Even though gasoline prices have risen sharply in recent weeks, the “gasoline-sensitive” economic data covering the month of February have so far powered straight through the rise. Soss notes the following:
i) Consumer sentiment reached a 12-month high, just as news about $4 gas in many parts of the country entered the media spotlight;
ii) Motor vehicle sales surged dramatically in February, exceeding the 15 million units for the first time since March 2008; and
iii) Early reports on non-auto retail sales have been decidedly upbeat. However, confidence and spending do not always respond instantaneously to changes in gasoline prices. And it’s possible that the absence of a real winter in much of the U.S. is effectively muting gasoline’s potential drag. A number of retailers cited warm and dry weather as a factor that lifted sales in February.
Energy prices could have further to run. Moreover, according to Credit Suisse’s Global Commodities Energy Research team: “Our contention is that global supply/demand balances look and feel significantly tighter than what market consensus anticipated.
Tensions in relations with Iran and headlines about further supply disruptions have
added momentum but cannot alone explain the rally. Indeed the pertinent concern is with a more insidious tightening of balances going forward. Price creep toward difficult to support levels may follow.”
Soss believes the stronger economic data carry deeper underlying messages:
i) Consumers are becoming habituated to higher gas prices, as this year’s price rise doesn’t carry the same “shock value” as last year’s spike; and
ii) the forces of a cyclical recovery are becoming more entrenched,
attenuating higher gasoline’s negative impulse to the economy. Soss concludes that the risk of a new “slowdown scare” in the data this spring has gone up, but he expects a less intense scare this year than last year’s flirtations with $4 gas and “double-dip” recession. Soss’ view could change if oil were to move dramatically higher from current levels in a short period of time.
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