When Gas Prices Lead to Cutbacks

Stocks fell again yesterday, down another 20 points or so. That’s six for six sessions in the red. And they’re down again, if only modestly, this morning. Gold is down too, off 8 bucks and change over the past 24 hours. But oil…oil is up big after, as one of the papers announced, “OPEC talks broke down in acrimony on Wednesday after Saudi Arabia failed to convince the cartel to lift production, sparking a rebound in global oil prices.” A “larger than forecast” drop in US inventories also helped push the price higher.

So let’s see… That’s a flat line for oil output, less in the reserve tank, increased global demand and more and more freshly-inked bills chasing the stuff. Seems only natural the price would eventually resume its skyward trajectory.

As you would expect, all these factors are colluding to hit American motorists rather hard this driving season. According to a new Harris Poll, 51% of Americans say they’ve cut back on other products and/or services in order to cope with higher prices at the pump. We probably didn’t need a poll to tell us that higher prices mean tougher decisions, of course, but it is interesting to see where the family budget is taking the biggest knock.

According to the poll, as cited in a riveting issue of Tire Review, “28% have cut back on dining out while 24% have cut back on groceries, 18% say they have cut back on entertainment, 11% have reduced driving, and 10% have cut back on clothing purchases.”

Of course, if you’re cruising to the local Dean & Deluca in your pimped-out Maybach, you’re probably not too worried about burning a few hundred extra dollars per week or per month on fuel. But if, as is the case for millions of workaday Americans, you’re struggling to keep/find work and living on a restricted budget, every dollar counts.

“Those with lower household income are more impacted,” the article continues, “with 65% of those with a household income of less than $35,000 a year having cut back on products or services because of higher gas prices compared to 38% of those who have household income of $100,000 or more.”

We wonder what this means for the government’s growing fleet of limousines that Eric brought to our attention yesterday. Here’s the chart again, in case you missed it the first time around:

The Number of Limousines Owned by the Federal Government

And we wonder, too, what effect this will have on “The Recovery.” Our guess is it will have no effect on it…because there was never a recovery to begin with. It was a sham…a prestidigitation…and hoax, wrapped in a con, wrapped in a scheme. Of course, you wouldn’t know that if you got your information from Whitehouse.gov. An article that appeared almost exactly a year ago (June 17, 2010) on that site reads (try not to laugh and/or cry):

“With tens of thousands of projects funded and millions of Americans on the job today, it’s hard to believe that it’s only been 16 months since President Obama signed the American Recovery and Reinvestment Act. And with so many jobs saved and created already, you might think that the Recovery Act’s greatest impact is behind us. But it’s not.”

Well, at least they were right about the last part: the “American Recovery and Reinvestment Act,” will probably do much more damage before it’s replaced by some other, equally moronic plan by the Feds to “do something.”

Joel Bowman
for The Daily Reckoning

The Daily Reckoning