Tuesday, January 22, 2008

Effect of High Priced Oil

Has Wall Street finally started to open their eyes and realized the $100.00 a barrel milestone for oil set earlier this year is having a greater negative effect on the United States economy than the positive effects of record profits being reported in the oil industry.

Oil prices are only one factor of the economic climate but recent retailers reports of nothing but dismal 2007 December holiday sales shows in one way how the high price of oil is putting the brakes on the U.S. economy.

One may look at the numbers and see people are spending less. Yes they are spending less in the retail sector as a result of spending more on oil. In all actuallity people are spending the same as they did a few years. Only difference is their money is being allocated more on oil related goods and less in the retail sector.

Example - Let's say that in 2004 I made $1,000.00 dollars a month. My oil costs (includes all oil related goods and services) was $400.00 dollars a month. Excluding all other costs, I had $600 dollars remaining to spend at the mall. With wage increases of nill being the norm, my 2007 monthly income remains the same as it did in 2004. The only difference is the drastic pricing increases in oil related goods now costing $700.00 per month. This now leaves me $300 to spend at the mall per month in 2007. Not only are my direct oil prices higher, the price I pay for goods has increased as retailers pass their increased oil costs onto me with higher prices. This will consume $100 of my $300 dollars to spend on retail. I am now left with only $200.00 versus the $600.00 I had to spend in 2004. I am not spending less in 2007 than I did in 2004, I just have less money to spend on retail goods. Record profits by big oil have only forced me to reallocate my money. Could this be the reason you spent less on retail goods in December 2007?

Maybe Wall Street will open up their eyes and see that record oil profits are only putting a draaaaag on the U.S. economy.

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