Thursday, March 10, 2011

Fuel costs dampening rising economy

I was pumping $3.39 per gallon gas into my car and thinking that this fill was going to cost me about $2.00 more than last week and $4.00 more than the last week in February. I don’t use my car as much as many who pile up the business miles each week and consequently feel the pain more. A friend takes a $60 load every week and, since he is a practicing psychologist, the only way he can cover the fuel cost is to slip an extra hour per week of consulting time into his schedule.

The company that picks up my trash weekly bills me for fuel adjustment and if I hadn’t already booked an overseas flight a month ago I would be paying a fuel surcharge. Those who can pass it on will do so now that the weekly changes are in the double digits. Those who can’t will see their cost of doing business increase with an attendant drop in profits.

I’ve been touting the end of the recession and, like many analysts, qualified my forecast by stating that it assumed a status quo in the world economy. Current events in certain oil producing states have slammed the cost of doing business, and some pundits are raising the specter of another recession. Some of these forecasters stubbornly refused to acknowledge the recovery, and, as the weeks went by this year, they railed against the good news with a series of qualifiers, none of which by the way included double digit weekly hikes in the cost of fuel.

The rising cost of a barrel of petroleum, manifested at the world’s gasoline pumps, is one of those few costs of doing business that transcends national interests. The cost of fuel passed on to consumers directly or indirectly eventually impacts everyone.

Talking with an executive of a laser product manufacturer the other day, he was commenting on the power of the Asian manufacturing market to recover from the recession, while here in the U.S. it looked like his manufacturing customers were not recovering at the speed and rate of their offshore competition. He speculated the projected further increases in fuel costs might prove to be the death knell for many marginal suppliers located in the U.S. just when business was beginning to look up.

I countered that all global manufacturers may be forced to pass on the fuel cost increase effects to customers since it is a common global problem and that should level the playing fields somewhat.

Even in a service oriented economy like the U.S., these fuel cost increases will have an impact along the lines of my psycologist friend who ramps up his chargeable hours to offset the rise. So, whether U.S. manufacturers compete or not, the economy here is in for a jolt, and it may be so widespread that spending will drop just when the consumer was bailing us out of the recession. Not a pretty picture.

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