Analysts worry rising gas prices will impact economic recovery

Marketplace Staff Feb 25, 2011

Analysts worry rising gas prices will impact economic recovery

Marketplace Staff Feb 25, 2011


STEVE CHIOTAKIS: We just got word from the government that the American economy hasn’t been growing as fast as we thought. The Commerce Department revised the nation’s Gross Domestic Product downward for the last three months of 2010. Cuts to government spending slowed the growth rate to 2.8 percent. And worries about gas prices might make the economic recovery even more fragile this year.

Jill Schlesinger is editor-at-large for CBS/MoneyWatch. She’s with us live from New York as she is every Friday. Good morning Jill.


CHIOTAKIS: How disappointed should we be with that downward revision?

SCHLESINGER: Well, you know of course it’s a disappointment — we don’t like things cut. But you know, the bigger disappointment may be that our overall growth rate really makes this a pretty poky recovery. Historically, after recessions we usually see the economy grow by more like 4 or 5 percent. And we are hardly at those robust levels this time around.

CHIOTAKIS: Poky. Define “poky.” That mines intermittent right? Or like up and down — volatile.

SCHLESINGER: Yeah, and just slow, you know? And when you see a slow recovery like this, it doesn’t bode well for what the next leg up could be.

CHIOTAKIS: All right, so that’s bad enough, but we’ve seen these oil prices up nearly 10 percent for the week because of everything going on in the Middle East and North Africa. How’s that gonna affect the economy going forward this year?

SCHLESINGER: Well look, if gas costs more, consumers will have less money to spend elsewhere. And you know this definitely affects folks in the lower income brackets more because more of their money is going towards those essentials like gas and food. But you know, if Americans stop spending as much elsewhere, then perhaps companies don’t make as much money. Maybe they hold back on job creation. You know this is vicious cycle kind of stuff, but it really has to be that prices stay high enough that this happens. And if it’s there long enough, this could increase the risk of recession.

CHIOTAKIS: What happened the last time we saw gas — and I remember a few years back when oil was way about $100 a barrel. I mean what happened when gas prices were so high?

SCHLESINGER: Well you know that was the summer of 2008, and we probably didn’t realize what was ahead of us, but we were just at this level where gas prices were $4.11 nationally. It was a huge number, and you know frankly that coincided with the recession. It probably helped to contribute to it. I mean I know we had a whole crisis that was financial, but that was really a tipping point where consumers started to say, “Whoa, I can’t spend on anything. This is too much.” And you also saw the car sales plummet after that. And certainly when you look at the U.S. automakers now, if gas prices are up, this really does not portend well for them.

CHIOTAKIS: And we saw those gas prices start coming down during the financial crisis right?

SCHLESINGER: Absolutely and remember, the biggest part of gas prices is determined by the price of crude oil. Now when you have a big economic boom period, there’s more demand right? We had a lot of people who are new drivers in the world, and the demand for oil and gas goes up, but during a recession, we really have reduced demand. People don’t want as much of the stuff. And that’s when you see oil prices go down, prices at the pump follow.

CHIOTAKIS: Jill Schlesinger from CBS/MoneyWatch. Thanks.

SCHLESINGER: Great to be with you.

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