The Chart of The day chart below provides some long-term perspective in regards to gasoline prices by presenting the inflation-adjusted US price of one gallon of gasoline since 1980. There are a couple points of interest from the chart. For one, Middle East crises are often associated with major swings in the price of gasoline. Also, gasoline price spikes have often occurred prior to an economic downturn. It is also worth noting that gasoline prices have declined $0.65 per gallon over the past eight months — a relative positive for both the economy and corporate earnings going forward.
Given this history it is interesting to note that we did not have a recession based on the price spike in oil earlier in the year and it doesn’t look like we are anywhere near a recession! As we noted in our last post, the economy grew at a rate of 2.8% annually last quarter and added 200,000 jobs last month when economists thought we would be lucky to add 120,000 jobs. The decline in oil prices will act as a stimulus for the economy as it literally means more money in peoples pockets for spending. Could it be that lower gas prices will counterbalance the inevitable and dreaded easing of QE from the Fed? This would not surprise me at all as it is a scenario that has hardly been discussed by the financial media and therefore something for us to keep our eyes on.
Have a great day and feel free to call us at 310-459-9196 with any questions.
David R. Fried