Oil hits new high, job losses at five year low

Last week oil prices rose to a new record of $106.54 a barrel in midst of tension between oil producers Venezuela and Colombia. Crude oil contracts have risen after a weak U.S. jobs report, according to The Associated Press.

Rebels from Venezuela attacked and shut down a Colombian pipeline that transports over 60,000 barrels of oil a day in retaliation for the Colombian raid into Ecuador. Venezuela also threatened to nationalize Colombian-owned businesses and briefly sent troops to the country’s border.

According to The New York Times, “The surge to a new record high was also driven by a U.S. Labor Department report that said employers cut 63,000 jobs in February, the biggest drop in five years.” In addition, Wall Street showed employers cut payrolls for a second straight month in February.
Many are now looking to the Federal Reserve to take action to help the national economy. Some experts predict a reduction in interest rates, which would encourage consumers to spend rather than invest.

The Federal Reserve is scheduled to meet on March 18. Other analysts have argued the Federal Reserve should not change the rates. The stock market has also been incredibly volitile dropping below the 12,000 mark. On Thursday however, the market ralled for more than 400 points, its largest one day gain since 2002, according to the AP.

The current economic state poses the biggest hurdle FED Chairman Ben Bernanke has faced since replacing Alan Greenspan.
Having already cut short-term interest rates by almost half since September, Bernanke painted a grim picture of consumers reluctant to spend, businesses reluctant to invest and banks reluctant to lend. Furthermore, housing prices keep falling.

Lindsay Calkins, economics professor at JCU, said she finds parallels between recent economic trends and those of the 1970s, widely known as “stagflation.” Oil also rose to new heights during this time, while unemployment increased.
With the lowering interest rates, Calkins believes we face a situation of “inflation vs. unemployment and growth.” By lowering interest rates The FED may improve the growth of the economy, however inflation could rise at the same time.

The dollar has slipped 24 percent against the six largest currencies within the last five years. Yet a weak dollar can be both beneficial and harmful for the U.S. economy. The tradeoff occurs between an increase in U.S. exports vs. reduced imports. Consumers have responded to fears the economy has entered a recession.

According to The Wall Street Journal, weak February sales particularly hit major department store chains, including Target, which adds to the evidence consumers have cut spending.

The term recession is generally defined as a two quarter drop in GDP. Many suspect the first quarter of 2008 may be the first quarter to accomplish this, according to the AP.
Over recent years, the U.S. recessions have been considerably shorter than previous decades. The last recession followed after 9/11 and lasted into 2002, according to the AP.