Tags: Zandi | Gasoline | Economy | Jobs

Moody’s Zandi: Pricey Gasoline Threatens Economy, Jobs

Wednesday, 07 March 2012 08:30 AM

Rising gasoline prices can do more than annoy motorists, they can soon cut into economic output and cost the country jobs, says Mark Zandi, chief economist at Moody's Analytics.

Gasoline prices are soaring, averaging $3.76 a gallon, according to AAA data, but will climb as spring and summer approach when motorists hit the road more, and when refineries switch to pricier inputs to refine already sky-high crude.

"If oil prices stay where they are at the end of February [close to $107 a barrel], it means gasoline prices in April and May will be about $4.25 a gallon nationwide," says Zandi tells the Christian Science Monitor.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"If we stayed there for the year, it would shave about 0.5 [percent] off of gross domestic product growth."

Such a scenario would translate into a loss of 500,000 jobs.

"It basically means we don't make any progress on reducing unemployment this year," Zandi says.

It gets worse.

Iran has threatened to close the Strait of Hormuz to protest sanctions.

The Strait of Hormuz is a narrow waterway connecting oil-rich Persian Gulf nations with the rest of the world.

While such a move would hurt Iran itself, as it would lose petrodollars and would also choke off imports going into the country, it could send gasoline soaring in the U.S. to unprecedented levels.

Moody's is running models that Zandi describes as "some dark scenarios," including one in which this summer the Iranians completely close down the Strait of Hormuz, where one-fifth of the world's crude oil moves.

If that were to happen, gasoline on a national basis would surpass $5 a gallon.
"That would push us into a recession," Zandi tells the Monitor.

Other noted economists agree that rising gasoline prices are due to inflict damage on the U.S. economy.

"This rise in fuel price is a negative for the economy," says John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C., the Christian Science Monitor adds.

"The reality is transportation gets hit and the cost of goods goes up."

Tensions between the West and Iran are pushing up crude prices.

Europe has said it will ban Iranian crude starting in July due to Tehran's nuclear ambitions, while the United States has said it cannot rule out military strikes against the oil-rich Middle East country.

"These prices are beginning to bite," independent oil trader Jim Ritterbusch tells the Associated Press.

"We're at the point where people are getting concerned of further economic recovery, not just in the U.S. but much of the globe."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Wednesday, 07 March 2012 08:30 AM
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