Gasoline prices continued to slip, but that may not last long. Oil has reversed its sell-off. According to AAA Fuel Gauge, a gallon of regular based on the average price across the country was $3.816, down from $3.819 the day before, $3.858 a week ago, and $3.925 a month ago. The optimism that the Federal Reserve showed last week was not undermined by modest first-quarter GDP data. Retail sales continue to be relatively strong, as is the purchase of automobiles. Car sales are expected to hit a four-year high when figures are released on the first of May. An Energy Information Administration report from last week showed U.S. oil supplies increased by 4 million barrels. But WTI crude still trades above $104, and the price has recently rallied to a four-week high. Some of the credit has to go to the lingering worry that political problems and the tension over Iran’s nuclear program will not disappear entirely. April unemployment is about to be announced. That will help set the price of crude for at least several days afterward.
Global Market Rally
Global markets began to rally today, and the trend may continue as speculation that the Federal Reserve will start QE3 widens. The main cause of the speculation is that U.S. gross domestic product grew only 2.2%, which was less than expected. However, the April jobs report may change the perceived odds of a new Fed bond-buying spree. The Fed may not pay any attention to first-quarter expansion numbers. Its official forecast is that GDP will accelerate more than expected in the next two years and that unemployment will improve more quickly than the Fed previously predicted. And Wall St. continues to send signals that the economy is strong and that slowdowns in EU GDP will not damage U.S. expansion. The DJIA makes a new high most weeks. This in turn creates more wealth — some of which will go back into the economy. The rally, for the time being, continues to feed on itself.
The International Labor Organization wing of the United Nations reported that unemployment worldwide will worsen this year. In the summary, the ILO’s researchers stated:
Over the past year, labour markets have been affected by the slowdown in global growth. This is all the more problematic because labour markets had not fully recovered from the global crisis that erupted in 2008: there is still a deficit of around 50 million jobs in comparison to the pre-crisis situation. It is unlikely that the world economy will grow at a sufficient pace over the next couple of years to both close the existing jobs deficit and provide employment for the over 80 million people expected to enter the labour market during this period.
The report said worry over what austerity will do about employment in Europe should be particularly strong. Another significant concern is that, in a very large number of nations, too many people are employed part-time but cannot find full-time work.
Beijing Auto Show
The Beijing Auto Show is about to end. It may be the most disappointing of the world’s large gatherings of car executives and their new products this year. One reason the show has not caused a stir is that sales of cars and light trucks have dwindled in China. It is no longer considered a market that will pull global manufacturers away from the slump in Europe, which could last several years. Two stories that have dominated press coverage of the show are that more hybrid cars are about to come to market and that luxury car sales have surged worldwide. There is evidence, however, that the high prices of hybrids and electric cars may keep consumers away from the products. As to luxury car sales, the recession and its aftermath did not affect the rich much.
Douglas A. McIntyre