economy
...rabia has promised President Bush that it would lower oil prices this fall” (“Oil Futures Fall”). May futures are down to $37.13 and June is down 47 cents to $36.28. However promising these oil futures and supply expectations may be, conflict is still prevalent in two of OPEC’s leading producers, Iraq and Saudi Arabia. One of the reasons for such high gas price increases in the past month has been the escalation in hostilities in these two countries, which bring fears of oil supply disruption. “While fighting hasn’t affected the oil infrastructure, we continue to feel that it is extremely vulnerable… there must certainly be more than a bit of ‘security’ premium built into prices” (“Iraq War”). This uncertainty of oil supply in these hostile states has producers and sellers already preparing for what may happen soon. However these fears our overshadowed by the current prospects of a larger oil supply and OPEC’s allowance of overproduction to stabilize high prices. As oil prices peaked last week at over $38 dollars a barrel they rebounded this week with recent reports of higher oil inventories in the US and overproduction by OPEC nations. Both of these have lowered Oil futures in both May and June. The analyst expects to see oil prices maintain these high prices per gallon till mid summer where they will peak at $1.85 a gallon yet the cost per barrel will stay consistent at around 38 dollars with minor decreases until late summer early fall where they will fall to just under 35 dollars a barrel due to OPEC overproduction and want for a stabilized market. How well the economy does as the year proceeds will also help to lower the cost of gas. If it does well then it will lower the cost of gas just like the gas hikes of 1970’s. B. Inflation The U.S. economy has been out the verge of a recovery for over a year now and has seen increase in sales and jobs in the past few months which haven’t been seen since 2001-2002. As the economy grows more out of recession, inflation starts to play more into the minds of the economist. The economist has seen the Consumer Price Index raise 0.4% in March, almost double that of the increases in January and February combined, with most of the gains in prices coming from energy sector. The CPI, export/import, and how the US dollar does in the world market will all play import roles with how much inflation will rise through the rest of the year. Despite rumors of the Federal Reserve increasing interest rates to slow inflation coming in the near future, the consumer have seen price increases in industries from travel, food and clothing. “After three months in a row of strong core gains it now appears that the inflation forces are beginning to win out, at least temporarily” (“US March Core CPI”). Energy prices have risen 0.4 % in the past year yet have seen high increases in the first quarter of 2004. The US economy saw increases in just about everything in the past few months with the exception of beef due to the resent Mad Cow scare in the US. These increases in price show that inflation is becoming more and more a factor for the consumer as the year rolls on, but help can come form a strong US dollar in the world market and Greenspan’s interest rate hike to come reportedly in the late summer. The CPI has seen the greatest increase in March since November of 2001 which sparked worries in the Stock market and bonds that inflation would be a result of these increases. Nell Henderson wrote in his article in the Washington Post published April 15 titled Consumer Price Index Rises for 4th Month, “that stocks fell initially but recovered while bonds tumbled due to worries that their value would decrease because of inflation” (CPI Rises). Stocks were able to recover by the end of the day with little change to them form the start and this shows the fears of wall street of inflation that seems emanate. If the CPI continues to climb and sees increases in prices in areas such as oil and auto sales which look certain since OPEC has again cut oil production by 3% then the consumer will see a rise in inflation but in moderate amounts. As fears of inflation escaladed this past month due to the large CPI increase, rumors of an interest increase by Greenspan and the Federal Reserve sparked an increase in the value U.S. dollar in world markets although the money market fluctuate often, which would help to stabilize inflation in our own markets. The increase of worth for the U.S. dollar combined with grown of U.S. exports which lead to a growing economy as it heads into the second quarter. Henderson followed in his article that, “this caused some economist to estimate that the economy expanded rapidly in the first three months of the year, at close to a five percent annual rate, giving it plenty of momentum heading into the second quarter” (CPI Rises). The growth of U.S. exports has lowered our debt to about 42 billion dollars, and along with as long as the US dollar continues to see a climb in value in would markets inflation rates will be limited. Inflation is becoming a potential problem as our economy climbs father into a recovery as it has seen higher prices from food to transportation. The economy and the consumers will be watching the rate of inflation in the upcoming months and the Federal Reserve to see how they reach to these rates. However the rate of inflation is dependent on a couple events which have for the most part started their course in the first months of this year. As the CPI sees continual increases throughout the months an increase in interest rates will follow to counteract the inflation that will result from the increases in CPI mostly in the energy industry. If the US dollar continues to become more stable and competitive in the world market combined with the inevitable increase of interest rates that are likely to come at the end of the summer, the analyst expects inflation rates to maintain a 1.5 to under 2 % through the year and the CPI will continue to make minimal gains at around 2% on the year. C. Economic Growth Last two quarters of 2003 ended with record gains in Gross Domestic Product, GDP. The 3rd quarter saw an 8.2 % increase, which was the highest since 1984, and the 4th quarter followed nicely with similar gains. The first quarter continued with the gains 2003 saw with increases in many sectors. The economy is looking much better than it did in February, which is do to the promising increases in sectors such as job creation, retail sales and the CPI. "Economic growth in the first quarter was strong and the second quarter may be as good or better" (“Leading Economic Indicators”). One of the main problems for the economy as it continues to climb farther into a recovery has been its inability to create enough jobs to match those entering into the work force. Over 300,000 jobs were created in March along with strong increases in retail, and CPI growth, which all point to a strong economy. The economy seems much stronger after the March index published a 0.3 % increase with payroll and retail numbers leading the way. “Payrolls expanded by the largest amount in four years, retail sales went through the roof” (“Greenspan Could Settle”). Payroll and retail were not the only strong economic signs that came out of March as six of the ten leading indicators also showed progression, however March hasn’t been the only recent month to see these improvements. “Over the past six months, seven of the 10 indicators have improved. The current growth rate of the leading index is signaling a continuation of relatively strong economic growth in the near term" (“Leading Economic Indicators”). The growth in these fields show that the economy is producing strong numbers in important sectors of the economy. Along with the growth in the leading sectors in the economy, the economy has seen an increase in job creation and decrease in job cuts. This has been one of the major problems in the economy, but “the heavy job cutting we have seen over the past three years appears to be trending down” (Fewer Job Cuts”). March has shown a 26% fewer job cuts in this first quarter than it did in last years. The lack of job cuts by business combined with the recent increase in payroll has shown a recent confidence of business yet they are still hesitant to hire anyone new but content to keep the employees they have. While business decreased job cuts the, US exports saw a 4% jump which is the largest since October 1996. This increase in export revenues helped to close the high trading deficit that the US has been carrying for some time. “The US trade gap narrowed 3.2% in February to $42.1 billion” (“Record Exports”). The US recorded increases in just all sectors of exporting form agriculture to capital goods. This will help to shrink the US national deficit and help to revive many businesses into hiring new employees to lower unemployment. The economy has continues with the trends of 2003 and has made some gains that were unexpected. The first quarter in 2004 has seen a recent rise in the Index, which shows a build up in consumer confidence in the economy and unemployment rates. Unemployment rate was another factor that saw recent gains that shaped the strengthening economy thus far and look to continue as the year continue. With the consumer becoming more confident in the economy and jobs it helps the economy gain more strengthen and business rake in more revenues, which in turn bring more jobs into the economy. With continuing growth in the index, retail, unemployment, and the trade deficit, the analyst sees the economy to continue to see substantial gains this year as the economy sees a 9 to 10% increase in the national GDP. D. Cost of Educational Reform for Arkansas The state of Arkansas has recently passed an increase in the state income tax to help raise revenue to bring up the states lagging public educational system. The state congress approved a one cent increase in the state sales tax in order to raise necessary funds for state wide consolidation. School consolidation is Arkansas last hope of improving its school system by bringing the smaller schools together to help lower cost of books, teachers and facilities however there has been much debate on how much this one cent increase will impact the economy and consumer spending. It is often said and well known that there is not such thing as a fair tax and this tax stays true to this. The lower and middle class are looking to take the largest hit in this tax while the upper class stands with little impact. “The increase will cost about ten dollars a month for every man, women, and child in Arkansas” (“Sales Tax Used UP”). For the average family of four this cost $40 a month which for the upper class means little to them however for the lower class this could mean several meals or other needed products. The sales tax is “like a hole in your pocket” said Doug Thompson of the Arkansas News Bureau in his article Sales Tax Used UP, since it slowly falls out of the income over time and builds up. The sales tax not on...