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Gas prices reaching new heights this year

Jeremy Hobson Mar 2, 2012

Jeremy Hobson: The price of crude oil fell slightly this morning, to around $125 a barrel in global trading. Yesterday, a report of a pipeline explosion in Saudi Arabia sent oil prices up near a four-year high. The Saudis denied that report, but two things are clear: Oil traders are on edge, and prices remain very high. And obviously, that’s trickling right down to the gas tank.

So what effect will all this have on our economy here in the U.S.? Chris Low is chief economist with FTN Financial. He’s with us live from New York as he is every Friday. Good morning, Chris.

Chris Low: Good morning.

Hobson: Well Chris, whatever we’re going to blame the rising prices on, they are high; they do appear to be staying that way for now. How worried are you about this and whether it’s going to derail our recovery?

Low: I don’t think it’s going to derail the recovery, but what it will do is almost certainly slow it down. We’ve only ever seen gas prices at current levels twice — and both times, consumer spending slowed significantly.

What worries me is that in the last three months, after adjusting for inflation, there is no growth in consumer spending at all. Which tells you that people are already feeling strapped, and they’ll feel even worse if gas prices go higher this spring.

Hobson: Of course, we’ve had oil shocks before — recently, and long ago. Are we any better prepared at all this time than we were last time?

Low: Well that is one piece of good news. Actually, consumption of gasoline dropped significantly last year, and it’s pretty clearly tied to an increase in average fuel mileage. So even when price relief came last fall, people still focused on buying cars that got good mileage. And that is going to pay off — make it a little bit easier.

Hobson: Chris Low, chief economist with FTN Financial, thanks as always.

Low: You’re welcome. Thank you.

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