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Pain at the Pump |
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Prices at the pump have jumped to an average of $4 per gallon. That’s expected to hit consumer spending and could weigh on U.S. economic growth if prices remain high. |
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Gas prices at the pump topped $4.02 a gallon for the first time since August 2022 on Tuesday, according to data from OPIS, an oil-price reporting company owned by Dow Jones, the publisher of Barron’s. The difference between $3.98 per gallon and $4.02 per gallon is minimal in practice, but the jump is a bit of a psychological barrier for consumers that could weigh on optimism and spending. |
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Prior to the start of the Iran war on Feb. 28, gasoline prices were solidly under $3 per gallon. That makes the March run-up the highest monthly percentage increase in prices in the past 20 years. |
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Economists expect the severe price jumps to eat into Americans’ purchasing power and could slow aggregate consumer spending. That’s because higher oil prices typically lead to elevated prices across other key commodities. |
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While consumer gas prices have been on the rise, diesel prices have been climbing faster. That actually matters more for the economy and is expected to boost inflation significantly, since diesel is heavily used in transportation, agriculture, and industrial equipment operations. |
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When average gas prices nationwide soared to a record cost of over $5 per gallon in June 2022, consumer spending took a hit, though not an overwhelming one. Monthly personal consumption expenditure growth during the following month was just 0.08% in July 2022, a notable deceleration from the 1.03% monthly gain in June 2022, according to data from the Bureau of Economic Analysis. |
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Consumer spending trends feed directly into economic growth, generating about 70% of gross domestic product growth. The recent spate of higher international oil prices are also expected to reaccelerate inflation and further weigh on consumers. If oil prices remain above $100 per barrel for a prolonged period, inflation-adjusted GDP growth could be reduced by more than 1 percentage point, EY-Parthenon chief economist Gregory Daco wrote last week. |
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To be sure, the amount of households’ disposable income that goes toward gasoline has fallen over the years—muting the impact of higher prices on total aggregate spending trends. The American Petroleum Institute estimates that U.S. consumers spent the equivalent of 5.7% of their disposable income on gasoline, natural gas, electricity, fuel oil, and other fuels in 2024, down from a high of 10% in 1984. |
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The Calendar |
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Conagra Brands and Lamb Weston Holdings announce quarterly results. |
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Payroll processor ADP will release the National Employment Report, which estimates payroll growth among private employers. Economists surveyed by FactSet expect companies added 38,500 jobs in March. |
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The Census Bureau reports retail and food service sales for February. The consensus estimate is for a 0.4% month-over-month increase, after a 0.2% decline in January. Excluding autos, retail sales are seen rising 0.3% compared with a flat reading previously. |
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The Institute for Supply Management releases its Manufacturing Purchasing Managers’ Index for March. The consensus call is for a 52.3 reading, roughly even with the February figure. This year, the index has registered its two highest readings since late 2022, indicating expansion in the manufacturing sector. |
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What We’re Reading Today |
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Barron’s Live returns on Monday. Barron’s Live features timely and actionable insights for investors. We give you behind-the-scenes conversations with the newsroom, connecting you with our editors and reporters covering the markets, the economy, and more. |
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