Apr 30 2009
Pandemic, Natural Resources Threaten to Derail Recovery
Since the possible pandemic has been inundating the news, (and this blog looked at how that will affect the economy), no one has paid attention to the rebound of natural resource prices. This includes oil, the one commodity that will force retailers across the board to raise prices on goods and services. So far the jump from $35 a barrel that was just the price a couple of months ago has now changed to over $51. There has been little discussion on this on the streets nor by our politicians. One of the major reasons is because the price at the pump has not really changed. Therefore the refineries and other middle men are not being as profitable. Watch any refinery companies such as Valero (VLO), for if they made money the last quarter, they probably are not a good investment for the second half of this year.
Other prices are going up, too. Copper has taken another jump. While it was running $4.00 at it’s high, it fell precipitously during the market correction. Slowly it is heading back up. This again will affect the building industry. Anyone building or remodeling a new house take note: Now is the time to get the copper.
One of the reasons natural resources are going back up is demand from other nations around the world for these building materials. China and other Asian countries barely slowed their building during the downturn that hit the other nations. If you were to sit in an office overlooking Singapore or other Far Eastern cities, you would see cranes like big trees towering over new construction projects. The rest of the world is working to catch up their standard of living.
When people in the U.S. and European nations can not afford fuel for their vehicles, when they have to spend more on a remodel, when a new house costs more, the impact runs like shock waves in the economy. People who don’t have the money to build, won’t hire the contractors. Contractors won’t have jobs for carpenters. They won’t sub-contract to plumbers, electricians, flooring experts, or decorators. All of this is essential for money flowing into the economy.
Even the most prudent contractor probably never anticipated a downturn that would last several years. And yet that is what is happening here. And as fuel costs turn away potential home builders, as copper prices continue to shoot up, making the price of building more expensive, the recovery could slip away. If prices could stabilize even for a few years until paychecks adjust to those increases, good times could once again return to our nation.
