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Archive for Wednesday, February 29, 2012

Will higher gas prices derail the economy?

February 29, 2012

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— The price of gas has jumped 45 cents since Jan. 1 and is the highest on record for this time of year, an average of $3.73 a gallon. On Wall Street, talk has turned from the European debt crisis to another worry: Will higher gas prices derail the economic recovery?

Not yet, economists say. They argue that the United States is in much better shape than early last year, when a similar surge in fuel prices weighed on economic growth by squeezing household budgets. Americans spent less on clothes, food and everything else.

Rising gas prices hurt less when an economy is improving than when it’s slowing down. So economists expect other spending won’t be badly hurt, at least for now. If gas breaks its record of $4.11 a gallon, however, all bets are off.

“Can the economy withstand the increase we’ve seen so far? The answer is yes,” says David Kelly, chief market strategist at J.P. Morgan Funds.

The reasons:

• Jobs. The country has added 2 million over the past year. Those 2 million people with paychecks will spend them, which helps the economy. Lower unemployment also makes people feel better about the economy — and less likely to cut other spending way back.

• Job security. Unemployment claims, the best measure of layoffs, are at a four-year low. Fewer Americans are worrying about losing their job, so they can take the punch of higher gas prices and move on.

• A steadier housing market, the Dow Jones industrial average’s clearing 13,000 and other signs of an improving economy also help. Add them together and consumer confidence is the highest in a year. More confidence makes people more likely to keep spending on other things even if gas goes up.

“The public will howl as we approach $4 gas, but they will probably continue to increase spending,” says Carl Riccadonna, a senior economist at Deutsche Bank.

• Gas wasn’t the only thing getting more expensive last year. Prices for milk, meat, bread and other foods were rising because of higher prices for grains and other farm goods. Natural gas prices were also on the rise, making it more expensive for Americans to heat their homes.

Comments

Richard Heckler 2 years, 7 months ago

The surge and speculators are in bed together and consumers are there to guarantee the speculators make bundles more. All the while increasing our own cost of living.

Can't place all of the blame on speculators.

What to do?

Examine how many ways can we get around without buying our usual number of gallons of gasoline.

Also encourage Topeka KDOT to use the SLT money for establishing commuter train service between Topeka,Lawrence,JOCO and KCMO metro. Then use additional public transportation from those points.

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