Rising Energy Prices: Impact on the US Economy

Impact on Consumer Spending

Rising energy prices are leading consumers to be more selective with their spending, focusing more on non-discretionary items and less on general merchandise and discretionary categories. This shift is evident across various sectors, including quick-service restaurants, e-commerce, and retail, as companies like McDonald's, Amazon, Target, and Walmart adjust their strategies accordingly.

"Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day to day spending which is putting pressure on the QSR industry." --- (MCD, earning call, 2024/Q1)

"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q1)

"This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in Home and Hardlines." --- (TGT, earning call, 2025/Q1)

"Many consumer pocketbooks are still stretched, and we see the effect of that in our business mix, as they're spending more of their paychecks on non-discretionary categories and less on general merchandise." --- (WMT, earning call, 2025/Q1)

"And I think we certainly are going to be prudent and thoughtful about any further price increases that we're looking at for the rest of 2024 on that backdrop and keep working on the opportunity that we've talked about a fair bit already on the affordability and getting that in place to kind of address the consumer need." --- (MCD, earning call, 2024/Q1)

Effect on Industrial Production

Rising energy prices have led to mixed industrial market performance, cautious consumer behavior, and lower production levels. Companies like Caterpillar and Deere & Company report declines in industrial sales and adjusted production schedules, reflecting the impact of increased costs and shifting demand.

"Within Construction Industries and Resource Industries in the second quarter of 2024 as compared to the second quarter of 2023, we expect favorable price realization to be offset by the profit impact of lower sales volume." --- (CAT, sec filing, 2024/Q1)

"The net effect of that, obviously, is lower productions in the back half, while maintaining good margins throughout PPA, but putting us in the best position going forward relative to responding to retail demand in the future." --- (DE, earning call, 2024/Q2)

"So I would say, in general, when you look at safety and industrial, the industrial markets have been mixed and they've been mixed because consumers have been a little cautious." --- (MMM, conference, 2024/06/11)

"Transportation sales to users increased while industrial declined as we expected from strong levels last year." --- (CAT, earning call, 2024/Q1)

"Demand shifts, coupled with proactive inventory management are reflected in our production schedules for the balance of the fiscal year, with many product lines anticipating retail demand under production to close out 2024." --- (DE, earning call, 2024/Q2)

Impact on Transportation Costs

Lower fuel prices in 2024 led to decreased transportation costs across various sectors, including logistics (FDX, UPS), airlines (DAL), and freight (UNP). This reduction in fuel expenses resulted in lower operating and purchased transportation costs, impacting fuel surcharge revenues and overall transportation expenses.

"Lower fuel prices negatively affected yields through lower fuel surcharges and drove a decrease in fuel expense during 2024 at all of our transportation segments." --- (FDX, sec filing, 2024/Q4)

"Fuel expense and average price per gallon Average Price Per Gallon Six Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease) (in millions, except per gallon data) 2024 2023 2024 2023 Fuel purchase cost (1) $ 5,490 $ 5,497 $ (7) $ 2.75 $ 2.91 $ (0.16) Fuel hedge impact 28 (39) 67 0.01 (0.02) 0.03 Refinery segment impact (108) (266) 158 (0.05) (0.14) 0.09 Total fuel expense $ 5,410 $ 5,192 $ 218 $ 2.71 $ 2.75 $ (0.04) (1) Market price for jet fuel at airport locations, including related taxes and transportation costs." --- (DAL, sec filing, 2024/Q2)

"Freight revenues from fuel surcharge programs decreased to $665 million in the first quarter of 2024 compared to $883 million in the same period of 2023 due to lower fuel prices, the lag impact on fuel prices rising throughout the quarter (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries), and lower volume." --- (UNP, sec filing, 2024/Q1)

"• Operating expenses decreased, due to a reduction in purchased transportation in all segments and reductions in fuel expenses in our small package operations, as well as the impact of our ongoing productivity initiatives." --- (UPS, sec filing, 2024/Q1)

"Purchased transportation expense decreased 3% in 2024 primarily due to lower fuel prices and increased third-party rail usage, partially offset by higher base rates." --- (FDX, sec filing, 2024/Q4)

Energy Sector Profitability

Energy sector profitability is being driven by strategic investments in production optimization, innovative energy businesses, and leveraging growing global demand. Companies like SLB, Chevron, and ConocoPhillips are focusing on operational efficiency, technological advancements, and expanding into resilient markets to enhance revenue growth and shareholder value.

"We started out on a purposeful journey to build the best production focused company in the energy industry, driven by our vision of improving lives and focus on helping our customers unlock energy the world needs in an economically and environmentally sustainable way.We have long viewed the production well site as the playing field in which we are uniquely well positioned to deliver impactful life of field production optimization solutions to our customers." --- (SLB, event transcript, 2024/04/02)

"We have committed to investing $500 million in innovative energy businesses through Chevron Technology Ventures' Future Energy Fund III." --- (CVX, Twitter, 2024/05/01)

"Reducing hydrocarbon production directly contradicts the growing global demand for oil and gas, which remains robust and is projected to continue growing in the coming decades.This demand driven by emerging economies and global industrialization represents an opportunity for ConocoPhillips to leverage its expertise and resources in the oil and gas sector to generate shareholder value." --- (COP, event transcript, 2024/05/14)

"Global energy use is on the rise, with crude oil demand projected to grow between 1.2 million and 2.3 million barrels per day in 2024." --- (HAL, earning call, 2024/Q1)

"Moving forward, we will remain focused on driving quality revenue growth and leveraging operational efficiency to grow EBITDA, expand operating margins, generate robust cash flows and meet our commitment to return to shareholders. I'm here to clearly express my full gratitude to the entire SLB team for delivering such a strong second quarter and first half results. Next, let me describe how the market is evolving and the steps we are taking to capture profitable growth across the business. As the cycle continues, investments will increasingly be targeted to in the most resilient area of the market, including key international markets such as the Middle East and Asia and in offshore globally." --- (SLB, earning call, 2024/Q2)

Effect on International Trade

Rising energy prices are exacerbating challenges in international trade by increasing material costs, supply chain expenses, and regulatory uncertainties. Companies like Tesla, Boeing, and General Motors are monitoring geopolitical developments and evolving trade policies, which are further complicated by inflationary pressures and political uncertainties.

"At the same time, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability." --- (TSLA, sec filing, 2024/Q1)

"Additional Considerations Global Trade We continually monitor the global trade environment in response to geopolitical economic developments, as well as changes in tariffs, trade agreements, or sanctions that may impact the Company." --- (BA, sec filing, 2024/Q2)

"We face continuing market, operating and regulatory challenges in several countries across the globe due to, among other factors, competitive pressures, our product portfolio offerings, heightened emission standards, labor disruptions, foreign exchange volatility, evolving trade policy and political uncertainty." --- (GM, sec filing, 2024/Q2)

"As a result, our cash flow deteriorates if wholesale volumes (and the corresponding revenue) decrease while trade payables continue to become due." --- (F, sec filing, 2024/Q2)

"However, we operate in a cyclical industry that is sensitive to political and regulatory uncertainty, including with respect to trade and the environment, all of which can be compounded by inflationary pressures, rising energy prices, interest rate fluctuations and the liquidity of enterprise customers." --- (TSLA, sec filing, 2024/Q1)