Keep an Eye on Oil Prices

Businesses are finally showing signs they're ready to spend. They're sitting on profits, exports are up, and the stock market has made a nice recovery from a low point in 2009.

April 1, 2011

The federal government is inducing them to spend, too—a new rule permits businesses to depreciate their investments right away rather than over many years.

If business spending picks up, it won’t come a moment too soon. Households, which have been the main driver thus far of economic recovery, are tapped out. Not only does unemployment remain historically high, but the bulk of household wealth is tied to home equity, so many households are staring at a lower net worth. But now, just as business spending is poised to grow, the global economy faces potential shocks from the rise of unrest in the Middle East and Northern Africa.

Although Egypt isn’t a big oil exporter, Libya is, and so are many other countries in the region. Two weeks after the Egyptian people’s successful ouster of Hosni Mubarak from power in February, oil ­prices jumped to more than $100 a barrel. If that price is sustained over the year, Americans will end up spending some $220 million more each day for gasoline and other energy costs. That’s money that flows out of the country.

Should those higher oil prices persist, the economy could face a plunge back into recession. I calculate the recession tipping point at $140 a barrel, a level that’s not that far off.

Events in the Middle East thus stand to have a major impact on your business, but the turmoil in that part of the world also helps to highlight the benefits we enjoy here from our participatory rights as citizens of a democracy and as people who enjoy the rights of home ownership and private property. As President Franklin Roosevelt said some 60 years ago, a nation of home owners is unconquerable.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.