There’s a consensus building that the rising price of petroleum will inevitably slow consumer spending in developed countries, but that the rapid growth of Far East developing countries (primarily China and India) will continue to power over all economic growth.
First some detail regarding the price of oil and it’s impact on US consumer driven spending. From the econobrowser blog site.
Consumption spending slowing down
Guess what: rising energy prices are taking a toll on consumers.
On Monday the Bureau of Economic Analysis released details on personal consumption expenditures for February, allowing us to update our graph of how big a share energy is in American budgets. A 6% expenditure share marked the point at which we started to see significant consumption responses a few years ago. The share in February is essentially there (5.98%, to be exact), the highest it’s been since October 2008. For poorer households, energy’s budget bite is a significantly larger percentage.
Not surprisingly, overall spending on other items is slowing down. Real personal consumption expenditures grew at a 3% annual rate in February after falling slightly in January. Bill McBride (and you know I don’t like to argue with him) thinks this means real consumption spending for 2011:Q1 may only grow at a 1.4% annual rate. That’s less than half the rate that many analysts had been anticipating prior to Monday’s data.
Beezer here. After this piece there comes this from a commentator.
“Again, weak demand in developed countries, e.g., the US, since 2005 is not a new story. But the real story is increasing demand in developing countries. Oil consumption in the US and four developing countries for 1998 to 2009 (100 = 1998 consumption, EIA):
At Chindia’s 2005 to 2009 rate of increase in net oil imports, as a percentage of global net oil exports, Chindia would be consuming 100% of global net oil exports in 2025. As they say, somethings gotta give, and that something will largely be consumption in the US, as we will probably continue to be gradually priced out of the global net oil export market.”
Beezer again. The shift from west to east of economic growth appears pretty obvious. But the implications of this shift towards where 40% of all humans live seems not to have been recognized by the US public. In his energy policy speech Wednesday Obama spent some time addressing the medium to long term implications of not having a real non-fossil fuel energy system. But he skirted what may be the real challenge: There is not likely to be enough energy to go around with our current systems. Claims that all we need to do is develop shale oil, which is relatively abundant in the US, are blinding the US public to the real problem of resource demand outstripping supply. Nevermind that the stripping of shale rock through the process of fracking will inevitably produce yet another environmental disaster. A similar set of issues arise when you consider shale gas, including the same problem of water pollution and use in fracking.
Something else needs to be done, and done quickly. Ignoring the necessity of building a sustainable or renewable ‘plan b’ is a fatal mistake. The US economy is now trapped between periods of external shocks and recession and periods of slow growth that are not sustainable. Leadership talks in terms of decades as if we actually have 40 or 50 years to transform our systems. We don’t. Not even close.