In all the world’s economic uncertainty—one thing is for sure. We haven’t seen manufacturing activity like this in America for a very long time. We continue to see manufacturing increase, and it would appear that there is a consistency to the rise. Apparently, manufacturers are not quite ready, at least yet, to start putting on the brakes due to potential “trade wars.” On top of that, we are actually seeing good retail sales numbers coming through again for the second month in a row, and that is good news.
Headwinds that the economy faces include consumer spending and consumer confidence, which will be followed by business sentiment and manufacturing productivity beginning to fall off. This is possibly being caused by a tax of sorts that all Americans will face—not really a tax, but it usually acts like a tax, robbing the economy of discretionary income needed in a consumer-driven America. This, of course, is an increase in gasoline prices.
The national average for gasoline is now $2.91 per gallon. It’s possible we could see $3 a gallon before Memorial Day weekend, and based on the trajectory of crude oil, some are indicating that $3 a gallon is a psychological benchmark and a level we should be concerned about. I have been saying that the real psychological impact on consumer spending is not $3, but rather somewhere around $3.38 a gallon. When that price begins to be reached, we will see industries and consumers start to tap on the brakes, becoming a little more concerned about the direction of the economy.
As we head into the summer and gas prices continue to increase, don’t be fooled by the markets. They may continue to rise based on the financial and energy sectors continuing to see stock prices rise, but we may begin to see a disconnect again between increases in markets and consumer confidence and business sentiment that will become the key drivers of the economy.
We are seeing incredibly good consumer sentiment numbers, but we need to consider, above all other indicators, the average hours worked per week. It continues to rise almost on a weekly basis now. That is a strong indication of a growing, thriving economy, but also a very tight labor force, which the Federal Reserve will be looking at very closely when it comes to raising interest rates.
Once we start heading toward that 40-hour-per-week average and begin to get above 40 and toward 44 hours per week, I would suspect companies will have little choice but to put on the brakes a bit, unless workers magically appear in this economy. This is just one more indicator that will begin to slow economic growth, even though wages are likely to continue to rise.
If gasoline prices continue to rise, look to see a far-reaching negative impact on the rest of this economy.
People are already talking about price-gauging – oil companies intentionally spiking prices higher. Welcome to a growing economy. The fact of the matter is, we have record-breaking gasoline consumption and demand, not to mention an export market for gasoline that has become a significant part of our gasoline supplies. We also have transportation issues. We desperately need trucks and drivers to fill an increasing demand. Along with exports, demand and a trucking shortage, we have an infrastructure system (pipelines) that cannot handle that demand.
The trucking need will begin to take care of itself in the short term, but infrastructure and pipelines are quite a different story. I don't think we can expect any real relief from infrastructure for a year or two. But here's another issue no one is talking about—refinery capacity. We've always had refinery capacity that could take care of our needs. Although additions and newer refineries have been added on a small scale over the past few years, refineries are operating close to peak capacity. Unfortunately, the only thing that will help us in the short term is raising prices in the hopes of slowing down demand. All of this occurs while global demand is increasing, along with more and more threats of losing supply from Venezuela, Iran and other places. This is all adding to the anxiety of gasoline prices.
The government might have to start thinking about EPA regulatory burden—not in a way that lowers the environmental standards, but in a way that lowers the time it takes to get through the process of building additions or new refineries. The local, state and federal government will have to address the “not in my backyard” attitude with regard to policy and procedures that create even cleaner and more efficient refineries. Or we could just wait until the economic cycle turns negative, prices continue to get higher, and supplies once again begin to outweigh demand. In that case, consumers will still lose money due to lack of opportunities, fewer pay increases and the loss of an economy that is based on growth and prosperity.
Dan Celia is president and CEO of Financial Issues Stewardship Ministries, Inc., and host of the nationally syndicated radio and television program “Financial Issues,” heard daily on more than 650 stations across the country and reaching millions of households on the National Religious Broadcasters Network, BizTV, Dove-TV and others. Visit www.financialissues.org.