Update on Heating Oil and China Growth

Over the last two days there have been two follow up articles in the NY Times to my post from Monday: The Fuel Cost Balance.

Home Energy Prices are expected to Soar by Jad Mouawad
Some of the fun tidbits:

  • Heating oil is 36% higher than last year (and last year was expensive)
  • Locked in prices aren’t being offered like other years
  • The average heating bill in New England is set to rise by as much as $1500
  • The impact will start to be felt by September and October creating an election impact
  • Lehman Brothers predicts $90 barrel of oil by the start of next year

Senator Bernie Sanders, Independent of Vermont, said before the vote,
“The economy is tough, and the reality is that we will have people
freezing to death this winter if there is no substantial increase in
Liheap funding.”

Booming China Suddenly Worries That a Slowdown Is Taking Hold by Keith Bradsher
Some of the fun tidbits:

  • The post Olympics slow down has already begun (the actual games don’t factor that much into the actual economy but it is a mental perspective)
  • China’s growth is slowing from 11% to 9% – that is still tremendous growth
  • 1.3 Billion people
  • The Southern parts of China are feeling it first. That is where many consumer goods are made
  • The northern parts of China are doing fine so far. That is where more industrial good are made
  • The earthquake doesn’t appear to have hurt the economy
  • The Chinese infrastructure is built for efficiently moving goods and it is just now starting to open up many parts of China

“People have made huge investments in the infrastructure, and it’s not
just the physical infrastructure,” Chris Woodard said. “It’s all the training and
people development.”

The Fuel Cost Balance

Now is the time of a delicate balance.
Oil prices are receding but they are still high. If the costs of oil remain high then the cost of shipping is something to consider when manufacturing and assembling a product. If this alternate energy trend picks up speed then a fundamental shift will take hold and much of the growth that developing countries are experiencing will fade some. It won’t be a complete stall because the middle class is somewhat developed in places like India and China. But if oil prices remain high then it will be a blood bath come time to pay for heating oil in the Northeast this winter. Congress will act to prevent that. But in doing so the impetus to put the US back in the driver seat will be gone. For the long term that is bad. But no one is prepared to pay these costs. But to lower them for 2010 and beyond the shift has to occur.
The US must demonstrate a willingness to not consume oil. That is the leverage. Iran, Russia, and other countries are betting it can’t. But the US consumer is driving significantly less, spending is down, and GM and Ford are close to bankruptcy.
The oil producing countries are walking a slippery slow – maximize profit margins without making alternatives financially viable. For much of 2008 the alternate energy clock is running. I imagine that if the costs remain high for another 6 months then the alternative energy trend is here to stay. If they drop to pay for things like heating oil it will undermine the progress.
If I’m an energy entrepreneur, I’m watching closely to see what the media starts reporting regarding heating oil and the reaction of Congress.

Check out the article titled Shipping Costs Start to Crimp Globalization by Larry Rohter for more information about the impact costs of oil.

July 2008 Jobs Report and Wages

Here are the job market and compensation numbers for July 2008 (based on the job report):

Net loss of 51,000 jobs in the month (revised to a loss of 67,000 jobs in September 08)

  • Analysts expected a loss of 75,000
  • June was changed to a loss of 51,000 from an estimate of 62,000 and May
    was modified to a loss of 47,000 jobs
  • seventh straight months of job losses
  • Since the early spring the rate of job losses is slowing

Unemployment rate rose to 5.7% 

  • Forecasters thought it would raise to 5.6%
  • Underemployment is now at 10.3%
    • Highest since 2003 and more than 2% higher than a year ago
  • Worst reading since March of 2004
  • The rate is now up 1% since a year ago and over 0.7% over the last three months alone
  • Those that are unemployed for longer than 6 months now makes up 19.1% of the unemployed, up from 18.4% in June

Specific Segment Job numbers:

  • Construction lost 22,000 jobs
  • Professional and Business Services lost 24,000
  • Manufacturing lost 35,000 jobs
  • Health Care added 33,000
  • Government sector added 25,000
  • Leisure and hospitality added 1,000

Wage:

  • The seasonally adjusted average hourly wage increased 6 cents to $18.06
  • Inflation is up 5% over the last 12 months
    • Average hourly earnings over the past 12 months is 3.4% (same as June)
    • For rank and file workers, the 12 month growth of paychecks is 2.8% (same as June)
  • The number of hours worked dropped from 33.7 hours to 33.6 from June to July
  • Workers who are now part time instead of full time in their current job rose to 3.7 million
    • Highest in more than 50 years
  • People who can’t find a full time job so are working a part time job rose to 5.3 million
    • This is up over 1 million over the last year
    • This is 3.7% of those employed – highest since 1995

Notes:

  • GDP has to be around 2.5% growth for the generation of jobs.
  • GDP for the second quarter of 2008 was 1.9% (revised to 3.3%)

Job Report Stats Summary

Six Numbers

Today several economic stats were brought to my attention. The first is the GDP. For the second quarter of this year (2008) it is estimated to read a rise of 1.9% (revised to 3.3%). Much of this is accredited to the stimulus package that was mailed throughout May and into June. I used mine to pay bills and I suspect others either did the same or saved it (savings rate increased from 0.3% to 2.6%). The second is the GDP for the fourth quarter of 2007 which was revised to a contraction or shrinkage of 0.2%. The third is Exxon Mobil made a profit of $11.68 Billion in the quarter. Yes, in the quarter, not the year, the quarter. That is $1,485.55 a second. And as much as that is unreal for the investors, there is one person that might have that beat. He just got traded to the Los Angeles Dodgers. Manny Ramirez makes $13,000 an inning. That is less than Alex Rodriguez’s $20,000 an inning, but A-Rod lives with the pressure and attention. Granted, both are extremely talented at what they do but guaranteed contracts enable Ramirez to get traded and not fired. Manny Ramirez making one out is the same as a nuclear family with three kids getting a once a decade stimulus check – $2100.