On Wednesday, the price of crude oil briefly moved above $112 per barrel before settling at $110.87 per barrel, up $2.37 on the day and a new closing high for any front-month oil futures contract.
With U.S. consumption of crude oil around 21 million barrels per day (these data are from the Energy Information Agency), the tab to consumers of this latest price rise amounts to $18.17 billion on an annualized basis. With oil up about $10 per barrel over the past month, the energy tab has increased close to $80 billion. Of course, not all of the cost represents an outflow of money, given that some of the oil is produced in the U.S.
Nevertheless, in light of the contracting U.S. job market, consumers will have a difficult time with this latest price run-up, as income gains currently are not sufficient to keep up with recent price gains. This, of course, means that consumers are facing new headwinds.
The comparison between incomes and energy prices is different than the trend seen since 2002 when income growth was more than enough to keep up with the rise in energy costs.
For example, from 2004 until the end of 2007, income growth averaged 6.3% per year, about a percentage point more than normal, which gave households close to $100 billion of extra income per year over and above-normal income growth, more than enough to handle the energy price rise -- until recently.
Tony Crescenzi Blog Twist in Confidence Data 4/9/2008 9:47 AM EDT There is some good news, but only one source is confirming it.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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