The nation’s economic outlook is vulnerable and fragile, and a variety of supply chain issues, including fuel supply and prices, are impacting the economy and the public now and in the months to come, say three professors from Southern Illinois University Carbondale’s College of Business and Analytics.
“There are very real concerns of a recession, and the bank failures, combined with other factors, may just tip things over the edge,” said Kevin Sylwester, professor of economics and director of the School of Analytics, Finance and Economics.
Sylwester and Scott Gilbert, economics program coordinator, examine ongoing recession fears and warnings, and Gregory D. DeYong, associate professor of operations management, specializes in supply chain issues and costs. The professors provide insight on how these situations are interwoven and what impact they are having on the economy, businesses and the American people.
Various aspects of the economy include:
- The financial tumult in the banking industry including the recent failure of Silicon Valley Bank, the 17th largest bank in the country, as well as two substantial banks, and the potential this has to lead to a recession. Higher interest rates and outstanding loans at lower interest rates caused a run on the bank reserves that exceeded cash on hand, leading to the failures. While the FDIC (Federal Deposit Insurance Corp.) insures deposits up to $250,000, the failures have still caused a stir.
- Efforts by the Federal Reserve to bring the inflation rate down to 2%. The Fed has increased the prime rate nine consecutive times since early 2022, bringing the current rate to about 5% in March. While the current rate is down from the 9.1% in June 2022, it is the highest it has been since 2007 and still significantly higher than officials want it to be. The core inflation rate, which doesn’t include food and energy prices, was up 5.6% over March 2022, while food prices rose 8.5% and primary residence rental rates increase 8.8% from the year before. According to an August 2022 Bankrate survey, even though 61% of employees received a raise and/or higher-paying job in the last year, some 55% say their wages aren’t sufficient to keep up with the increase in household expenses. In the meantime, the consumers and businesses are facing significantly higher interest rates on any borrowing they do.
- In addition, the high prices caused by inflation are driving many Americans to use their credit cards more, even for living expenses such as food and rent, and higher interest rates make the debt more expensive. The country’s total credit card debt reached a record $930.6 billion by the end of 2022, an increase of 18.5% over the previous year, according to TransUnion. The average credit card user was carrying a $5,805 balance, which is near a “breaking point,” according to a WalletHub survey. The breaking point occurs when the household credit card debt level becomes so high people can’t pay their bills. TransUnion reports an increase in delinquencies, a payment that is 60 days or longer overdue.
- The escalating national debt, which now exceeds $31.46 trillion, or more than $94,000 for every person in the country. Every day, the U.S. spends more than $1.3 billion on interest alone, and every dollar spent on interest is money that can’t be spent on programs and needs, from the military to the environment to shoring up the nation’s infrastructure and more.
One bit of good news is that the unemployment rate, reported by the Bureau of Labor Statistics, remains stable around 3.5%, down drastically from the 14.7% pandemic rate in April 2020 and the 9.9% in April 2010.
“The unemployment rate remains at or near historic lows, and the low rates are projected to continue for years to come,” Gilbert said.
In addition, DeYong notes that farmers are now working their fields and planting and the summer travel season is nearly here, which traditionally results in rising gasoline demands.
“Refineries switch to summer fuel blends, which impacts the supply and in general the prices for gasoline, and often diesel fuel as well,” DeYong said.
Exacerbating the situation is the surprise announcement earlier this month that OPEC+ is cutting oil production by more than 1.6 million barrels a day, from May through the end of the year. Gas prices have already spiked in response, and additional increases are expected.
DeYong said the decrease in supplies and resulting upsurges in fuel prices have numerous implications as that affects trucking, barge traffic and farm equipment as well as all forms of transportation and more.