Stalled recovery? Gas prices, optimism on collision course

Back to TopCommentsE-mailPrintBookmark and Share

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.


  • 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?

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. How much you wanna bet, that 70% of the jobs created there (after construction) are minimum wage? And Harvey is correct, the vast majority of residents in this project will drive to their jobs, and to think otherwise, is like Harvey says, a pipe dream. Someone working at a restaurant or retail store will not be able to afford living there. What ever happened to people who wanted to build buildings, paying for it themselves? Not a fan of these tax deals.

  2. Uh, no GeorgeP. The project is supposed to bring on 1,000 jobs and those people along with the people that will be living in the new residential will be driving to their jobs. The walkable stuff is a pipe dream. Besides, walkable is defined as having all daily necessities within 1/2 mile. That's not the case here. Never will be.

  3. Brad is on to something there. The merger of the Formula E and IndyCar Series would give IndyCar access to International markets and Formula E access the Indianapolis 500, not to mention some other events in the USA. Maybe after 2016 but before the new Dallara is rolled out for 2018. This give IndyCar two more seasons to run the DW12 and Formula E to get charged up, pun intended. Then shock the racing world, pun intended, but making the 101st Indianapolis 500 a stellar, groundbreaking event: The first all-electric Indy 500, and use that platform to promote the future of the sport.

  4. No, HarveyF, the exact opposite. Greater density and closeness to retail and everyday necessities reduces traffic. When one has to drive miles for necessities, all those cars are on the roads for many miles. When reasonable density is built, low rise in this case, in the middle of a thriving retail area, one has to drive far less, actually reducing the number of cars on the road.

  5. The Indy Star announced today the appointment of a new Beverage Reporter! So instead of insightful reports on Indy pro sports and Indiana college teams, you now get to read stories about the 432nd new brewery open or some obscure Hoosier winery winning a county fair blue ribbon. Yep, that's the coverage we Star readers crave. Not.