.
OPEC may get its way without much action of its own. If Iran blocks the Strait of Hormuz or political trouble in Nigeria shuts production there, oil prices will shoot higher than $100. And the price of gas will move back toward $4 a gallon. If a drop in crude prices in 2009 helped the global economy, that process could reverse itself soon.
Douglas A. McIntyre
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