Higher Oil Prices Can Weaken Economy

Higher oil prices can weaken even the strongest economy. They increase production costs for businesses that can spur inflation, they weaken consumer demand as people have less disposable income, and they add uncertainty to the markets as long-term growth becomes much murkier and difficult to gauge.

Alabama’s low unemployment rate as of this writing is certainly a good thing, but it’s not the only consideration when measuring economic strength. Wages continue to be stagnant as businesses are choosing to give one-time bonuses or give back to shareholders in dividends rather than reinvest in their employee’s pay. The effects of lower unemployment are therefore offset by wages that are held in check when they would normally rise due to the competition for employees in a job market that has more scarcity. But even lower wages are only part of the story of why Alabama should be wary of proclamations of victory over economic forces.

Alabama does not budget for a rainy day. In fact, our budgets have only been able to balance the past several years because of the windfall that the BP oil money provided. That money ran out in this latest fiscal budget, so next year the math becomes harder and our elected officials will be tasked with balancing the books under even the best of circumstances. So while it’s good to be optimistic about our low unemployment percentage, it’s also wise to be realistic about the challenges we still face – particularly if we have an external shock such as economic sanctions on Iran that will close up markets and drive up oil prices once again.

We need leaders in Montgomery that will do more than tell you that the sun is shining. We need honest, ethical elected officials that will tell you where the next challenge lies and begin preparing a long-term budgeting process that allows our state to withstand the eventual cycle of an economic downturn, however severe it may be. Our citizens demand more from our legislators than closing up their session several days early as they did this year when there were still bills to consider that could move Alabama forward.

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