US economy more vunerable to energy prices than generally reported
TORONTO, Nov 04, 2004 Canada NewsWire
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.
TORONTO, Nov 04, 2004 Canada NewsWire
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.
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