Weekly Gasoline Prices Fall ToLowest Level In One Month

The pump price for regular gasoline fell last week to the lowest level since late-July. At an average $2.50 per gallon the price dropped a nickel from the prior week and may have broken out of the sideways pattern since early-June. These prices compare to the December low of $1.61. Yesterday, prices fell further. The wholesale gasoline price was down to $1.65 per gallon. Prices had reached a high in early-August of $2.03. The figures are reported by the U.S. Department of Energy and can be found in Haver's WEEKLY & DAILY databases.

During August, the consumer price index for gasoline recouped the July decline with a not seasonally adjusted 3.3% increase. Seasonally adjusted gas prices were quite firm and rose 9.1% m/m, up 40.3% YTD.

Crude oil prices have led the decline in refined product prices. Light sweet crude oil prices (WTI) fell to $68.41 per barrel, though that still was up from the December low of $32.37. Yesterday, the spot market price for light sweet crude oil fell further to $66.84 per barrel versus a daily high of $71.55 last week.

The demand for gasoline continued to improve through mid-month. The y/y rise of 1.1% was the first meaningful positive comparison since early-2007. Demand for residual fuel oil slacked off from its earlier strength and fell 5.1% y/y while distillate demand is off 13.2% y/y. Finally, oil remains plentiful as evidenced by a 16.5% y/y rise in inventories of crude oil & petroleum products. Inventories of gasoline recently have surged and are up 19.2% versus last year. The figures on crude oil production and inventories are available in Haver's OILWKLY database.

Natural gas prices increased again last week to an average of $3.48 per mmbtu (-54.9% y/y) but they remained down by three-quarters from the high reached in early-July of last year of $13.19/mmbtu. Yesterday prices were up from last week's level at $3.54/mmbtu.

Order Trends: German new orders growth was extended as foreign orders snapped back after a one-month decline. Domestic orders fell by 1.9% after surging by 9.5% in July. Orders have been rising steadily, strongly, over the past six months with domestic orders up in five of those six months and foreign orders up in four of those six months. Both series are showing continuing acceleration not just growth. In the current quarter domestic orders are outpacing on the back of a one month 9.5% spurt in orders in July as the new quarter began.

Foreign order sources: Orders from countries outside the euro zone alone jumped 5.9%, in August while foreign demand for German manufactured goods from the other 15 countries sharing the euro rose by just 2.8% in August from the month earlier. Growth outside of the e-Zone drove German orders this past month.

Euro-Area policy cuts no slack - Apart from orders, the European Commission Wednesday warned nine countries, including Germany, that their budget deficits are too large. This is the legacy effect of having used domestic deficit spending to bolster the economy in the recession. That policy response was good thing, but it now puts those countries afoul of EU Commission rules.

Out of touch with reality? The warning comes at an odd time since Euro-central bankers and policy officials in the US have underscored that the time is not right to withdraw stimulus. Hanging the ‘Sword of Damocles’ over the heads of the various ECB nations does not seem like the right policy tilt to encourage them to keep their stimulus efforts in place. It sounds a lot like pressure to get you house in order NOW! The EU Commission is using bad judgment and being too strict on rules of evaluations at a time like this. Yes it is just this sort of thinking that keeps the euro strong but it also unduly complicates and hampers policy. This stance reminds me of the ECB’s problems in cutting rates in timely fashion in the recession. The target rate ceiling on the HICP hampered the ECB in the pits of the crisis. It cut rates as a part of an ‘international effort’, using that as an excuse to cut rates with headline inflation well over its ceiling at the time. I suppose we are to understand that this warning from the EU Commission as a formality that has come as scheduled. But in times such as these what is the merit? Does this act brand the EU Commission tough or as out of touch?

The Central Bank of Australia raised its policy interest rate from 3.00% to 3.25% today, the first of the Group of 20 to increase interest rates since the start of the global financial crisis in late 2007.

In relative terms, the recession in Australia has been mild.  The first two charts comparing the levels in the rate of unemployment and the changes in Gross Domestic Product with those in the United States and the Euro Area show that there has been considerably less unemployment in Australia and that its decline in total activity has been milder and of shorter duration.  GDP in Australia has actually increased in the first two quarters of 2009.

Among the reasons for Australia's better performance is the condition of its financial system.   Australia's financial system had not been disrupted to the extent that those of the Americans, British and Europeans had been by unsound practices.  Moreover, demand for Australian natural resources has been maintained at relatively high levels.  After a slow down in late 2008 Australia's most important trading partner, China, rapidly regained its high growth trend in 2009 and its demand for Australia's resources.

Economic conditions in Australia in recent months have been stronger than expected.   The Reserve Bank of Australia publishes quarterly forecasts of GDP.  Its last two forecasts of May 2009 and August 2009 are shown in the third chart compared with the actual results in the first and second quarters of 2009.  In May, the Bank was forecasting year over year percent declines for the four quarters of 2009 and for the first quarter of 2010.  The Bank raised its forecast in August but still actual conditions were stronger than expected. The bank's forecast for the first and second quarters of this year--0.40%  and 0.25% year over year increases-were below the actual year over year increases of 0.32% and 0.53% . 

Prospects for improvement in sales seem limited. The leading indicator of sales slipped 0.3% (-0.1% y/y) during the latest week though it had risen somewhat earlier this summer.

A Bit Better, But Very Far From Best are yesterday's comments by New York Fed President William C. Dudley and they are available here.