Effects of Higher Energy Prices – Winter 2004

Hello from Sycamore,

What are the effects of higher energy prices on our economy?

This question comes up several times each day, and while all of us know the effect of higher gas prices at the pump, it’s more difficult to see the overall effect of higher energy prices on our economy. I’ve done a little poking around lately searching for a satisfactory answer to this question and along the way have come across some interesting and positive facts about energy usage in the United States. Prepare to be pleased…

According to the American Council for an Energy Efficient Economy, “The total primary energy use per capita in the United States in 2000 was almost identical to that in 1973. Over the same 27 year period economic output (GDP) per capital increased 74 percent”…”National energy intensity (energy use per unit of GDP) fell 42 percent between 1973 and 2000.”…”The energy intensity of the economy dropped over 3% per year during 1996-2000.”

Where did these gains come from? Here are a few examples:

  • The average rated fuel economy of new cars increased from 16 mpg in 975
    to 28 mpg by 1987. Trucks increased from 15 to 26 mpg over the same period.
  • Average electricity use of new refrigerators declined from 1725 kWh/yr in
    1972 to 685 kWh/yr by 1999.
  • The energy used to produce a ton of steel declined about 25% from 1975 to 1994.
  • The amount of energy used per ton of pulp and paper production declined
    27% from 1970 to 1994.

These gains are, I think, significant and the current estimates are that by 2020 we could be using as much as 20% less energy than we are today. Nothing will encourage us to conserve, and find alternative sources of energy more than high prices. Who knows, possibly these spikes in our energy costs are, in the long run, good for us and our economy.

So back to the original question, what effect will the high energy prices have on our economy? Certainly it will put some upward pressure on the inflation rate and jobs in some industries may be lost while others will be created. Additionally, at least temporarily, higher energy costs will likely put a damper on our rate of economic growth. Considering the information above about our energy efficiency, we think the effect of higher energy cost on our economy should be relativly small and will likely be significantly less than it was in the mid seventy’s when this type of increase last occurred.

We are all fortunate to have the opportunity to invest in and be a part of a very efficient (sometimes brutally so) economic system. So far this “supply and demand” thing seems to be working pretty well.

As always, if you have any questions or would like additional information, please feel free to send an e-mail or give us a call.

Thanks for your business and trust,

Sycamore Financial Group


Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.