We're not going anywhere for a while.
GDP falls 6.1%
• Consensus estimates were way too high — Wall Street economists forecast a drop of -4.6% versus -6.1% actual data;
• GDP has fallen three consecutive Qs, something that hasn't happened in since Q3 1974 through Q1 1975; (WSJ)
• These 2 consecutive quarters of minus 6% contraction is the worst 6 month span for the economy since 1957-58; (Bloomberg)
• All investment-related segments of the economy showed significant weakness; we surmise that lot of this weakness is credit crisis related;
• Real exports of goods and services decreased 30%;
• Residential building declined 38% — the deepest drop in the cycle so far.
• Commercial construction fell 44.2% in 1Q –the largest quarterly decline ever recorded (data goes back to the 1940s).
Recessions Follow Oil Price Increases
A recession has followed every significant oil price increase. Although our current economic malaise is blamed on the credit crisis, people forget what happened to the price of oil. In 2008 the average price of oil was $99 per barrel (per the Energy Information Administration). The year before it was $72 per barrel.
Year Oil Price (WTI) Total Spent on Oil:
2007 $72 $2.160 trillion
2008 $99 $2.970 trillion
In just one year, that price difference sucked an additional $810 billion from the world economy.
The same level of increase happened from 2006 to 2007. Simply put, we were going to have a global recession even if the credit crisis hadn't occurred. By the way, did you notice that the price increase is roughly the same as the current stimulus package? Do you think any future stimulus package will have any effect when oil goes back up in price?
The End of the Car Age
In other words, the recent high price of oil has destroyed much of the capacity for us to move off of oil. When you pull together these items:
the date of peak oil (most likely 2008 since so many oil projects are being canceled)
the still-increasing fleet turnover rate
a collapsing economy
Most Americans have bought their last car. I don't mean their last "gasoline powered" car, I mean any car. Unfortunately, the same mechanism is playing out in the renewable energy sector. Investment is down by almost half. Enlightened government could have put a floor under oil prices for the previous three decades, thus moving us completely off oil while we had the economy to do it. Now it's too late.