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0 Mar 10 2011 @ 7:43am by Matt Smith in Crude Oil, Economy, Global Energy

Are we K.O.’d or O.K.?

Ok, I’m not messing about this week; the gloves are off. I am cutting straight to the chase the wheat from the chaff and straight to the quick. There are two key issues in the US economy which are delicately poised to potentially either save or sink us. And these are unemployment and gasoline prices. (Well, there is a third, but a double dip in housing is a done deal). So below I have given some background on these two issues, hopefully illustrating their potential threat to a sustained economic recovery. So first up, employment: 

1) The average number of hours worked in a week is flatlining (at 34.2 hours). This is not good enough*
2) The average length of unemployment just reached a new high at 37.1 weeks
3) Unemployment may have fallen to 8.9%, but the job participation rate is at a 28-year low**
4) Underemployment (= part-time or disenchanted) = still high at 15.9%
5) 13.7 million Americans wanted to work last month but were unable to find any
6) 8.8 mln jobs were lost this past recession. We have only created 1.3 mln in the past 2 years of recovery***
7) 121,000 jobs need to be created each month just to keep up with population growth 
8) Unemployment rate for 16 – 19 year-olds = 24%
9) An unemployment rate of 8.9% is not a million miles away from the record high of 10.8% (in 1982)
10) Weekly jobless claims may be at 3-yr low (at 368k), but that is still around the average (362k) since the data started (1967)

*hours worked should increase as activity increases
**this means that the job pool is shrinking, not more jobs being created
***that’s only 15% recovered from the total lost  

This chart illustrates how the recovery from maximum job losses has been tepid to say the least:  

Next on to our dearly beloved commodities. Here’s some stats to consider and some information to chew on regarding gasoline prices: 

1) Rule of thumb: every $10 rise in crude oil adds 25 cents to a gallon of gasoline at the pump
2) The average gasoline price across the US is currently $3.51 – the highest level in 2 years 
3) Every 10% rise in crude oil prices reduces US GDP by 0.2%
4) In theory, takes approximately 4 – 5 days for a change in price on the NYMEX-traded RBOB gasoline contract to be reflected at the pump (from NYMEX –> Spot markets –> Rack prices –> Gas station)  

CNN poll 02/27/11

5) $4 appears the psychological level where consumers start cutting back materially
6) The record high for gasoline prices was in July 2008 at $4.11 (when crude prices hit $147)
7) Gas stations make approximately 10 cents profit on a gallon of gas. Where they really make their profit is on large mark-up items such as drinks, candy and cigarettes  
8) Every cent rise in gasoline prices equates to $1.4 bln out of consumers’ pockets each year 
9) The last two weeks saw the 2nd largest 2-week price jump ever
10) Silver lining (European readers, look away): It could be worse – European gasoline prices just hit $8.63/gal

The unemployment issue makes me frustrated, as this country should be doing better. As for the gasoline issue, it just makes me fearful. All I know is neither situation is good.

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