Inland Empire can't afford high cost of oil
Rebecca U. Cho, Staff Writer
Posted:05/21/2011 8:29 PM
Escalating gas prices have become a real worry for both consumers and the analysts who track economic trends. But the Inland Empire should be particularly concerned with high oil prices, according to a new University of Redlands study.
Residents in the San Bernardino and Riverside counties are feeling the worst pain at the pump in Southern California, according to the research, which looked at the amount of money residents spend on gas as a share of their disposable income by U.S. ZIP code.
A combination of high gas prices, far commutes to work and low household income lead those who live inland to carry a higher gas burden than their coastal neighbors such as south Orange County and north San Diego, the study found. The newly created Institute for Spatial Economic Analysis at the university conducted the research.
There are signs that elevated retail gas prices are creating a divide between the rich and the rest of the U.S. population, according to The Associated Press. Retail earnings reports out last week show Saks Fifth Avenue and Nordstrom customers are back in pre-recession style, opening their wallets for luxury items such as Jimmy Choo shoes. Meanwhile, Target and Walmart shoppers are keeping their hands off luxuries, choosing to focus instead on groceries.
Johannes Moenius, a professor at the University of Redlands School of Business and the study's main researcher, spoke on the study's key findings and what they mean for the region's businesses and policymakers.
Q: Did your findings regarding Southern California and the Inland Empire surprise you?
A: The normal pattern you should expect is the city centers with public transportation show up as green (meaning less of a gas burden) and areas where affluent people live show up in green. But for Southern California that's not quite as true. It's one of the big outliers in the country. South of Los Angeles, it's all orange, meaning people spend a lot of money on commuting. That should actually be a green area. City centers are normally green. Another surprising finding was other places in the United States with the highest pain at the pump relative to income were those that have lower population density. And in Southern California, it's the opposite. The lowest oil burden has much lower population density, which indicates to me that reviewing public transportation should be on the agenda.
Q: The study found some of the highest gas burdens in the Southland in the Ontario region and locations outside of Victorville. Why is that?
A: As Southern California's housing market expanded, places where housing was affordable were more and more off the beaten track and further outside. So people tried to avoid higher house prices by moving further and instead substituting for higher commute costs, as long as oil prices were low. But now as oil prices rise, a lot of people really feel the pain.
Q: What kind of impact on the region's economy will high gas prices have?
A: If you have to spend more on gasoline, naturally you'll have less money left for alternative consumption. My expectation would be this would eat into luxury goods and things that can be delayed in terms of purchases like durable goods. The biggest finding nationwide is in the choice of cars. People are replacing what they have with more fuel-efficient imports versus home-grown gas guzzlers.
We'll see lower consumption and that will feed back negatively into the economy. In the Inland Empire, I think the effect on consumption will probably be worse. People are already squeezed.
Q: What in your opinion should policymakers learn from your study?
A: Specifically for Southern California, I think it does support the idea to revisit the availability of public transportation. We are probably the most highly oil-dependent region in the whole United States in terms of commuting; the Inland Empire specifically because most of the bad news is in the Inland Empire. We are taking the brunt in Southern California.
Secondly, think about how can we move jobs closer to the people? No one has a silver bullet here. And think about the high dependency of the Inland Empire on warehousing and logistics. That's all directly linked to oil. These are things that we really need to think about. If both our commuters and a large share of our industry and jobs depend on oil, then we're really in a difficult situation. Trying to reduce this correlation would be something to think about much harder.
Q: Will oil prices continue their climb?
A: That depends on whom you're listening to. If you listen to me, they will rise even further. The problem is, there's a huge amount of uncertainty in any type of data. I can't go to Saudi Arabia and check whether what they claim as proven reserves, if the quality of that information is as good as they claim it is. We don't know how much oil is left in the ground in the OPEC (Organization of the Petroleum Exporting Countries) and how cheap it is to get it out of the ground. Between 2005 and 2016, some people believe we hit peak oil. If that's the case, we're in trouble. I have doubts we can produce oil as cheaply in the future as we were able to in the past. With $200 (per barrel of) oil, alternative energy sources become more lucrative. But that means it's a tough 10 to 15 years we're going to go through if oil prices continue their climb.