The economy has never quite gotten on track since the Great Recession officially ended in June 2009. Unemployment remains high and consumer spending -- along with business spending for that matter -- remains in check.
While there are undoubtedly many factors at work, the role of gasoline prices continues to come under close scrutiny.
When the recession escalated with the credit crisis in late 2008, oil prices plunged, along with gasoline prices. After peaking at over $4 a gallon in July of that year, the national average price of regular plunged to below $2 a gallon by the end of 2008.
Since that time, gasoline prices have regained their footing while the economy has not. Gasoline prices escalated sharply at the beginning of both 2011 and 2012 -- always remaining well above $3 a gallon throughout the year.
Higher and faster
This year gasoline prices rose higher and faster than ever before. And just as in previous years, there are signs the economy is slowing down.
Bloomberg News obtained some very candid internal emails from Walmart executives showing the company is off to its worst winter start in seven years. One executive called the retailer's early 2013 sales "a total disaster."
The disaster just happens to coincide with a huge spike in gasoline prices. Not every economist is linking the two but economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa., says the rise in pump prices is getting worrisome for the overall economy.
"Indeed, coupled with the payroll tax increase, there could be a real slowdown in consumer spending," Naroff said. "Add to that the potential for a government sequestration for a short time at least and once again we are looking at an economy that could falter."
That's right, another economic hit is waiting in the wings. On March 1, automatic across-the-board spending cuts will go into effect, lopping $85 billion a year from the federal budget. Though that will hardly make a dent in a $1 trillion annual deficit, it's likely to slow the economy even more.
"As I like to say, all we have to fear is Washington itself, though this time the energy sector is doing its part in hurting the economy," Naroff said.
It is, indeed, a triple whammy. The two-year payroll tax "holiday" expired at the beginning of this year, so everyone who works for a paycheck had a slightly smaller one starting last month. If the check wasn't that big to begin with, the reduction makes a big difference.
Added to that employees who drive to work are now having to pay more to do that. Let's do the math.
Let's say Carol Consumer has to drive 20 miles one way to her job. Her car gets, on average, 20 miles to the gallon. She uses two gallons of fuel each day and, with about 22 workdays in the average month, she buys 44 gallons of gas each month.
If gasoline costs $3.28 a gallon, which it did on December 28, 2012, the monthly expenditure is $144.32. When the average price rises to the current $3.75, the monthly cost is $165.
Not a big difference, you say? Multiply the extra $20 a month by the millions of U.S. consumers living in the margins and you might find a big hit to the economy.
In fact, it's estimated that for every penny that fuel prices go up takes at least $1 billion away from consumers' disposable income. Simply put, if U.S. consumers are putting more money into their gas tanks, they have less to spend at Walmart, or at grocery stores and restaurants. It becomes a drag on the economy and so, it's no surprise that the economy begins to noticeably slow whenever gasoline prices go up.