Unemployment And Gas Prices

June 3, 2011 by Douglas A. McIntyre

The May ADP numbers are awful, showing that the US economy added only 38,000 private sector employees. Public sector jobs are likely to fall as well as austerity measures at the federal, state, and local levels set in. US unemployment figures for last month will show that the economy added less than 75,000 jobs by many estimates. That is far short of expectations of 275,000. Most economists think the US needs to add 300,000 a month to dig itself out of a long period during which joblessness has been near 9% and the number of people out of work has reached close to 14 million.

One by-product of unemployment is supposed to be a drop in the price of gasoline. It has come down some from $3.98 per gallon of regular to $3.95. That is not much relief  for cash-strapped consumers. Certainly, it’s too expensive for the jobless.

West  Texas crude is still near $100, and the weakening economy has not brought that down as expected. The May jobs numbers may pressure prices, but many oil experts believe poor economic figures are already built into the current price.

The culprits for high fuel prices have, up until now, been China demand, a growth in US GDP, and unrest in producer nations like Libya. Those reasons have lost some of their power. OPEC has emerged as a villain. Recent comments by oil ministers of some members are that crude production levels are fine, although Saudi officials think crude production is about 1 million barrels per day too low. Observers of the cartel say that its members may not be able to ramp up production to that level quickly. If not, the next meeting of OPEC will not mean much.

The beginning of the last recession coincided with a drop of crude prices from $140 to under $50. That collapse does not seem to be in the early stages of repeating itself now. The US economy is about to face stagnant employment and high gas prices, a combination which most economists did not imagine just a month ago.

Douglas A. McIntyre