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Guess what: rising energy prices are taking a toll on consumers.
On Monday the Bureau of Economic Analysis released details on personal consumption expenditures for February, allowing us to update our graph of how big a share energy is in American budgets. A 6% expenditure share marked the point at which we started to see significant consumption responses a few years ago. The share in February is essentially there (5.98%, to be exact), the highest it's been since October 2008. For poorer households, energy's budget bite is a significantly larger percentage.
Not surprisingly, overall spending on other items is slowing down. Real personal consumption expenditures grew at a 3% annual rate in February after falling slightly in January. Bill McBride (and you know I don't like to argue with him) thinks this means real consumption spending for 2011:Q1 may only grow at a 1.4% annual rate. That's less than half the rate that many analysts had been anticipating prior to Monday's data.
You probably also know that gasoline prices have been climbing from their average values in February.
Posted by James Hamilton at March 29, 2011 01:29 PM
Jim and I are quoted in the WSJ today, in an article by Don Luskin entitled, "Oil Prices Won't Kill the Recovery."
Hmmm. Right now, the 4% limit is about $88 / barrel crude. Brent's at $115. On paper, this should be enough to put us into recession.
On the other hand, the recovery is providing momentum the other way. So, as Jim points out, the oil price is a drag, rather than a killer right now.
Do energy prices matter as a general principle, or oil prices specifically? I would postulate the impact is primarily related to mobility, hence, oil prices should matter more. But maybe not. Bill McBride's not the only guy to avoid betting against.
Posted by: Steven Kopits at March 29, 2011 03:44 PM
Again, weak demand in developed countries, e.g., the US, since 2005 is not a new story. But the real story is increasing demand in developing countries. Oil consumption in the US and four developing countries for 1998 to 2009 (100 = 1998 consumption, EIA):
http://i1095.photobucket.com/albums/i475/westexas/Slide3.jpg
At Chindia's 2005 to 2009 rate of increase in net oil imports, as a percentage of global net oil exports, Chindia would be consuming 100% of global net oil exports in 2025. As they say, somethings gotta give, and that something will largely be consumption in the US, as we will probably continue to be gradually priced out of the global net oil export market.
Posted by: Jeffrey J. Brown at March 29, 2011 07:26 PM
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