Thursday, February 14, 2013

Storm watch: Rising gasoline prices

“Even though America’s drove more fuel-efficient cars and consumed less fuel than ever in 2012, an Energy Department report says households spent almost 4 percent of their pretax income on gas – the highest percentage in 30 years.” – Los Angeles Times

As we continue our watch for potential storm clouds on the horizon that could derail the equity market rally, the gasoline price surely rates as one of them.  An unnaturally high fuel price in mid-2008, after all, was one of the catalysts to the broad market and economic collapse of that year.  Since the recovery started in 2009, each time the retail gasoline price has threatened to exceed the psychological $4/gallon, stocks have been knocked down and retail sales begin to suffer.  At the present time the nationwide retail gasoline price is averaging $3.60. 

The following chart show the futures price of gasoline, which forms the basis for retail prices.  It has been in a clearly defined upward trend since November and threatens to break above the highs seen last winter.  Is it too early to be concerned about a gas-related economic reversal?

Our in-house New Economy Index (NEI) measures the strength of the U.S. retail/consumer economy in real time.  It’s currently telling us not to worry about the near term economic outlook, which is clearly still up.  As long as this constructive trend remains in place we needn’t worry too much about the gasoline price.  If the NEI reverses at any time in the next few weeks, however, it will definitely be time to increase our defenses in anticipation of a potential gas-related economic downturn.  For now, at least, consumers seem to be at peace with current gas price levels.  

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