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US economy more vunerable to energy prices than generally
reported
CIBC World Markets Economists take Contrarian View on Impacts of Oil Prices on
North American Economy
TORONTO, Nov. 4 /PRNewswire-FirstCall/ -- 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.
CIBC World Markets' Monthly Indicators Report is available at
http://www.cibcwm.com/research.
CIBC World Markets is a full service corporate and investment bank throughout
North America, with operations in the UK and Asia, and serves more than 8,000
corporate, government and institutional clients. CIBC World Markets' parent
company is CIBC, one of North America's first and largest financial
institutions with offices in 18 countries, including the world's major
financial centers.
DATASOURCE: CIBC World Markets
CONTACT: Jeffrey Rubin, Chief Economist and Managing Director, at
(416) 594-7357; Benjamin Tal, Senior Economist, at (416) 956-3698,
; Avery Shenfeld, Senior Economist at (416) 954-7356,
; or Rod Cumming, Senior Manager, Marketing and
Communications, at (416) 594-7774 or