‘Eye on the Economy’ with Adam Perrotta

As concerned taxpayers around the nation take to the streets in “tea parties” to protest the federal government’s spending on financial rescue efforts, an eventual economic recovery still seems far away. But there are a few glimmers of hope on the horizon.

Those aggrieved tea partiers can at least take some solace in the fact that the money they do have left after doling out to Uncle Sam will go a bit further these days. The Consumer Price Index fell in March by 0.1 percent and—more notably—registered its first annual decline since 1955, dropping 0.4 percent from March of 2008.

Of course, that is not exactly cause for dancing in the streets, as most of the decline was due to the rapid fall of gas prices from their record highs of last summer. As the weather warms again, prices at the pump should begin to inch back up again, though probably not to the astronomical, speculation-driven levels of summer ’08. Still though, as consumers continue to feel the pinch in their pocketbooks, rising gas prices could further curb spending in other areas.

On the other hand, though, comes news that world demand for oil is continuing to shrink–and rapidly so. OPEC’s latest monthly oil market report predicted that demand would sink by 1.37 million barrels per day in 2009, to an average of 84.2 million barrels per day. A big chunk of the slowdown is being pegged to developing countries such as China and India, whose formerly-booming appetite for oil has been curbed by the global economic slowdown.

The demand drop should put downward pressure on prices, but OPEC said it will slash production by 4.2 million barrels per day in order to bolster price levels. What the net outcome will be to the American consumer—and by extension, the American economy—remains to be seen.

One illustration of how the spending of John Q. Public ripples throughout the economy; as consumers pull back at the cash register, U.S. states are seeing sales tax coffers dry up. State revenue fell 4 percent in last year’s fourth quarter, the biggest such drop in 50 years, according to a report by the Rockefeller Institute of Government. Thirty-five states saw total tax revenue drop during the quarter, with six-seeing double-digit declines.

And the situation is not likely to improve any time soon. So far this year, initial data indicates that 41 states have reported tax collections in January and February were down 12.8 percent compared to the first two months of 2008.

As the economy continues to weaken, state and local governments are likely to continue to see tax revenue shrink, limiting options for fiscal stimulus at those levels. Whether you agree with this week’s tea partiers or not, one thing seems certain; any further government effort to kick start the economy will probably have to come from Washington.  

(Adam Perrotta is a news writer at Commercial Property News, MHN's sister publication . He can be contacted at Adam.Perrotta@nielsen.com)