Oil Prices Drop With Consumer Sentiment

July 10, 2009
Oil Prices Drop With Consumer Sentiment
Economic News and Information for Consumers

64.6, that’s the consumer sentiment reading that comes from Reuters and University of Michigan Survey.  This is down from 70.8 in June.

This reading basically tells us that consumers don’t feel very good about spending money.  If consumers don’t feel like opening their wallets, retail tanks.  This results in more job losses and the snowball effect goes on.

Oil, which was making a rebound last month has suddenly fallen to about $60 per barrel.  The only reason for the increase last month was speculation (and greed), that the economy was going to improve.  The market is supposed to be a forward-looking entity so any positive news can drive oil prices up.

The thought is that if the economy is improving, more people and industry will increase their use of oil/gas. For now, there are no signs of recovery so oil continues to drop.

When will we see recovery in retail and the general economy?  The housing debacle started this mess so it’s also the way out.  Unfortunately, the housing market has been bogged down with lengthy moratoriums designed to keep people in their homes.  This has done little more than to stall any recovery.  We have people still living in homes they cannot afford, not making payments and contributing little to any recovery.  If you can live for free, would you?

The next part of the problem has been the TARP money that banks received earlier in the year.  These funds were basically free to banks, with the intention that banks would loan out the money and ease credit markets.  This didn’t happen.  Instead, banks have held this free cash along with their foreclosed homes.  They use the foreclosed homes as write-offs until the TARP money runs out, which should be around the end of this year.

If you’re looking for a home, remember that over 70% of the inventory has been held back.  When this inventory is eventually released, prices will continue to drop.