Rising oil prices haven’t hurt the US economy so far as economy grows at its fastest rate in nearly four years

US President Donald Trump speaks during a rally at JQH Arena in Springfield, Missouri on September 21, 2018. (AFP)
Updated 23 September 2018

Rising oil prices haven’t hurt the US economy so far as economy grows at its fastest rate in nearly four years

  • US economy grew at its fastest rate in nearly four years during the April-through-June quarter.
  • Oil prices have been up roughly 40 percent in the past year. On Friday, benchmark US crude was trading around $71 a barrel, and the international standard, Brent, was closing in on $80.

DALLAS: The US’s rediscovered prowess in oil production is shaking up old notions about the impact of higher crude prices on the country’s economy.
It has long been conventional wisdom that rising oil prices hurt the economy by forcing consumers to spend more on gasoline and heating their homes, leaving less for other things.
Presumably that kind of run-up would slow the US economy. Instead, the economy grew at its fastest rate in nearly four years during the April-through-June quarter.
Despite this, President Donald Trump appears plainly worried about rising oil prices just a few weeks before midterm elections that will decide which party controls the House and Senate.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!” Trump tweeted on Thursday. “We will remember. The OPEC monopoly must get prices down now!“
Members of OPEC, who account for about one-third of global oil supplies, are scheduled to meet this weekend with non-members including Russia.
The gathering is not expected to yield any big decisions — those typically come at major OPEC meetings such as the one set for December. Oil markets, however, were roiled on Friday by a report that attendees were considering a significant increase in production to offset declining output from Iran, where exports have fallen ahead of Trump’s reimposition of sanctions.
OPEC and Russia have capped production since January 2017 to bolster prices. Output fell even below those targets this year, and in June the same countries agreed to boost the oil supply, although they didn’t give numbers.
Oil prices have been up roughly 40 percent in the past year. On Friday, benchmark US crude was trading around $71 a barrel, and the international standard, Brent, was closing in on $80.
The national average price for gasoline stood at $2.85 per gallon, up 10 percent from a year ago, according to auto club AAA. That increase likely would be greater were it not for a slump in gasoline demand that is typical for this time of year, when summer vacations are over.
The US still imports about six million barrels of oil a day on average, but that is down from more than 10 million a decade ago. In the same period, US production has doubled to more than 10 million barrels a day, according to government figures.
“Because the US now is producing so much more than it used to, (the rise in oil prices) is not as big an impact as it would have been 20 years ago or 10 years ago,” said Michael Maher, an energy researcher at Rice University and a former Exxon Mobil economist.
The weakening link between oil and the overall economy was seen — in reverse — just three years ago. Then, plunging oil prices were expected to boost the economy by leaving more money in consumers’ pocket, yet GDP growth slowed at the same time that lower oil prices took hold during 2015.
Other economists caution against minimizing the disruption caused by energy prices.
“Higher oil prices are unambiguously bad for the US economy,” said Philip Verleger, an economist who has studied energy markets. “They force consumers to divert their income from spending on other items to spending on fuels.”
Since energy amounts to only about 3 percent of consumer spending, a cutback in that other 97 percent “causes losses for those who sell autos, restaurants, airlines, resorts and all parts of the economy,” Verleger said.
The federal Energy Information Administration said this month that the US likely reclaimed the title of world’s biggest oil producer earlier this year by surpassing the output of Saudi Arabia in February and Russia over the summer. If the agency’s estimates are correct, it would mark the first time since 1973 that the US has led the oil-pumping pack.


Hermes echoes global luxury sales rebound

Updated 8 min 59 sec ago

Hermes echoes global luxury sales rebound

  • Handbag icon reaps benefits of online surge in Asia as pandemic curbs ease

PARIS: Hermes’ comparable sales picked up in the third quarter, rising 7 percent, and the Birkin bag maker said this positive momentum had extended into October after a rebound in Asia and other regions as coronavirus restrictions eased.

Luxury goods manufacturers were hit hard by store closures during lockdowns to combat the pandemic and sales for the industry as a whole are expected to fall by up to 35 percent this year — an unprecedented plunge after a decade of stellar growth.

But a gradual re-opening, even as governments bring in fresh measures to fight rising COVID-19 infections, has helped sales to recover. High-end labels, which used to be more reticent to sell their pricey products online, have also seen web revenues surge.

Hermes — known for its $12,000-plus handbags like the Birkin, which often generates waiting lists — already sells a selection of leather goods online, but said it would make a larger push.

“We are going to gradually increase our offer of products online, except for the very iconic products such as Birkin,” finance chief Eric du Halgouet told reporters.

He said the online channel had now become the group’s “biggest store,” with revenues exceeding those of any of its flagship shops. Sales online grew by nearly 100 percent in all regions in the first nine months of the year.

Hermes’ comparable sales, which strip out the impact of foreign exchange rates and acquisitions, came in at €1.8 billion ($2.13 billion) in the three months to end-September — making it the first luxury brand to post rising overall revenues in the third quarter. Sales of leather goods grew 8 percent in the period while fashion sales were also up, echoing buoyant trends at Louis Vuitton owner LVMH.

“We think this performance reflects the strength of the brand, continued polarization between winners and losers and better insulation from a lower than industry average exposure to tourist demand,” said Citi analyst Thomas Chauvet.

Growth in the third quarter was strong in Asia, where lockdown restrictions were eased first, with sales up 25 percent, while revenues fell by 15 percent in Europe — including a 23 percent drop in France — and by 5 percent in the Americas.

Despite the overall rebound, revenue from Hermes silk scarves were down 20.5 percent in the period. The group said that was due to an unfavorable comparison to a year ago and lower travel retail activity.

Du Halgouet said the positive sales trend of the third quarter had continued into October and the group had not yet seen an impact from new restrictions imposed by European governments as contagion numbers rise again sharply.

But Hermes struck a cautious note for the full-year outlook, saying the impact of the COVID-19 epidemic remains “difficult to assess, as the scale, duration and geographic extent of the crisis evolve every day.”

At constant currencies, sales in the first nine months fell 14 percent to €4.29 billion.