When Gas Prices Goes Up, Business Goes Down

It’s true, when gas goes over $4.00 per gallon the economy shrinks, declines and drops. It is the tipping point. A number of direct and indirect effects ripple out when gas prices exceed $4.00/gallon. People shut down.

Delivery vehicles cost much more, transportation of any sort goes up, all adding to the cost of goods and services and forcing profits down or prices up, perhaps both. The result is business contraction. The price, of course, also has a direct effect on the consumer who must spend more to fill up the tank and thus opts to drive less. Again, the ripple effect, as this results in less consumer spending, not just on gas but on everything.

Perhaps the most damaging effect is the distress this causes, the doubt and fear that is the result. The decision to travel less, spend less, do less, and worry more affects all aspects of one’s life. Gas is such a fundamental resource and driving such a basic part of our lives. When we curtail such a basic activity because of a few dollars of added expense, you know this is as much an emotional decision as it is a financial decision; fear is at it’s roots.

When the consumer turns negative, everything goes down. It is a self-fulfilling condition, as the fear results in personal restraint, which results in an accelerating downturn spiral. The fear is contagious and spreads. Soon more and more people are responding to fear and that is dangerous. The economy contracts because people are controlled by this fear and react accordingly, reducing their spending everywhere.

Watch the gas prices. When gas goes over $4.00/gallon, prepare for reduced revenue and increased costs. That’s the tipping point, when people do more than just complain, they contract.