Small Businesses Struggle With Recession, Gas Prices

MICHEL MARTIN, host:

I'm Michel Martin, and this is TELL ME MORE from NPR News.

Coming up, it's World Malaria Day and we have a success story out of Africa. The continent's efforts to fight malaria seem to be working, but we'll also find out what has health officials worried now.

But first, back to this country where gas prices around the country are approaching $4 a barrel - $4 a gallon - and Americans are feeling it in their wallets. According to AAA, the national average has now reached $3.86 a gallon. We put a callout on our Twitter and Facebook pages to ask listeners how much they paid for their latest fill-up.

Ms. ALICIA COSGROVE: My name is Alicia Cosgrove. I'm in the Greensboro area in North Carolina. The cheapest I've seen gas here is 3.69 a gallon.

Mr. RUBEN ROMERO: My name is Ruben Romero and I am in Tucson, Arizona. And we are paying $3.49 a gallon.

Ms. BARB HOLLIDAY(ph): Dallas, Texas, 3.85 a gallon. Barb Holliday.

Ms. SHEILA PAUL: Sheila Paul, Hudson, Wisconsin. $3.97 per gallon for 89 octane.

Ms. AMANDA SCHAEFER: Hi, my name is Amanda Schaefer. I live in Makawao on the island of Maui in the state of Hawaii. And the current gas price is 4.89. Now my little Toyota Corolla costs $51 to fill up.

MARTIN: Ouch. And we thought gas prices were bad last month when the conflict in Libya contributed to an average gas price - was nearly 50 cents cheaper per gallon. Back then we talked to business owner Edgardo Castro, whose small trucking operation had taken a hit by the increased cost of gasoline. He joined us on the phone from the side of the road, where he's pulled over to talk to us Mr. Castro, thanks for joining us again.

Mr. EDGARDO CASTRO (Owner, Mago Trucking): Oh, you're very welcome, Ms. Martin.

MARTIN: Also with us, Roben Farzad. He's a writer for Bloomberg Businessweek. He's on the line with us from our studios in New York. Roben, thank you for joining us again. OK, hopefully Roben's there or he'll be there soon.

Now, we just heard from listeners about the price of gas in their hometowns and you just heard our last caller saying that she's just filling up her little Toyota Corolla and it cost $51. So, Edgardo, give us the bad news. You have large trucks to worry about. How much does it pay you to fill up? OK. Roben, hold on, please.

And, Edgardo, how much does it cost you to fill up?

Mr. CASTRO: Well, thank God I don't need to fill it up every time, but I carry 300 gallons. So it should take about a little over $1,000 to fill it up.

MARTIN: That takes my breath away. And so last month, the time we talked, you said that you were not drawing a salary, you were doing your own maintenance. You had parked one truck, basically taking it off the road to cut costs, so what now?

Mr. CASTRO: OK. That truck that was parked, I traded for a car that is more or less about the same price. I couldn't find a buyer. The other truck that I still have on the road, I'm going to park it any minute. I'm negotiating with two guys now trying to sell it with the job. And I'm going to stick with my own truck and my trailer and that's it. I can't afford to have a second truck on the road anymore.

MARTIN: Oh, OK. Roben, are you here with us?

Mr. ROBEN FARZAD (Writer, Bloomberg Businessweek): I guess some of the radio equipment runs on high octane gasoline, and you're not filling up enough.

(Soundbite of laughter)

MARTIN: I guess too. Not filling up enough.

Mr. FARZAD: Way to segue, right?

MARTIN: So you just heard our tales of woe from around the country. And can you shed some light on why this is happening? Last time we checked in with you, the conflict in Libya had just begun and you talked about both the sort of the psychology of the conflict being a factor. And - but prices still keep going up. What's going on now?

Mr. FARZAD: There are more actual, you know, kind of perceived and real inputs baked into the cost. The fully loaded cost of oil and gasoline now that I think there have ever been.

For starters, there's the base kind of supply and demand. How much is demanded not just by the United States' customers, but these increasingly, you know, the clout holding emerging market giants like China and Brazil.

Two, there's a geopolitical premium. I mean we've had unbelievable amounts of risk brought into the Middle East just in the past few months alone. It's unthinkable that Egypt would have fallen, but now Libya, which is one of Africa's top crude producers is largely taken offline.

You have worries about a proxy war between Saudi Arabia and Iran. And then on top of that, let's bring in a third layer. There's this, you know, when the dollar is cheap and there's a global rush to commodities, people want to bank hard assets, not just oil, but gold and silver, which are at all-time highs. Food, you know, crops.

And so, this idea that when currencies are debased, we want to go into hard, limited finite assets. So all of that combined has brought oil up to what I see this morning at $113 a barrel.

MARTIN: So, what do you mean by banking hard assets? You know, obviously people can't keep this in their basement, you know, in a - or maybe they do. But what does that mean? Is that big suppliers what? They fill up their reserves and just sit on it? What does that mean?

Mr. FARZAD: No, it's far more complex than that. When currencies are cheap and you don't have that much faith in kind of central banks printing money, there's inflation that's rampant. In China, in the United States you have the federal reserve with several rounds of easing and then quantitative easing. You want to go into something that can't just be printed, can't just be conjured out of thin air.

And a hard asset, you know, perverses it. We saw this in the 1970s when there was inflation and when there was worry that the U.S. dollar would be worth less and less and less, people went into, I mean, it was very en vogue to go into timber trusts and hard real estate and oil. That's the other time that we saw oil spike up with the geopolitical shock and what happened in the Middle East in the late '70s.

MARTIN: If you're just joining us, you're listening to TELL ME MORE from NPR News. We're speaking with Roben Farzad of Bloomberg Businessweek and Edgardo Castro. He's owner of Mago Trucking in Virginia. We're talking about rising gas prices and what effect this - why this is happening and what effect this could have on the recovery.

So, Roben, that's a question for you. You see, Mr. Castro is trying to, you know, keep his business going. And, Mr. Castro, I'm going to ask you - have you seen any sign of things are turning around? Because, you know, as you were telling us earlier that when, you know, gas prices go up, you really can't raise your prices because a lot of people say, well, forget it then.

Mr. CASTRO: Exactly. There is no leverage from my end. None. I can't complain and I can quit and that's the sign. There are 100 guys waiting desperately to grab my job. So what I would like to know from Mr. Roben in New York, why, why the whole world is taken hostage? It looks to me - I'm very ignorant in this matter, but why these companies? I mean, it's the same price for them to produce oil, isn't it? Why they have raised the prices so much? I mean it doesn't make too much sense.

Mr. FARZAD: It's not, you know, Edgardo, it's not just up to the companies. There is a huge supply and demand component to it. And if it was all just speculation, I really think there's no way that the price of oil would have shot up, I think from 1998 it was at $11 or $12 a barrel and it went to as high as $140 a barrel two years ago - three years ago, actually, in the summer of 2008.

And it's very tempting to blame speculators and big companies that just want to live, you know, high on the hog, fat on the hog. But the truth is, it's in no one's interests, not these big producing companies, not these big producing countries to have oil prices this volatile because when they do shoot up to $100 and $130, $140 a barrel, destroys the economy, sends prices back down to $40, $50 a barrel, as we saw in 2009, and then they don't know how to plan for drilling for the next two, three, four, five years.

No one can come in and tell them with any certainty that it makes sense for them to go way deep into the Gulf of Mexico and get that extra expensive barrel of oil because you don't know if it's going to be able to be shipped for $140 or for a $100 or for $50. So, there is an element of that that I think you have to cut them some slack.

MARTIN: Roben, let me ask you this question. It says that - the USA Today reports today that due to gas prices, economists are less optimistic about the recovery than they were three months ago. They're now projecting 2.9 percent GDP growth for the new year down from their 3.2 estimate three months ago. Is that because of the price or is it because of the volatility? Or what's the reason for that?

Mr. FARZAD: You know, there is a pretty linear relationship. A lot of economists I spoke with say that for every $10 hike in the price of crude you have a roughly 25-cent-a-gallon increase in the average price of regular gasoline across the country. And that shaves $25 billion off of economic growth every year. So you can imagine for oil shooting up $30 or $40 you're talking about significant numbers. That's the writ large relationship.

You can speak with Mr. Castro and small business owners, especially in this environment where we have near nine percent unemployment, stagnant wages, people coming off just a terrible emotional overhang of the Great Recession and in no mood to pay more for things that now they're expecting a deflationary spiral to cut them some slack on.

So you as a small business owner can't pass these prices on so you decide, well, I can either absorb them or I can downscale my business. When you downscale your business, that curtails economic activity.

MARTIN: So, Mr. Castro, can I just ask you then, what's the plan through the summer? Oil prices or gas prices typically rise again through the summer. What's the plan for the next couple of months?

Mr. CASTRO: Well, I just be by myself with my own truck, my own trailer. I cannot work any cheaper than that. And keep my ears open and see something come up. But other than that - by the way, they just put fuel at $4.09 a gallon.

MARTIN: They just put fuel at $4.09 a gallon.

Mr. CASTRO: Yes, ma'am. So I guess that's it. I'm going to be just trying to make it at the lowest cost possible.

MARTIN: And, finally, Roben, what about those of us who are not trucking, but who may want to travel this summer? Is there a forecast for gas prices? I mean, we've been hearing - some people are saying, and I don't know whether this is just wild speculation, that you could even see $5 a gallon, perhaps even six. Is that possible?

Mr. FARZAD: Well, there's still a significant amount of headline risk coming out of the Middle East. I mean, the Libya situation is not resolved. We may have just dodged a big geopolitical crisis out of Nigeria, which is one of the world's top producers, but, again, we're seeing rioting in the streets of Syria and the government cracking down on protesters there.

And there's a fear that is this conflagration spills over into some of the bigger oil producers, Saudi Arabia, Kuwait, that you're really going to see supply curtailed with companies pulling their people out of these countries, in addition to demand being as boring as it is right now. So it's, you know, this period, kind of everybody's on tenterhooks right now.

MARTIN: And, Mr. Castro, I know you're on tenterhooks. We only have about a half a minute left, though. Can I ask you, you seem awfully cheerful for a guy who pays $1,000 to fill up his truck and just paid $4? How do you keep yourself so upbeat?

Mr. CASTRO: Well, I have a great family. And my late father was always full of optimism. And he told me that the darker the night gets, the closer to the sunrise you are. So, that's it.

MARTIN: All right. That's a good thought on which to end. Edgardo Castro is the owner of Mago Trucking. That's a small business based out of Virginia and he was kind enough to pull over to join us on the phone from wherever he's going to talk to us via his cell phone.

Mr. FARZAD: You sure he's not out of gas?

MARTIN: I don't think he's out of gas. He just filled up and he's optimistic.

(Soundbite of laughter)

Mr. CASTRO: Not yet. Not yet.

MARTIN: That's right. Roben Farzad is the writer for Bloomberg Businessweek and he was kind enough to join us from our studios in New York. And he's nice enough to join us from time to time to break down issues in the global economy. Thank you both so much for joining us.

Mr. CASTRO: My pleasure.

Mr. FARZAD: You're very welcome.

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