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How Rising Energy Costs Affect the Economy

rising energy costs

With rising energy costs, the rising price of crude oil, and corresponding increases at the pump, consumers can expect to pay more for…everything. Given that the country is still in recession due to the COVID-19 epidemic and the resultant lockdowns, this will have an impact on the retail and service economy. How will it affect your auto repair shop? 

America is an automobile-reliant country. Even if all Americans decided to enthusiastically embrace green-energy policies at once, our infrastructure is not designed to accommodate this and maintain our current standard of living. Gas prices matter to everyone. The average consumer in the short term at least will have to allocate more of his income just to pay for gas and will have to absorb increases in the prices of groceries and all other consumer goods. Because so many people are at home and having goods delivered, they will experience higher prices across the board that they won’t be able to avoid. 

Rising Energy Costs Are a Drag on the Economy

What are the effects of rising energy costs and higher gas prices? There are many.

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First, retailers are squeezed because of shipping costs. Logistics and transportation chains pay more to transport goods, and those costs are passed on to consumers in the form of higher prices. Costs on goods manufactured abroad rise more. Prices on plastics or products made from synthetics also go up considerably. 

All consumer spending on goods and services is affected directly or indirectly. Forced to spend more of their income on gasoline, consumers will both drive less and shop less. A percentage of the population will be impacted enough to choose public transportation over driving. Last spring we wrote a blog piece on how the coronavirus and worries about its spread might decrease the number of people willing to use public transportation. People are still living socially distanced from each other, but in a bad enough economy with more people vaccinated, that could change. 

Job growth is also stagnant or negative in a bad economy with rising energy costs. Employers, unsure of their own costs, may put off hiring new workers. And workers may be constrained by their own circumstances from commuting far to work or from relocating to a new location if that means they will not be able to see their families because they cannot afford to travel for holidays or vacations.

Fewer available jobs does make it easier for employers to be choosy about who they hire. As we’ve discussed before, in a booming economy with low unemployment, the advantage is the worker’s because it’s easy to find another job if they don’t like the one they have. In a poor economy, this flips which may positively affect auto shops’ ability to recruit good techs, a small silver lining. 

Rising energy costs act as an anchor weighing the economy down in all the above ways. However, there is a brutal psychological cost to them as well. When costs go up in unpredictable ways, people have a tendency to lose confidence and, as a result, take fewer risks. Pessimistic people don’t open new businesses. They don’t hire more workers, and they don’t improve or extend their capabilities. 

Cheap, plentiful energy makes people hopeful and productive. Hopeful people create and build, making more opportunities and increasing employment. Higher gas prices cause people to do less, travel less, risk less, and have fewer expectations. Higher gas prices over a long period of time will cause a permanent decline in lifestyle. This will have consequences for everyone in our economy and society, but especially for those directly impacted by less driving and less spending as the auto repair industry is. 

Americans have been through recessions before. We’ve seen higher gas prices before, and we’ve gotten through. What effect has higher gas prices had on your auto shop? What actions did you take to minimize that impact on your shop? Please share your experience with other members either here or in our forums. We always appreciate hearing good ideas from our members.