Art Cashin On Gasoline Prices And The Economy

We have read, and written, all of this before (and speaking of, since 2012 is still a carbon copy of 2011, we could so easily just repost articles from February 2011, change the year, and nobody would notice - we could even save on robo-posting costs) but there is always something just so enjoyable in hearing the Chairman of the Fermentation Committee point out the glaringly obvious to the vacuum tubes in charge of a market which is now a 6-8 week lagging indicator to reality.

From UBS Financial Services

Gasoline Prices And The Economy - With oil soaring, and on the verge of breaking out, lots of folks are wondering about the impact higher gas prices may have on the economy. Bloomberg’s savvy economist, Rich Yamarone, opined on the topic this morning. Here’s a bit of what he noted:

Every U.S. recession since 1971 has been preceded by an increase in the price of oil, currently up more than 7 percent year-to-date. With the economy barely advancing – growth in output is moderating by most measures – the economy may not be able to withstand the blow of a spike in oil and an ensuing increase in prices at the pump. While oil at $106 per barrel and gasoline prices averaging $3.59 a gallon are not yet at crippling levels, they seem headed in that direction.

He summed his article up this way:

It is estimated that a $.10 increase in the price of gasoline results in a decline of about $11.74 billion in personal income. [An average of 12,000 miles driven per year divided by an average fuel economy of 25 mpg, equals 461.54 gallon used per year per automobile. With an estimated 254.4 million registered vehicles, that comes to roughly 117.415 billion gallons used per year.]


Elevated prices at the pump are surfacing on the corporate radar screens. Lawrence E. Hyatt, SVP & CFO of Cracker Barrel said that given the company’s susceptibility to potential increases in gasoline prices, “it is appropriate to be suitably cautious about our third and fourth quarter traffic outlook.”


Wal-Mart also raised the likelihood of a consumer response to higher gasoline prices. On the company’s quarterly earnings conference call, executives observed a “challenging economy” and said rising gas prices will continue “to drive customers to seek value.” In the past, significant increases in gas prices over short periods of time have led to trip consolidation and higher tickets, executives said.


While prices to date haven’t yet climbed to levels that would alter consumer activity, any combination of in increase in gasoline prices or a late winter cold spell could prove problematic for the broader economy.

Looks like gas prices are really important to the economy. Ed Yardeni thinks that the President may open up the Strategic Petroleum Reserve to ease pressure on prices. May be delaying, lest there’s an Iranian “surprise”.