“Customers really don’t want to hear it, but fuel prices are going through the roof so we’re having to charge more,” mentioned John Migliorini, vice chairman of Lakeville Trucking in Rochester, N.Y., the place diesel prices have almost doubled to about $400,000 a month. “What choice do we have? I’ve never seen prices jump this high, this fast.”
The company has a fleet of 30 tractor trailers that transport general freight and food products, including groceries for the supermarket chain Wegmans. Each truck goes through about 100 gallons of diesel a day, Migliorini said.
Record-high gas prices are seeping into everyday costs beyond the pump, adding new uncertainty to the economic recovery. Prices hit $4.33 this week after the Biden administration took steps to ban Russian oil imports, boosting the prospect of higher short-term inflation while threatening economic growth and spending and even reshaping hiring patterns. Higher energy costs are also complicating the Federal Reserve’s efforts to rein in inflation, which jumped to a new 40-year high this week.
Economists say the one-two punch of rising prices and the intensifying geopolitical crisis could put the brakes on the rapid rebound. Goldman Sachs this week lowered its forecast for annual U.S. economic growth, citing “higher oil prices,” and said there is a risk the United States will enter a recession in the next year.
But unlike in the 1970s, when spiking oil prices triggered a years-long downturn, the underlying strength in the U.S. labor market, combined with extra household savings and a reduced reliance on oil, could help shield the country from economic turmoil.
“The rise in energy prices will weigh on U.S. economic growth,” mentioned Peter McCrory, an economist at JPMorgan Chase. “But overall we still are looking for above-trend growth for the year.”
The common value for a gallon of gas jumped 13 % this week, in line with AAA. Overall gasoline prices are up 38 % from a yr in the past, in line with the Labor Department’s newest inflation figures.
That sudden jump is creating new challenges for Dennis Coyle, who owns a landscaping business in Morris County, N.J.
“My entire business runs on gas: cars and trucks, lawn mowers, weed whackers, leaf blowers,” he said. “The simple math is that if prices stay this high, my fuel costs are going to go from $20,000 to $40,000 this year.”
Coyle, whose staff drive Ford pickups, has begun elevating prices for a few of his clients by $1 or $2 per week, although he says he’s cautious of driving them away.
“In my type of business, if you raise peoples’ prices, they’ll just go somewhere else,” the 35-year-old mentioned. “It’s really hard to know what to do.”
As gas prices rise, consumer spending tends to fall. Each 10 percent increase in gas and oil prices means consumers will have to spend an additional $23 billion a year to keep up with earlier spending patterns, analysts at JPMorgan Chase found. But the pandemic has also boosted Americans’ bank accounts, leaving them with an additional $2.5 trillion in savings to help cushion that blow.
“Oil price shocks tend to not have as severe of an impact on the aggregate U.S. economy as they once did, but there are still concerns — about not just energy prices, but general inflation leading to recession,” mentioned Harrison Fell, a senior analysis scholar at Columbia University’s Center on Global Energy Policy. “There is still a lot of uncertainty about which way things could go.”
For businesses that rely heavily on fuel, recent price jumps have already become a major sticking point. Airlines, for example, typically spend about one-third of their expenses on fuel, which means any spike in prices has a discernible impact. As a result, some international carriers are already tacking on fuel surcharges to ticket prices. Alaska Air Group is cutting back on up to 5 percent of its flights in the first half of the year as a result of “the sharp rise in fuel costs,” it said in a corporate filing this week.
And though many airlines lock in lower rates by “hedging” oil prices — primarily committing for future use — main U.S. carriers together with United Airlines and American Airlines don’t, making them notably vulnerable to swings in vitality prices. Experts say airfares, which are already ticking upward due to heightened demand and rising jet gas prices, are more likely to surge even larger within the coming months because the trade elements within the newest vitality shocks.
At the same time, rising gas prices could also lead consumers to pull back on travel and retail spending. Executives at clothing chain the Children’s Place said this week that “the volatility surrounding oil and gas prices and its impact on our customer” were likely to eat into sales and profits, while outstripping the benefits of last year’s federal stimulus payments. Meanwhile, online retailer Overstock.com is already paying more for ground shipping because of rising fuel costs, according to chief executive Jonathan Johnson.
“We do feel it,” Johnson said. “And we suspect — though it’s probably a little early to tell — that customers are being extra careful with how they spend their discretionary income.”
“Higher energy costs impact businesses on both sides of the equation: By raising their costs and also leaving consumers with less money to spend on other things,” mentioned David French, senior vice chairman of presidency relations on the National Retail Federation, an trade commerce group. “We’ve seen more than a dollar increase in the price of gas in the last year — and something like 60 cents this week alone — which means a lot of billions of dollars are probably not getting spent at other establishments because of gas prices.”
Beyond lifting gas prices, spikes in vitality prices may reshape the combination of U.S. job openings and exacerbate labor shortages in sure industries, in line with Guy Berger, principal economist at LinkedIn. Sectors like leisure and hospitality, which have been quickly hiring again employees in current months, may cut back if customers begin canceling journey plans due to larger prices.
On the flip aspect, vitality and mining corporations — the place hiring has stalled throughout the pandemic — may see a resurgence of demand.
“If crude oil prices remain sky high, it’s going to reallocate job openings across sectors and geographies,” Berger said. “Up until now energy and mining have been among the least well-performing industries during covid, but that could quickly change.”
In Palestine, Tex., EasTex Solar has increased its workforce by 30 percent in the last year to keep up with demand, according to owner Cal Morton.
Demand for solar panel installations with battery storage quadrupled in early 2021 after severe winter storms left much of the state without power for days, he said. Business has remained brisk since and continues to increase week over week.
“People in Texas have a real awareness of energy prices and are starting to realize prices won’t remain cheap forever,” he mentioned. “Many just got their highest electric bill of the year and, at the same time, they’re worried that energy prices are going to shoot up because of the war.”
Although Americans are already feeling the immediate strain of rising gas prices, it’s still too soon to determine longer-term impacts on the economy. In one scenario, elevated fuel costs could end up curbing overall spending if Americans decided to pull back in other ways.
Lydia Ibe, a mobile dog groomer in Edmond, Okla., says she is already beginning to see that dynamic play out: As she raises fees, some customers are canceling services altogether.
Ibe is charging $10 to $50 more per appointment to keep up with the rising cost — $500 a week and counting — of filling up her Dodge Ram pickup truck, trailer and generator to power clippers and blow dryers.
The hit to consumption from higher energy costs may ultimately help bring inflation under control, but that’s a big if considering the uncertainty surrounding how long the war in Ukraine will last and how high oil prices will go.
“Gas prices have affected me tremendously so I have no choice but to charge more,” mentioned Ibe, who began Splish Splash Mobile Dog Grooming six years in the past. “My customers understand — of course they do, because they see what’s going on — but the ones who are retired or living on a fixed income can’t afford it anymore. I’m losing those customers.”