Crude oil prices have increased 25% in the last three months. According to most news sources, this is a result of surging demand from China and India, and a curtailment of oil supply from Nigeria and Iraq. (Source: BBC, Oil Price May Hit $200 a Barrel, May 7, 2008)

Although these trends are accurate,the price of oil is being affected by more than supply and demand. In fact, the data shows global demand is down and global supply is up. Oil consumption decreased from 86.66 million barrels per day (bpd) in Q4 2007 to 85.73 million bpd as of this quarter. During this same time period, supply has increased from 85.49 to 86.17 million bpd. According to the laws of supply and demand, prices should have decreased. Instead, during this same time period, they have increased almost 25%, from $87.79 to $110.21 per barrel of oil. (Source: EIA. See Google Spreadsheet)

Why?

The EIA pins part of the blame on volatility in Venezuela and Nigeria, which is leading to a "flow of investment money into commodities markets". In other words, money that used to be invested in real estate or the global stock markets is now being invested in oil futures. (Source: EIA Short-Term Energy Outlook)

Furthermore, these funds are also being invested in wheat, gold and other commodities, causing high prices in food, which is resulting in food riots in less-developed countries. (Source: BBC News, Commodity Boom Continues to Roll, January 16, 2008; CNN, Riots, Instability Spread as Food Prices Skyrocket, February 18, 2008)

Today's high oil prices are also partially caused by a decline in the dollar. Oil is priced in dollars, so OPEC needs to raise the price of oil to maintain its profit margins. Furthermore, as investments such as real estate and stocks decline, traders are getting into commodities such as gold and oil futures. This is causing a bidding war, and a potential bubble. (Source: USA Today, Oil Briefly Spurts Near $104 per Barrel, March 3, 2008)

What It Means to You

Expect continued high oil and gasoline prices until this bubble breaks...which could last at least until the end of the year. Like the housing bubble, this bubble will burst, but no one knows when, or at what level prices will return. Use the high prices as a motivator to decrease your use of oil and gasoline, by following these tips from About.com Guides.

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Credit card debt rebounded in March, with consumers charging $957 billion, or 7.95% more than the prior month. The rebound is due to high oil and food prices, which consumers paid for with plastic. (Source: Credit.com, Credit card activity climbs in March, May 7, 2008)

The Federal Reserve's most recent G-19 Consumer Credit report also stated that non-revolving debt, like mortgages and auto loans, shot up 6.8%, after a low growth rate of only 2% in February. This growth is despite continued tightening of credit terms for mortgages.

Credit card debt now totals $3,117 of credit card debt per person, or $8,104 per household. Non-revolving debt now totals $1.6 trillion, or $5,211 per person or $13,550 per household. Note: This estimate is based on 307 million people in the U.S., an average of 2.6 persons per household, and 119 million households. (Source: U.S. Census, Population Clock; Average Household Size)

The declining housing market has caused many families to switch from home equity loans to credit cards to finance purchases. In addition, the Bankruptcy Abuse Prevention Act of October 2005 has prevented many indebted families from filing for bankruptcy, further inflating the credit debt figures.

The availability of credit for personal consumption drives 70% of the U.S. economy. The tightening of credit has contributed to slower GDP growth. The rebound in March, however, may mean that the economy wil avoid a recession.

What It Means to You

A soft economy coupled with rising credit card debt is a good time to reduce your financial vulnerability. Consult with your financial planner and develop ways to reduce your own credit card debt....and avoid becoming a statistic in the Federal Reserve’s G-19 report next month.

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It appears that the dollar may have ended its six-year cycle of decline. On April 22, it hit bottom when the euro reached its high of $1.60, and is back down to $1.55. In mid-March, the dollar dropped to below 100 yen, and is now at 105 yen. (Source: The Economist, The Dollar Rallies at Last, May 4, 2008; IHT, Has the Dollar Hit Rock Bottom?, May 5, 2008)

What happened? At the end of April, the Federal Reserve signaled that it may be done lowering interest rates. This not only provides support for the value of the dollar itself, but also may signal that a U.S. recession has been avoided. (See Fed Action May Signal End of Downturn, May 1, 2008)

However, the dollar would not strengthen even with the Fed's actions if it were not already a strong currency. Its role as a global reserve currency has made it the new gold standard. This gives the dollar its strength despite the underlying performance of the U.S. economy and the further weakening effect of the $9 trillion U.S. debt. (See Power of the U.S. Dollar, or Why the Dollar Won't Collapse)

What It Means to You

A strengthening dollar means cheaper vacations in Europe and lower cost imports, especially oil. Over time, a stronger dollar will help to reduce inflation in gasoline and food. It may not be dramatic enough to completely offset the higher gas prices typically found during the summer driving season, but it will certainly help...and it couldn't have come at a better time.

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In April, the economy lost 20,000 jobs, according to the Employment Report released by the Bureau of Labor Statistics (BLS). Generally, about 150,000 new jobs are needed each month to keep the economy stable. Year-over-year, employment was up only .18%. This is the weakest year-over-year job growth since 2004, indicating a steadily declining trend since January 2006 when year-over-year growth peaked at 2.1%. The last time year-over-year job growth trended down this severely was in 2001, which led to 29 months of job losses. (See Google Spreadsheet Employment )

The unemployment rate dropped slightly to 5%. This basically also continues a worsening trend begun in October 2006, when unemployment was at a low of 4.4%. The total number of unemployed is 7.6 million, a slight improvement from last month.(Source: BLS, Employment Situation Summary)

Manufacturing jobs continued the decline begun October 2006. The economy now has 3.38% fewer manufacturing jobs than the year before. Manufacturing jobs are a good leading indicator of overall economic performance, since they produce big-ticket items that consumers will put off buying when the economy starts to weaken. As the orders decline, manufacturers will hire less workers, and even lay off existing workers to keep costs low. (See Google Spreadsheet Manufacturing Jobs)

For a summary of recent employment trends, check out Employment Current Statistics.

What This Means for You

The worsening employment situation has been caused by the Subprime Mortgage Crisis, which led to the Banking Liquidity Crisis. Over the last six months, banks have written down $150 billion in assets, contributing to a tightening of credit everywhere. Job losses are primarily in manufacturing, finance and housing construction, which has cut 350,000 jobs in the last year. As job losses in these sectors increase, consumer spending has declined, which will continue have a negative impact on economic growth. (Source: The Economist, Gloomy Days in America, April 2, 2008)

Articles from Alison Doyle, About.com Guide to Job Searching

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• How to Be a Compelling Candidate
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employment

Six weeks after the Federal Reserve Board held its emergency weekend meeting, the FOMC signaled a possible end to lowering the Fed Funds rate for now. The FOMC lowered nation's primary interest rate to 2%, and the discount rate .25 points to 2.25%.

The Federal Reserve is now less concerned about recession than it is about inflation. Since the Q1 GDP report was .6%, and not negative, the Fed's realizes it may not need to continue with expansionary monetary policy for much longer. (Source: FOMC statement, 4/30/08)

What It Means to You

The Fed's actions have helped to keep adjustable-rate mortgages affordable, although banks are still not willing to lend without FHA guarantees. Furthermore, the Federal tax rebate checks have been mailed, adding further stimulus to the economy. (For more about receiving your check, see The 2008 Tax Rebate Checks from Robert Longley, Guide to the U.S. Government).

A lower Fed Funds rate puts downward pressure on the dollar, which increases inflation in imports, especially oil prices which are denominated in dollars.

Investors in the stock market are encouraged by the Fed's action. The Dow rose above 13,052, closing down to 12,820 after the FOMC announcement. On Thursday, the Dow again rose over 200 points as traders further digested the news.

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The BEA reported that the advance U.S. GDP growth for Q1 2008 remains at .6%, unchanged from the Q4 2007 report .

Economic growth plummeted from 4.9% in Q3, and 3.9% in Q2 2007. The total GDP for 2007 was 2.2%, down from the 2006 growth rate of 2.9%. The decline in growth has been due to the housing market slowdown and related weak consumer spending. (Source: GDP News Release)

Coincidentally, it is the exact same number as GDP growth in Q1 2007. The last time GDP was this low was in Q1 2003, the tail-end of the last recession. A healthy growth rate is about 2-3%. For a review of the most recent GDP reports, see GDP Current Statistics.

What It Means to You

It is actually good news that the GDP is not worse. If it had turned negative, then the economy might be in danger of a recession, which is two quarters of negative GDP growth. Second quarter growth may also not turn negative, since this month taxpayers will begin receiving checks from the Economic Stimulus Package. Stay tuned until Friday, when the Employment Report is released. This is the first economic indicator of Q2, and will provide a glimpse into whether GDP will turn negative.

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The March Durable Goods Orders Report shows that manufacturers are losing confidence in the economy. The Census Bureau reported that business orders for machinery, computer equipment, and the like decreased 2.1% in March when compared year-over-year. This is down from the 3.2% growth reported in February, and is the type of the decline one would expect if the economy were headed for recession. Durable Goods Orders have remained in the positive since last September, when orders were down 6%. (Source: Census Bureau, Report on Manufacturer's Orders, Advance Report, Table 1, seasonally adjusted figures)

By the way, most articles you read compare this month to last month, which showed a .3% decline since February. However, year-over-year comparisons do a better job of predicting the GDP report, which is also year-over-year. (See Durable Goods Spreadsheet in Google docs)

Why are durable goods orders so important? Since they represent the orders for big ticket items, businesses will hold off making the purchases until they are confident in the economy. Therefore, decreasing orders mean decreasing production. And that is not good for GDP growth. That's why the Durable Goods Order report is generally considered one of the more important leading economic indicators.

What This Means for You

The current Subprime Mortgage Crisis has created a general lack of confidence in the economy. Many analysts are concerned about a possible recession in 2008. When the economy is at an inflection point, as it is now, it is important to watch the important economic indicators to get a sense of the trend. Two important reports will be released this week: the Q1 GDP report, to be released Wedndesday, April 30, and the Employment Report, to be released Friday, May 2.

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NAFTA has become an important point in the 2008 Presidential Campaign. Both Democratic candidates promise to either amend or back out of the agreement altogether. (Source: FoxBusiness, NAFTA Bashing Heating Up, April 22, 2008)

At the same time, the leaders of the NAFTA member countries - U.S. President George Bush, Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon - met this weekend to discuss the agreement and voice their ongoing support. (Source: AP, Bush: Now Is Not the Time to Cancel NAFTA, April 22, 2008)

NAFTA is the world’s largest free trade area, linking 439 million people and producing $15.3 trillion in goods and services annually. Some of the advantages include a tripling of trade between the NAFTA signatories from $297 billion in 1993 to $903 billion in 2007. Critics say that the agreement has led to a net loss of 879,000 jobs in the U.S., and a decline in labor protection and degradation of the environment in Mexico.

To find out more about NAFTA's history, advantages and disadvantages, read The Facts About NAFTA.

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A reader asks:

....Will there always be jobs in the U.S.?... What does job growth decline mean? ...How bad is unemployment? Was the worst of that felt during the depression in the 1930's ? How much of job growth effects the overall economy?

As long as there are people in the U.S., there will be someone who is willing to trade their time for food or money or some product, so yes there will always be jobs in the U.S.

Job growth decline means that the rate of job growth is declining. In other words, jobs are still being added to the economy, but at a slower rate than before.

Unemployment is currently at 7.8 million, or 5.1% of the total non-farm labor force. Unemployment has been increasing since October 2006, when it was only 4.4%. However, 5.1% is only slightly higher than the natural unemployment rate, which is 4%. This isn't too bad from an economic viewpoint, but it is awful if you are one of those who has been laid off.

It certainly isn't bad when compared to the Great Depression of 1929, when unemployment was 25%. Even those who kept their jobs saw their wages fall 42%, thanks to deflation.

Job growth is crucial to fuel consumer spending, which is 70% of the U.S. economy. Generally, about 150,000 new jobs are needed each month to keep the economy stable.

Articles from Alison Doyle, About.com Guide to Job Searching

• Prepare for a Job Search
• How to Be a Compelling Candidate
• Pink Slip? What's Next?

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employment

Regardless of what you believe about global warming, there are enough facts to prove that it has impacted the U.S. economy already. Higher global temperatures have led to polar ice cap melts, longer summers and shorter winters. Effects include increased forest fires, higher health care costs for allergy sufferers and deaths due to pollution.

Another effect is how efforts to ameliorate global warming will impact the economy. For example, efforts to increase biofuel usage has increased corn prices to $4 a bushel, driving up the cost of food by 4% in the last year.

Read more in "How Does Global Warming Affect the U.S. Economy?"

Celebrate Earth Day with Larry West, About.com Guide to the Environment

• Top 10 Things You Can Do to Reduce Global Warming
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