Economics: Why Are America`s Retail Sales So Weak?

(Drivebycuriosity) - If we believe the media then the US economy is flourishing again.  Jobless rates are on historical lows, production is climbing swiftly and salaries rose 2.8%.  But there is a weak spot: The US retail sales. They increased meager 0.1% from August to September, the same rate as in August (retail).

Why are America´s retail sales so weak? I found the culprit: Climbing oil prices. Brent Crude, the gauge for the global oil market, jumped 51% in the recent 12 months and the rising oil price translates into climbing cost for gasoline (plus 16% aaa.com).

Rising expenses for energy are sucking billions of Dollars out of the economy and are slowing economic growth. Consumers, who have to spend more on the gas pumps, have less money for other goods & services. Climbing cost for transportation are raising the cost of almost everything you can find in a shop, pushing even the core inflation (excluding food and energy) higher and reducing consumer spending, the engine of the economy, further.

It could get worse if the oil rally continues. Unfortunately the US economy responds very sensitive to oil price jumps. Nine out of ten of the U.S. recessions since World War II were preceded by a spike up in oil prices, writes Prof. James D. Hamilton, University of California, San Diego ( pdf econweb). Another study by Prof.  Hamilton shows that the oil price shock from 2008 - from summer 2007 through July 2008 the oil price spiraled from about $50 to $147 -  turned the economic slowdown into a severe recession (econbrowser).: "The oil price increase over 2007:H2-2008:H1 should be regarded as a key development that turned the slowdown in growth into a recession" (archives).

Other researchers came to the same results: "Oil prices played a role in eventually bursting the US subprime bubble....In 2003, the average suburban household spent $1,422 a year on gasoline, which rose to $3,196 in 2008 (oilprice). "Rising household energy prices constrained household budgets and increased mortgage delinquency rates" (oilprice). Low income suburban homeowners suffered most from the rising gas prices.  Poor homeowners are called "subprime" and their delinquencies are known as "subprime crisis."

But there is also hope. Fortunately the US oil production is rising  - thanks to fracking. Climbing oil prices make more oil wells profitable - and also more offshore drilling -  which could lead to an over-supply of oil and the oil bubble may pop again - as it did in 2014. Time will tell.