The U.S. Economy. It’s all about Oil.

Well more bad news this week in the U.S. manufacturing sector. Growth has slumped to its lowest level in five years. This latest statistic joins the economic maelstrom of the worst housing numbers in six years, poor retail numbers, the credit crunch and the cost of goods going up at the highest rate in a decade.

None of the economic benchmarks look good right now unless you own an oil company or are President Bush who continues to announce the economy is on stable ground. Stable ground if you compare it to living on the San Andreas Fault that is.

The Dallas division of the Federal Bank, using statistics offered by the Bureau of Economic Analysis, paints a much grimmer picture for America’s Middle Class facing the new year than our President. According to these federal agencies, the Personal Consumption Expenditure, (PCE) came in for November at an annualized rate of 7.1 percent. Now the Feds are quick to spin those statistics by coming out with a second number that they call the adjusted CPE. This number is a modest 2.8 percent. It is much lower because the Feds like to remove food and energy from the index number.

It is more palatable for those in office to walk around town quoting that lower number to their constituents. Of course leaving the two essentials of food and energy out of a core index used to measure how much Americans must spend to live is close to just being an outright lie.

The Federal Reserve stays quiet while all of this number transposing is going on. They don’t like to talk about anything until their monthly meetings. Except for their weeks old memorandums that they throw out whenever they want themselves back in the headlines of course. Everyone knows without further cuts to prime that the credit crunch will get worse and housing won’t rebound. The problem, which they are muttering in their recently released minutes of private meetings, is that if inflation starts going crazy, they must raise interest rates rather than lower them. What are they trying to do? Scare the economy back into a strong growth, low inflation cycle?

Surely they must know prime rates have little to do with our current inflation.

It is all about oil and has been for years. No one in government wants to just come out and say this however. Telling Americans we have high inflation and that it is moving towards double digits because of something our government has no control over won’t garner votes and might push politicians out of office. After all, our firm desire to make sure none of the oil producing nations gives a damn about us is one of the benchmarks of our foreign policy.

The mathematics of our inflation being based on oil costs is obvious. More fuel to run combines and tractors and trucks; higher grain costs. More money to run and heat factories; higher wholesale costs. More fuel needed to run the trains and planes and trucks that carry the goods to stores; higher distribution costs. Higher utility bills for keeping stores comfortable and well lit; higher retail prices. After all of this, add in the thirty percent increase in a gallon of gas over just 18 months ago and you have to understand why consumers have to cut back on buying products that cost more than they did six months ago. Throw in a tightening of the already overburdened credit market and we are looking at the beginning of a recession. That’s not my opinion. The economists at Standard and Poors now state there is a fifty-fifty chance we are already in one just waiting for more statistics to prove it.

It seems hard to believe but just a decade ago, a barrel of crude was under $30 a barrel. Now as it hits the $100-a-barrel mark, with no potential for any serious decline, it is time someone in this administration takes the oil/economy crisis seriously.

Passing a law that moves average fuel economy on American cars from 30 to 35 miles per gallon in the year 2020 isn’t going to do it. That’s just another photo opportunity to show how well Washington has this dependence on fossil fuels issue in hand.

They have it in hand alright. About as much as one would have a pig bathed in greasy oil (courtesy of OPEC).