Gas Back as a Threat to the Economy

Energy

Published: February 12, 2013 6:23 am

Last Updated: February 12, 2013 7:05 am

At some point, high energy prices begin to undercut consumer spending. The effect obviously varies by consumer, based on income and driving habits, at least. But the price of gasoline has shot up enough that its weight on GDP improvement has become a threat again.

AAA Fuel Gauge shows that the price of a gallon of regular on average around the United States was $3.604 yesterday, compared with $3.307 a month ago. The increase is enough to add hundreds of dollars in living expenses for families with commuters who have no alternative but to drive to get to work. Add that to trips to school and the gas station, and the miles pile up.

The burden on the consumer’s pocketbook has been hurt simultaneously by more than gas. Tax rates are higher for many, because of Washington-based decisions. Real income has been flat for a decade as wages have been pressured by the ability of companies to hold down worker costs, particularly in the recession period. Add to that the increased cost of health care. And, finally, the drop in home prices — home values that were once the nest eggs for retirement. Housing may have started a recovery, but in most sections of the country, still have very far to go to get back to 2005/2006 levels.

The modest increases in gross domestic product in the second half of last year, and an economy that has added more than 150,000 in jobs a month over the past eight months, have caused some optimism about the GDP prospects for 2013. However, recent polls of economists put most consensus estimates for 2013 GDP at not much better than 2.5% growth. Side-by-side with that, the Congressional Budget Office and the Federal Reserve do not expect much improvement in unemployment rates in 2013, and certainly forecast little improvement beyond a 7.5% rate, which is still to higher by a third than levels that mark a true recovery.

Gas prices seem benign, but they are not. Added to other factors on the consumer’s back, the energy load is too severe.