Flashback to 2008 and you may recall the hot summer with skyrocketing gas prices that passed right before the financial markets collapsed.
What has been lost in all the financial news as of late is just how high energy prices soared in 2008, placing extreme pressures on consumers before the meltdown.
Perhaps, high gas prices were not the cause of the crisis, but they certainly put a squeeze on spending, adding to the pain.
It’s easy to forget the precious role energy plays in personal budgets, but Deutsche Bank analysts are now warning us not to.
After all, with higher social security payroll taxes now in effect and unemployment above 7%, higher gas prices are the last thing consumers and economists want.
Here it is from the horse’s mouth. Deutsche Bank analysts explain their energy fears this way:
“We are keeping a watchful eye on energy prices, because gasoline prices have increased nearly 50 cents over the past three months, and this is occurring at the same time that households are adjusting to a 2% increase in the payroll (social security) tax. Our overall economic growth outlook for 2013 is largely dependent upon domestic economic drivers, so we are cognizant of the potential for rising gas prices to tax consumption by sapping households’ (and businesses’) wherewithal to spend.”
In other words, an energy hike could spook consumers, which in turn has the potential to derail confidence created by rising home prices and sales.
The good news is the jobs sector improved somewhat in recent weeks, though it remains well above 7.5%.
“The ongoing recovery in the labor market should mean that the economy is more resilient to energy price increases,” Deutsche wrote. “Our analysis has determined that a $1.00 increase in retail gasoline prices leads to a roughly $100- $120 billion tax on non-energy personal consumption (in annualized terms). Thus, our ‘rule of thumb’ is as follows: A one-cent change in gasoline prices reduces annual non-energy consumption by roughly $1 billion. As a result, we conclude that the recent move in energy prices is not sufficient to negatively impact our growth forecast.”
Still, it’s worth watching over the course of the year.
