Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unconventional Wisdom
Think a bit more about the oil impact
Event
The rising oil price is increasing concerns about US economic growth.
Impact
It is a truth universally acknowledged that when US gasoline prices go up US
consumer spending on other sectors goes down. The result is slower GDP
growth. That’s the consensus anyway.
But while this can often be right, there are periods when there are
complicating factors that disrupt this simple chain. This is one of these times.
There is certainly no comparison to the last period of soaring oil prices in
2008. Forecasts of a big hit to US growth from the high oil price should be
handled with care.
Analysis
When oil prices rise sharply it is always time to dust off the old tables showing
how much US households spend on gasoline, calculate how much this will
rise with the higher oil price and then deduct this from other forms of
household spending. It is commonly assumed that most of this spending
reduction will hit domestic production and so the leakage of income to foreign
oil producers inevitably means weaker GDP growth.
This time is no different. There are any number of forecasters producing such
tables, with some variations, showing that there will be an inevitable
weakening in the US economy. Tax cuts will provide some offset. Even so,
the typical conclusion is that personal consumption growth in the US will be
slower than previously forecast. Given the size of the household sector, this
means weaker GDP growth.
Often this makes sense and 2008 was a good example. But economic reality
is sometimes a lot more complicated and 2011 is shaping up as one of these
periods.
A rising gasoline price in the US tends to have a much sharper impact when
the economy has slowed to stalling speed. In 2008 the US economy was
already in recession and it was not that hard for the soaring oil price to
convert a manageable downturn into something a lot nastier. But US growth is
much stronger in 2011. Furthermore, the US leading indicator is showing a
rising rather than a falling trend.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unconventional Wisdom
Think a bit more about the oil impact
Event
The rising oil price is increasing concerns about US economic growth.
Impact
It is a truth universally acknowledged that when US gasoline prices go up US
consumer spending on other sectors goes down. The result is slower GDP
growth. That’s the consensus anyway.
But while this can often be right, there are periods when there are
complicating factors that disrupt this simple chain. This is one of these times.
There is certainly no comparison to the last period of soaring oil prices in
2008. Forecasts of a big hit to US growth from the high oil price should be
handled with care.
Analysis
When oil prices rise sharply it is always time to dust off the old tables showing
how much US households spend on gasoline, calculate how much this will
rise with the higher oil price and then deduct this from other forms of
household spending. It is commonly assumed that most of this spending
reduction will hit domestic production and so the leakage of income to foreign
oil producers inevitably means weaker GDP growth.
This time is no different. There are any number of forecasters producing such
tables, with some variations, showing that there will be an inevitable
weakening in the US economy. Tax cuts will provide some offset. Even so,
the typical conclusion is that personal consumption growth in the US will be
slower than previously forecast. Given the size of the household sector, this
means weaker GDP growth.
Often this makes sense and 2008 was a good example. But economic reality
is sometimes a lot more complicated and 2011 is shaping up as one of these
periods.
A rising gasoline price in the US tends to have a much sharper impact when
the economy has slowed to stalling speed. In 2008 the US economy was
already in recession and it was not that hard for the soaring oil price to
convert a manageable downturn into something a lot nastier. But US growth is
much stronger in 2011. Furthermore, the US leading indicator is showing a
rising rather than a falling trend.
No comments:
Post a Comment