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U.S. Ready for $3.57 Gas, But Under Bush $2.55 Was 'Recession Predictor?'

Higher gas prices? No worries. In 2011, with gas at $3.57 a gallon, "the American economy may be better prepared for higher fuel costs....economists say the spike is unlikely to derail the rebound unless prices rise a lot further." But in 2005 under Bush, with gas at $2.55, "sharp rises in oil and gas prices have coincided with the onsets of recessions over the last 25 years."
Higher gas prices? No worries, say Jad Mouawad and Nick Bunkley in Wednesday's off-lead story, "Rising Gas Cost Finds The Nation Better Prepared - Lessons Learned In '08 - Less Dependence on Oil - Spike Unlikely to Derail Recovery." While $3.57 a gallon for gas isn't worrisome for the economy in 2011, $2.55 a gallon was very much so in 2005, during the Bush years.

The increase in energy prices is beginning to resemble the rise in 2008. But this time, the American economy may be better prepared for higher fuel costs.

Gasoline prices have risen by nearly a third in the last year, and oil costs more than $100 a barrel for the first time in more than two years, driven by fears of extended Middle East supply disruptions and increased demand from an improving global economy.

While the latest surge in energy prices is likely to cause some pain and slow the recovery from the recession, economists say the spike is unlikely to derail the rebound unless prices rise a lot further.

One big reason is that consumers and businesses have learned lessons from the last oil shock. Many drivers, for example, have given up their gas-guzzling sport utility vehicles. Automakers, which are selling more fuel-efficient cars than five years ago, reported higher sales in February even as gas prices rose.

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The rising price of gas - which averaged $3.57 a gallon nationwide on Monday, according to the government - is already prompting some people to change their habits.

After a mix of encouraging and discouraging voices, Mouawad and Bunkley argued that people are better prepared than in the past, and credited Obama's widely decried "cash-for-clunkers" car trade-in program.

But so far, consumers and businesses seem to have adapted to the higher prices much more quickly than in 2008, when gasoline reached an average of $4.11 a gallon and oil topped $145 a barrel. In part, that is because the last oil shock helped prompt a new focus on energy efficiency.

Take automobiles, for example. Congress got hundreds of thousands of the worst gas guzzlers off the road with the cash-for-clunkers program. And automakers changed their product mix to emphasize more small cars and fewer sport utility vehicles, reflecting consumer demand and tougher fuel-efficiency mandates from the government.

As a result, the industry is better prepared for high gas prices. Mike Jackson, the chief executive of AutoNation, the country's largest chain of dealerships, said half of the vehicles on his lots are now cars, up from 40 percent in 2008, and just 8 percent are sport utility vehicles, down from 15 percent three years ago.

But Mouawad and economics reporter David Leonhardt had a far more pessimistic view, based on a much lower gasoline price, during the Bush years. In an August 17, 2005 off-lead story, "Economy Shows Signs of Strain From Oil Prices - Inflation Surged in July."

Inflation surged last month, the government reported yesterday, as the long rise in energy prices finally seemed to be pinching the American economy. After absorbing the burden of oil at $40 a barrel, then at $50 and beyond, consumers have started to react as prices have risen above $60 in recent weeks. Wal-Mart blamed high oil prices yesterday as it reported that in the recent quarter its profits rose at their slowest rate in four years. The chief executive, H. Lee Scott Jr., told investors that expensive oil was worrying him because it seemed to be erasing recent income gains for many customers.

While $3.57 a gallon for gas isn't worrisome in 2011, $2.55 a gallon was very much so in 2005 (the cumulative inflation rate from 2005-2011 is around 12%, compared to the 40% jump in the gas price in current dollars since 2005).

Across the country, families are trying to figure out where to cut corners so they can afford gas that now averages $2.55 a gallon nationwide after posting the biggest weekly jump in at least 15 years, according to the latest government statistics."

The story featured a graphic titled "Recession Predictor?" which warns "sharp rises in oil and gas prices have coincided with the onsets of recessions over the last 25 years."

Ironically, the front-page's sunny outlook was contradicted by Jouawad's 2005 cowriter, David Leonhardt, who now writes a prominent business column for the paper. In "Flirting With A Repeat" Leonhardt warned "oil prices have risen more than 40 percent since September...the situation is uncomfortably reminiscent of last spring. Back then, companies were just starting to hire again, before a combination of events - including Europe's debt crisis and the fading of the stimulus program here - spooked them and cut short the recovery. It's easy to imagine how energy costs and government cuts could do the same this year."