Huge oil-price gyrations are usually not good for the economic psyches of consumers and corporate chiefs.<\/p>\n
Numerous financial questions are swirling as a combined U.S.-Israeli military battle with Iran send global oil prices skyward<\/a>. Will supply be greatly endangered as unrest expands across the oil-rich Middle East? And which budget \u2013 housing or corporate \u2013 can afford costlier energy?<\/p>\n Let\u2019s look at an obvious war-linked variable: crude oil, the raw commodity that\u2019s refined into fuel.<\/p>\n Higher pump prices likely mean tighter household budgets for drivers. It also translates into ballooning costs for manufacturers that use oil-based materials in their production. And any company that ships its goods should expect higher transportation costs.\n<\/p>\n This kind of cost shock could push an already weakened economy<\/a> \u2013 California\u2019s and the nation\u2019s \u2013 into a recession.<\/p>\n But the immediate uncertainty from any economic shock can be hard to translate into long-lasting business trends. For example, should the Iran war be quickly resolved, any damage to the world\u2019s oil production or shipments may be limited.<\/p>\n Oil spikes have preceded recessions in the past half-century in 1979, 1990, 2000 and 2008, for example. Yet other oil surges did not lead to deep economic despair.<\/p>\n In recent days, oil prices hit four-year highs in the early days of the Iran conflict. What could that mean to California\u2019s economy<\/a> if this key energy cost stays at such elevated levels<\/a>?<\/p>\n To see the intersection of Golden State\u2019s business performance and historic oil-price swings, my trusty spreadsheet examined 12-month moves in crude oil prices<\/a> across quarters from 1977 through 2024. The figures were sliced into five groups, focusing on the commodity\u2019s biggest surges compared to its deepest tumbles.<\/p>\n We\u2019re talking dramatic swings in crude oil. In the biggest moves since 1977, oil surged an average of 63% over a year, compared with the commodity\u2019s largest one-year drops, which averaged 35% over 12 months.<\/p>\n Cost of living catch<\/p>\n Not surprisingly, inflation paralleled swings in oil prices.<\/p>\n In 12-month periods when oil prices jumped the most, the U.S. Consumer Price Index<\/a> rose at a 5.3% annual pace. That was an increase from 3.2% over the previous 12 months.<\/p>\n Conversely, the largest oil-price drops tamed inflation to a 1.7% annual rate from 3.2% 12 months earlier.<\/p>\n Now think about how California\u2019s economy reacts during oil price extremes over these 48 years, spikes vs. tumbles.<\/p>\n California workers may be relieved to learn that per-capita incomes<\/a> moved somewhat in step with oil prices and inflation.<\/p>\n When oil surged, incomes averaged 7.3% annual gains, up from 6.7% 12 months earlier. When oil was tumbling, income growth cooled to 6.4% from 7% 12 months earlier.<\/p>\n But there\u2019s a catch within those pay patterns. Pocketbook pain is measured by comparing inflation to income growth.<\/p>\n What economists call \u201creal\u201d income growth \u2013 raises minus the change in the cost of living \u2013 was just 2% when oil spiked vs. 3.4% in the preceding 12 months. Buying power shrank.<\/p>\n But a California paycheck\u2019s borrowing power expanded when oil tumbled: 4.7% real income growth in that year vs. 3.8% in the previous 12 months.<\/p>\n Parallel pops<\/p>\n Remember that when global politics are out of the energy picture, oil prices tend to move with the overall economy.<\/p>\n A robust business climate usually boosts energy demand. So, oil prices often pop.<\/p>\n That same economic strength also elevates the odds that Californians will keep their paychecks.<\/p>\n During oil\u2019s biggest surges since 1977, statewide unemployment averaged 6% \u2013 down from 6.7% 12 months earlier.<\/p>\n When oil prices were tumbling, statewide joblessness rose to an average of 6.5% from 5.3% in previous years.<\/p>\n And such oil-linked economic vitality also benefited California homeowners, looking back to 1977.<\/p>\n