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Stalled recovery? Gas prices, optimism on collision course

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Hoosier business owners’ optimism is rising, but so are gas prices, prompting some economists to predict a repeat of 2011’s mid-year stallout.

Nearly two-thirds of Hoosier business owners polled in a Pittsburgh-based PNC Bank survey said they are optimistic or moderately optimistic about the Indiana economy over the next six months, according to results released Thursday. Six months ago, 58 percent of business owners said they were optimistic or moderately so.

The sentiments of the small- and medium-sized business owners nearly match those of one year ago—before supply disruptions caused by the earthquake and tsunami in Japan, as well as spiking gas prices and threats of debt crises in the United States and Europe spooked entrepreneurs and consumers alike.

Friday’s announcement by the U.S. Bureau of Labor Statistics that the nation added just 120,000 jobs in March—compared with three previous monthly gains each topping 220,000—only added to concerns that recent economic growth is slowing.

"The March numbers are half or less of what we'd seen in the preceding months," Ball State University economist Michael Hicks, said in a prepared statement. "Though a single month of data is not enough to draw broad inference, this has all the hallmarks of a repeat of last year when rising gas prices stalled the recovery.”

Gas prices averaged $3.94 per gallon across the nation on Thursday, up 17 percent since the first of the year. In Indiana, prices are even a touch higher at $4 per gallon, also up about 17 percent.

Gas prices typically don’t shoot up until May, when federal rules require refineries to make a variety of blends to reduce emissions in major urban markets. So expectations are for gas prices to keep going up into the summer months.

Hicks argues that Indiana’s economy—given its heavy reliance on ground-ransportation businesses and auto manufacturing—feels an economic pinch from high gas prices sooner than the rest of the nation.

However, higher gas prices may be helping Indiana’s auto and auto parts makers, as auto sales in March rose 13 percent to the fastest pace in four years. Consumers during the recession let their cars on the road age, to a record 11 years on average, but are now increasingly buying new cars, especially fuel-efficient cars.

And it’s not just gas prices that are rising. Spikes in a wide range of commodities, including metals, have raised costs for many businesses. Of Hoosier business owners surveyed in the PNC study, 73 percent expect prices to rise over the next six months. An equal percentage said they intended to raise their own prices to avoid a profit squeeze.

Kurt Rankin, a PNC economist who follows the Indianapolis and Indiana economies, said it took more than high gas prices last year to stall the recovery, and the same is true this year.

“Last year, they were not the primary story,” Rankin said of high gas prices in an interview on Tuesday. “The earthquake in Japan, which caused a disruption to U.S. supply lines, that stalled out what was really the only healthy part of the U.S. economy—manufacturing.”

Then came the summer’s nasty fight in Congress over the federal government’s debt ceiling, which led to Standard & Poor’s unprecedented downgrading of its ratings on U.S. Treasury bills.

“That took what was already fragile consumer confidence and shot itself right in the foot,” Rankin said. But, he added, “There’s more health to the economy this year, and therefore more potential for the economy to keep growing, even with high gas prices.”

Employment in Indiana dipped slightly last year in April, May and June but has been growing steadily since July, adding nearly 40,000 jobs as of February, according to Bureau of Labor Statistics data.

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  • Vacuous "Predictions"
    "So expectations are for gas prices to keep going up into the summer months."
    Another example of a harmful throwaway line the media love to put on gas price stories. Even if you did attribute it to business owners, no one really knows where gas prices will go. Not even the often quoted, anonymous "experts."

  • DC Indy.....
    This country is drilling more oil than ever before while demand in this country has actually decreased. By your theory...shouldn't you be enjoying the fruits of this labor and cheaper gas prices? Have you ever turned Faux News off and actually processed a thought about the situation? In any investment, financial analysts will tell you that you should diversify your portfolio to ensure a stable, but positive growth on your return. It seems you want the complete opposite for this specific segment of the market. You want to ensure that we base our entire economy on a single source of fuel........look what that has brought us. I sure wouldn't vote for you.
  • Bureau of Labor Statistics
    Where are these jobs, based upon the article above on gas prices. People in my age group who have the expertise in the construction CM industry only get a deaf ear when applying or the run around.
  • Why Not?
    ...or, we could just re-elect a Socialist/Marxist who wants $7 per gallon gas, won't allow new drilling and has already promised the Russians that he can be way more flexible with whatever they want once he's re-elected. I hope other independents don't vote for this guy again...
  • signal for a change
    This is where a coherent country would alter their lifestyle and transportation habits to avoid being dependent on gas and oil.....but in the US, we just complain that government needs to step in and beat up private business........will we finally make a lasting change, or will you vote for Newt or another political puppet who promises lower gas prices at the pump covered by large tax subsidies behind the scenes?

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  1. PJ - Mall operators like Simon, and most developers/ land owners, establish individual legal entities for each property to avoid having a problem location sink the ship, or simply structure the note to exclude anything but the property acting as collateral. Usually both. The big banks that lend are big boys that know the risks and aren't mad at Simon for forking over the deed and walking away.

  2. Do any of the East side residence think that Macy, JC Penny's and the other national tenants would have letft the mall if they were making money?? I have read several post about how Simon neglected the property but it sounds like the Eastsiders stopped shopping at the mall even when it was full with all of the national retailers that you want to come back to the mall. I used to work at the Dick's at Washington Square and I know for a fact it's the worst performing Dick's in the Indianapolis market. You better start shopping there before it closes also.

  3. How can any company that has the cash and other assets be allowed to simply foreclose and not pay the debt? Simon, pay the debt and sell the property yourself. Don't just stiff the bank with the loan and require them to find a buyer.

  4. If you only knew....

  5. The proposal is structured in such a way that a private company (who has competitors in the marketplace) has struck a deal to get "financing" through utility ratepayers via IPL. Competitors to BlueIndy are at disadvantage now. The story isn't "how green can we be" but how creative "financing" through captive ratepayers benefits a company whose proposal should sink or float in the competitive marketplace without customer funding. If it was a great idea there would be financing available. IBJ needs to be doing a story on the utility ratemaking piece of this (which is pretty complicated) but instead it suggests that folks are whining about paying for being green.

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