Oiling the Gears For Market Recovery

Thursday, June 7, 2012 at 2:48pm by Sandy Jones

If it seems like the numbers at the pump are getting lower every day, your eyes are not playing tricks on you. They really are declining overnight. In fact, gas prices have dropped a penny every day for the last 19 consecutive days. Although drivers are excited about the cheaper fuel, the decline indicates several factors that are not necessarily positive. There are five facets that give us a better picture of exactly what lower prices mean.

 

Gas Prices Dropping Nationwide

First of all, it is important to recognize that the drop in oil prices has occurred nationwide. This is not a region or area-specific instance. USA Today reports that in South Carolina, the cost per gallon is down to below $3. In California, the other side of the nation, prices are as low as $4.31 a gallon. Overall the reported average for regular gasoline fell to $3.61.

Furthermore, experts predict that by Labor Day, these numbers could get even lower — possibly reaching $3.40. In comparison, Bloomberg notes that this is nearly 40 cents lower than what the national average was almost exactly four years ago prior to the elections, when the national average topped $4 a gallon.

 

Sign of Weaker Economy

According to the Fortune column of CNN, the decline in price-per-gallon comes attached to a weaker economy both here in the United States as well as around the globe. The drama in Greece over its economy as well as China’s slowing manufacturing activity reduced the demand for oil around the world. The hope concerning the impact of cheaper fuel is that economic activity is encouraged among consumers who save on filling up the tank. However, this stimulation is hampered somewhat by two major factors.

 

Job Market vs. Housing Market

Unemployment rose to 8.2% according to USA Today as only 69,000 jobs were added in May, marking the fewest in a year. The percentage point spike caused the Dow Jones to lose 100 points just minutes after the released report. This doesn’t even take underemployment rate into consideration. That number includes job-seekers who gave up the hunt from discouragement in addition to those who are working part-time and want to be employed full time; that rate went up three-tenths of a percent from 14.5% to 14.8%.

At least the housing market seems to be starting down the road of recovery. Despite the lack of jobs, the overabundance of homes is slowly being filled as people resume renting and buying. Sellers are getting smarter and investing in repairs and practical improvements to their houses and many owners are refinancing to lower mortgage rates so they can afford to keep their house and prevent foreclosure. If the job market doesn’t recover soon though, the housing market may be headed for another downhill slide.

 

Political Implications

With all the changes in the economy and the reduction of oil cost, you would think that the presidential elections would be at least partially impacted. But surprisingly, Bloomberg disproves this theory by pointing out that the approval ratings for Barack Obama and Mitt Romney have seen little adjustment.

Hovering around 46 and 47%, Obama’s approval rating has hardly budged over the last few months. It did drop a percentage point to 45% following the latest report on the job market though. It would seem that Americans are less wooed by cheaper gas than they are disappointed in the lack of jobs.

 

Economic Activity Generated

When considering the impact of gas prices on consumer spending, the hope is that the lower cost of fuel will boost economic activity. However, despite the decline so far, money is not nearly as readily handed around as we expected.

Fox News recently highlighted the effect cheaper gas had on Memorial Day travels; an estimated 30.7 million Americans hit the road, driving more than 50 miles per person on average for the holiday weekend. That number is up 400,000 from last year and is solely attributed to lower gas prices and good weather. Despite the increase in traveling, drivers still cut back on the distance they traveled. Half of the survey respondents said they would travel less than 400 miles.

Although travel is the primary area of the economy that is impacted by lower fuel costs, retail stores and smaller businesses hope to be positively affected over the summer by consumer savings being redirected their way. In a best case scenario, the activity boost will spur additional trust and investments by consumers to help the recovery get back on track.


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