ATLANTA -

Gas prices might not be as high a priority for water-cooler conversation like when pump prices approached $4 a gallon. Still, an industry observer asked Manheim economist Tom Webb about fuel costs in light of sinking crude oil prices recorded earlier this month.

Webb tackled the question as a part of Manheim Consulting’s June Auto Industry Brief. First, here is the exact query Webb received.

The individual wondered, “The decline in gas prices that you discussed last month has now accelerated. And, in late June, crude oil prices plummeted. So a further reduction in pump prices is coming, right?”

Webb began his response by projecting gas prices likely will decline further and “most definitely” if the reduction in crude costs continues.

“Keep in mind, however, that the big two-day drop in crude was driven partly by investors seeking safe-haven trades,” Webb pointed out. “Yes, ‘speculators’ can drive prices down as well as up. And, of course, oil markets remain vulnerable to geopolitical events. But, fundamentally prices today are being driven lower by the forces of rising supply (record production levels) and falling demand (most of the world is now in very slow growth or outright recession).

“The reduction in gas prices is a very positive factor for consumers,” Webb continued. “However to really help consumer spending (and, thus, the economy), lower pump prices need to be accompanied by rising consumer confidence. That is not the case today. Remember, gas prices were less than $2 a gallon in late 2008, and that’s not a time we would like to revisit.”

More General Economic Commentary

In talking more about how the broad economy might behave, especially when it comes to employment, Webb cautioned that the labor market continues to show uncertainty.

After three consecutive months of “disappointing” job growth, Manheim’s economist believes that the markets anxiously await the June report to be released on July 6.

“Unfortunately, there’s no way that report will be satisfying. Even if total payroll growth surprises to the upside, it will only accentuate how muted expectations have become,” Webb conceded.

But what if the unemployment rate were to tick down? Webb says forget about it.

“That has always been the least important statistic within the employment report,” he emphasized. “It is even less relevant today, given the tremendous falloff in the labor force participation rate. The percent of the U.S. working age population actively seeking work has fallen to its lowest level in 30 years. To be sure, some of that decline is a natural byproduct of demographic shifts, such as the aging of Baby Boomers."

Webb indicated that average participation rates by age show that young people have dropped out of the labor market at the fastest rate of any group.

Meanwhile, he said participation rates for people older than 60 have risen significantly.

“Many Baby Boomers lucky enough to still be employed have pushed back retirement dates as the falloff in home values and uncertain equity markets increased the risk of outliving one’s savings,” Webb surmised.

“Keep in mind that the recent Survey of Consumer Finances from the Federal Reserve showed that the Great Recession wiped out two decades of net worth,” he pointed out. Some discount the low labor-participation rates by suggesting that some people no longer on the labor rolls are, in fact, working off-the-books (the so-called underground economy). Although that is undoubtedly true, a growing underground economy cannot offset the weakness of the one above.

“Of more concern, the recent Jobs Openings and Labor Turnover Survey from the Department of Labor showed unfilled job openings falling by their largest amount in four years,” Webb went on to explain. “In addition, the ‘quit rate’ (a sign of employee optimism) declined.

“Further weakness in the labor market is also suggested by high initial jobless claims and stark differences in employment prospects based on education levels,” Webb added. “All in all, it’s not good news for an economy where total employment growth has average less than 100,000 per month over the past three months (and private-sector employment grew only modestly better, at 105,000 per month).”