US economy more vunerable to energy prices than generally reported
November 04 2004 - 2:01PM
PR Newswire (US)
US economy more vunerable to energy prices than generally reported
CIBC World Markets Economists take Contrarian View on Impacts of
Oil Prices on North American Economy TORONTO, Nov. 4
/PRNewswire-FirstCall/ -- Despite progress towards improved energy
efficiency over the past 30 years the overall net increase in
household and transportation demand ensures that the US economy is
still vulnerable to energy prices, according to CIBC World Markets'
Monthly Indicators Report for November. "The widely held view that
the US economy is half as sensitive to higher oil prices as it was
during previous oil shocks simply does not pass muster," says CIBC
Chief Economist Jeff Rubin. "The median household spends no less of
its income on energy than it did 25 years ago. Energy efficiency is
fast improving, but energy usage is rising even faster. And while
energy-intensive goods are no longer as likely to be made at home,
the energy costs imbedded in their manufacture will still be borne
by American consumers." Citing the impact of high oil prices on the
two worst post-war recessions in 1973 and 1979-80/1981, Rubin and
fellow CIBC World Markets economists Benjamin Tal and Leslie
Preston suggest that the American economy is more sensitive to the
current rise in oil prices than many economic commentators are
suggesting. By using more realistic and meaningful indicators to
measure overall energy use, such as energy consumption per
household rather than the energy-to-GDP ratio, the CIBC World
Markets economics team suggests that the North American economy is
still highly vulnerable to the current high price of oil. "We may
well consume energy more efficiently than in the past, but that
doesn't necessarily mean we consume any less of it," the Monthly
Indicators report explains. "In fact, on average, North American
households consume about 10% more energy than they did twenty-five
years ago." Energy and the Canadian Dollar The November Monthly
Indicators Report also features an article by senior economists
Avery Shenfeld and Peter Buchanan on the impact of the increased
demand for energy on the Canadian dollar as a result of Canada's
role as a net exporter of oil and gas, particularly to the US
market. "The world's newest petro-currency, the Canadian dollar,
looks poised to hold onto most of the stunning appreciation seen in
the past two years," explain Shenfeld and Buchanan. The recent
rally in the Canadian dollar "is supported not by unrealistic
interest-rate differentials, but by a massive current account and
goods trade surplus. That, in turn, attests to the octane from a
hot US economy and surging Chinese growth for resources, which
comprise about half of Canada's export sector." "What's
particularly new has been the role played by oil and gas prices.
Oil shocks in 1973 and 1979-80 did little for the Canadian dollar.
Back then, however, Canada was a net oil importer and its natural
gas was trapped by pipeline limitations. It's only in recent years
that the oil/gas trade balance has mushroomed into a huge source of
net-demand for Canadian dollars in the current account. Moreover,
capital investment inflows are being drawn to Alberta's tar sands
and other opportunities, a contrast with the outflows seen under
the National Energy Program following the second OPEC shock."
Lagging profitability in non-resource manufacturing suggests,
however, that the Canadian dollar resource-levered rise is hurting
other sectors and suggests Canada may face problems similar to
those created in the Netherlands by North Sea oil in the early
1990s. CIBC World Markets' Monthly Indicators Report is available
at http://www.cibcwm.com/research. CIBC World Markets is a full
service corporate and investment bank throughout North America,
with operations in the UK and Asia, and serves more than 8,000
corporate, government and institutional clients. CIBC World
Markets' parent company is CIBC, one of North America's first and
largest financial institutions with offices in 18 countries,
including the world's major financial centers. DATASOURCE: CIBC
World Markets CONTACT: Jeffrey Rubin, Chief Economist and Managing
Director, at (416) 594-7357; Benjamin Tal, Senior Economist, at
(416) 956-3698, ; Avery Shenfeld, Senior Economist at (416)
954-7356, ; or Rod Cumming, Senior Manager, Marketing and
Communications, at (416) 594-7774 or
Copyright