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Energy • The Economy • Global Politics

Energy: Oil-price dip may last
Economy: Still growing but wages stagnant
Global politics: Mexico recovering from elections

Energy
The oil price outlook has taken a surprising downward shift in the past couple of weeks. Why? More-sanguine forecasts on this year’s hurricane season. No sign so far that tensions with Iran are escalating. Oil inventories that are more plentiful than expected. And the psychological boost from the big discovery in the Gulf of Mexico, even though it probably won’t produce a drop of crude until 2009 or so.
IF there’s smooth sailing, expect oil at $60 a barrel by year end, and the average U.S. pump price for gasoline around $2.25 a gallon.
But plenty of risks will be lurking in the shadows between now and then. A destructive hurricane still can’t be ruled out. The multitude of conflicts in the Middle East leaves the door wide open for a possible disruption of oil supplies from a major exporter. And rebels in Nigeria continue to threaten key oil installations there. Any of these events has the potential to push crude above $80 a barrel.

The economy
Getting lots of attention these days ahead of the elections:
Two diverging takes on the economy. Democrats continue to harp on the growing disparity between the country’s haves and have-nots. Republicans focus on healthy economic growth.
Which is right? Both.
Historically speaking, the economy isn’t doing badly at all. Compare the picture with 1980/1981 and 1990/1991, when the economy really WAS foundering. In 1980/1981, unemployment was running three to four points higher than today. Both inflation and the prime rate were about double, and the level of per capita disposable income ... after wringing out inflation ... was just half what it is today. For most of 1990 and 1991, the prime was stuck at 9%-10%, unemployment was one to two points over today’s level, inflation about double, and personal disposable income still 15%-20% lower than it is today. Moreover, the combination of home values and stock market investments makes Americans much wealthier overall today than ever before.

But many folks don’t FEEL better off. And they have good cause. In real terms, average hourly wages have gone up only about 25¢ in 25 years. Plus, the 60% of workers who rely on those hourly wages are paying more for health care and seeing retirement benefits shrink. Joe Lunchbox is also forking over more interest to credit card firms and banks and paying 50% more for gasoline than two years ago. Sure, his house and 401(k) are worth much more. But that’s no help to his cash flow ... unless, of course, he taps into his home equity. And that will only strain his wallet more as interest rates increase.
Odds are the schizophrenia will worsen before it gets better as economic growth slows in 2007 and wages advance only modestly. It'll take a swiftly rising tide to lift all boats in the harbor.

Global politics
Mexico’s political tussle is close to an end, despite threats from defeated presidential candidate Andrés Manuel López Obrador to foment more civil disturbances. In fact, many members of his party, the Party of the Democratic Revolution (PRD), see that ongoing protests are hurting businesses, costing jobs, and thus alienating some supporters. PRD members now want to switch to using their gains in Mexico’s Congress to build up a more solid political base and prepare for future elections.
The country’s economy is secure, bolstered by its oil wealth. Growth will surpass 4% this year and slow to only about 3.5% in 2007. U.S. companies’ second-largest export market shows no sign of flagging.