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Cebu’s observation of the feast of the Child Jesus is finally over. Capped by a weeklong celebration and family reunions of urban dwellers with their vacationing friends and relatives, it ended the other Sunday with the colorful and highly successfully “Sinulog Mardi Gras”. It culminated with send-offs of the visibly tired visitors as they rush back home amidst throngs of fellow revelers who tried to compete for every available public transport space just to get a night rest before plunging into the usual regular day routines.
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While everyone was enjoying the revelries during the Sinulog celebrations, however, the one-week festivities offered situations and facts that may be useful by our country’s economic planners. Just like last year, where the Americans sensed that the US economy was no longer in a free-fall, significant economic indicators showed very promising prospects.
There are two very encouraging statistics that brought about positive outlook. These are two correlating statistics that could mean that the US economy is on its way up the pit. First and foremost, just like what Cebuano retailers have enjoyed during the Sinulog celebration, in the USA, a surge in retail sales was also very impressive. So encouraging that majority of the economists believed that the positive performance in the last quarter of 2011 will be sustained until the whole year of 2012. Thus, in unison, they unequivocally asserted, that there will be no “double dip” recession happening this year in the USA. Secondly, the U.S. Labor Department released a report that the economy has steadily gained more jobs in the last quarter of the year. Such encouraging development could mean that the labor market has begun to stabilize.
These facts are relevant as it is a known fact that the US Gross Domestic Product (GDP) is 70% consumer spending driven. Therefore, should consumers curtail spending, the US economy contracts. In simple terms, if Americans stop buying, the world loses the money of the widely known habitual big spenders.
Relative to this very encouraging statistics is the report that the gains were spread across various sectors of the economy. Corroborating this rosy development are the current gains in car sales as reported by car manufacturers.
These increases are more than just “a flash in the pan”, respected industry analysts declared. They firmly believe that (with this and other encouraging economic indicators considered) the road to a steady recovery is well-paved. Indeed, knowing fully well that consumer confidence and spending account for more than two-thirds of the US economy, then this bit of positive news is totally refreshing for the rest of the world. Logically, with new jobs coming, more and more Americans will have money to spend.
Likewise, economic managers of the USA agree that they’ve gone through the most difficult part of the recession. They further agreed that there are signs of leveling off and that the world’s biggest economy will steadily grow from now on. However, while they are one in predicting that their economy will start rebounding gradually, they can’t reasonably predict how high it shall be.
While the favorable developments in a country where the rest of the world’s economy largely depend are very encouraging, these are not worth rejoicing at all. While it is true that exports to the USA may soon pick up, the downside could pose a problem to countries, like the Philippines, that are largely dependent on oil imports.
It can be recalled that 2008 saw the rise of oil prices to US$147.00 per barrel in July and witnessed its plummeting to US$37.00 per barrel towards the end of the year. Its price decline was never difficult to comprehend. It was primarily due to a sizeable drop in the demand for oil in the USA. Undeniably, the world’s biggest consumer is the USA. They consume more than 20 million barrels a day or more than ¼ of the world’s output. Therefore, demand for oil is largely influenced by USA’s industrial and personal consumers’ behavior.
Precariously, the USA was in dire economic crunch since the middle of 2008 until end of 2009. In fact, then, all indicators point not just on recession but deflation as well. With its sheer size, its economic turmoil traversed all over the globe. Manufacturing and financial companies were closing down. Foreclosures of mortgages remained unabated. Consequently, economic activities like manufacturing had largely slowed down. As these manufacturing outfits used to consume sizable quantities of oil, its demand therefore had substantially dropped.
On the other hand, as 88% of the US workforce travels by car, a sizeable chunk of the country’s consumption was eaten by this sector. As more of them were losing jobs and were opting to use public transport instead, their oil purchases had considerably dropped as well.
Obviously, therefore, as jobs and other economic indicators turn brighter day by day, consumer spending will again shoot up. Consequently, the US economy leaps and the demand for oil will certainly increase. Logically, oil prices will again shoot up, and we, as an oil importing country will again be in the receiving end of the bargain. Coupled with higher consumption in diesel fuel to power second hand generator sets (to cover energy supply deficit), the problems could be worst.
Today, it is breaching the US$100.00 mark. Definitely, it shall further increase. Worst for us Filipinos, as the US economy improves and as the dollar flexes its muscle, our currency shall soon depreciate against it and, consequently, oil becomes more expensive.
In the US (as an oil importing country), in preparing for the consequences, President Obama, despite his strong opposition of oil drilling in his 2008 campaign trail, has emphatically announced his plans to “reverse a decades-old U.S. ban on new drilling for oil and natural gas off some parts of the country's shores”. The reversal would permit new drilling in the Atlantic Ocean off the southern United States, in the eastern Gulf of Mexico, and near part of Alaska.
Such is a gesture of genuine care for his (Obama) people. Simply put, in order to sustain the modest growth his country so far attained, he made sure that whatever necessities the economy needs he was ready to provide even if it means swallowing his own pride.
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Fortunately, just like in the USA, we can also cushion the impact because we also have our own oil deposits to explore. Sadly, however, unlike Pres. Obama, our leaders shiver in the thought that their decisions might be so unpopular. They tremble in the idea that they might loss their elective seats (a.k.a. livelihood) if they go against the will of the noisy, but not necessarily big, organized entities.
With these developments, we can only pray that they’ll start opening their hearts and feel the groaning of the silent majority.
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