The latest statistics out from the Federal Reserve Bank of Atlanta shows U.S. growth at a meager 0.5%. With the official definition of “recession” being two-quarters of negative economic growth, the current reading is concerning. The official measurement at quarter-end will be published in about three weeks, so we will know more around the beginning of March, but the estimates put out by the Atlanta Fed tends to be fairly accurate.
The Bureau of Labor Statistics (BLS) recently put out a statistic that real incomes year over year has increased 5.1%, a healthy increase to be sure. The increase, however, doesn’t factor in current inflation figures, which is estimated by some to be about 7%, with some analysts stating it’s closer to 10%. Whatever the true inflation statistic is, it’s the highest in 40 years.
Discretionary purchases, things people choose to buy versus what they must buy, will certainly go down, but what about non-discretionary purchases like gasoline or food?
The price of a gallon of gas has risen on average 45%, from an average price of $2.76 a gallon to $4.01. That may sound low to us Californians, where I pay close to six bucks a gallon for premium, but the national average is a bit lower no thanks to a variety of public agencies here in the golden state. New York also has similar gas prices to ours. The surge in prices may not be over, with some analysts forecasting seven dollars or higher are in the cards. Just in the last month, gas prices have jumped 17%.
The increase is so devastating to consumers and the economy in general, Washington has figuratively started the “drill baby drill” catcalls throughout the ivory halls.
What a difference a war makes.
At current prices, Americans are on average going to have to shell out an extra $2,000.00 a year to drive to and fro. Amplifying the unfortunate, the move away from oil dependence has come just at the wrong time.
With regulatory pressure on oil companies and where they can drill increasing, many oil-producing facilities have shut down. These shutdowns come on top of what was already a global energy shortfall for a variety of reasons, which include the green movement, the CoVid shutdowns, labor shortages, and supply problems.
With Russia having huge oil reserves and manufacturing facilities that are now off-limits due to the Ukrainian conflict, a perfect storm may be brewing to bring about even more inflation. Keep in mind, much of what is consumed by the world is oil-based. The list of things made from oil or oil derivatives is too long to list here, but odds are you use more things made from oil than not.
With the price of oil skyrocketing at a blistering pace, and inflation contagion about to run rampant all through the manufacturing complexes of the world, the cost of most everything is probably about ready to explode.
Can we count on companies increasing oil and gas production to meet the shortages?
Restarting oil and gas manufacturing is not like turning on a light bulb. It takes months and millions of dollars to bring a previously mothballed refinery or oil-producing complex back online.
Even if it could be done, oil companies are hesitant to do so in fear of being shut down again by Washington once the crisis passes.
All in all, it’s a complete mess and about to get messier. There are those that are saying the U.S. should move even faster now towards clean energy, and that may be a valid point, but to make a significant dent in the current supply/demand/pricing problem caused by the many factors, the truth is right now, we just don’t have the time.
This article is opinion only of Marc Cuniberti, and may not represent those of this news media and should not be construed as investment advice nor represents the opinion of any bank, investment or advisory firm. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. Contact: (530)559-1214 or marc@moneymanagementradio