and, from the 'don't worry, be happy' department, hot off the presses, OIL DOESN'T MATTER, except MAYBE for OTHER countries...
So Far, U.S. Economy Is Weathering Oil-Price Surge
--------------------------------------------------------------------------------
By John M. Berry Washington Post Service
--------------------------------------------------------------------------------
WASHINGTON - The big run-up in world oil prices is taking a toll on the U.S. economy in terms of slower growth and somewhat higher inflation, but consumer confidence hasn't suffered and neither economists nor government policymakers see any sign that the bigger oil bill will tip the nation into a recession.
The president of the Organization of Petroleum Exporting Countries, Ali Rodriguez of Venezuela, said Friday that the price might temporarily reach $40 this winter. A flare-up between Iraq and Kuwait over the Kuwait's drilling close to their common border added to concerns about the adequacy of future supplies.
Each of the three prior big oil- price surges over the last 30 years triggered a jump in inflation and caused the U.S. economy to slump.
In New York last week, President Bill Clinton raised the possibility that rising oil prices might trigger a recession somewhere in the world, but Friday he said that was not very likely to happen in the United States.
In late trading Monday, prices of crude oil for October delivery were up 2.6 percent, or 96 cents a barrel, to $36.88, on the New York Mercantile Exchange.
The Federal Reserve Board's vice chairman, Roger Ferguson, said that, so far, the impact of higher oil prices has not spilled over into the prices of nonenergy goods and services, though that remains a risk. He added that it had not had a significant effect on consumer spending either.
''There's obviously a potential for a price impact, which thus far has been contained,'' Mr. Ferguson said. ''There is also the potential for it to have the equivalent of a tax impact,'' by reducing consumer spending. ''But again,'' he added, ''I'm not sure we're seeing any of that showing up just yet.''
And Alfred Broaddus, president of the Richmond Federal Reserve Bank, said the recent energy-price rise presented a ''manageable risk'' to the U.S. economy.
Economists regard higher prices for imported oil as the equivalent of an income-tax increase because it reduces the purchasing power of consumers. But each increase of $10 per barrel, if it is sustained, raises the total spent for imported crude and refined products by only $36 billion a year - a very small amount relative to the size of the U.S. economy.
Over the past 12 months, the prices U.S. consumers pay for energy in all forms has risen 13 percent. Gasoline prices at the pump are up 19 percent and home heating-oil costs have surged by more than 35 percent, according to Friday's Labor Department report on consumer prices for August.
Over the past year, consumer prices increased 3.4 percent, with higher energy prices directly contributing 0.8 percentage points to that rise. But higher oil prices have indirectly affected some prices, such as those for air fares.
Ethan Harris, an economist at Lehman Brothers in New York, drew a sharp distinction between earlier oil-price increases and the current one.
''Successive oil shocks in 1973 and 1978-79 helped cause a dismal combination of low growth and high inflation,'' Mr. Harris said. ''Indeed, in 1990, history seemed to repeat itself, as oil prices spiked and the economy slid into recession.''
But, he added, the impact on growth and inflation ''depends importantly on the underlying state of the economy prior to the shock and the psychological or confidence impact of the shock.''
He said that the U.S. economy was in much better condition to withstand a shock than in earlier periods.
An analysis by Macroeconomic Advisers, a St. Louis economic forecasting firm, concluded that a price rise of $20 a barrel eventually slices about 0.8 percent off the U.S. economic growth rate.
''That's a significant but manageable shock,'' Mr. Harris said. ''More serious damage comes if either the Fed feels compelled to aggressively fight the oil-price increase or there is panic behavior - disruptions of supply, hoarding or a collapse in confidence.''
For example, he said, in 1990, the rise in oil prices caused an immediate collapse in consumer confidence, ''which hurt the economy more than the direct impact of the price hike.''
In fact, the Iraqi invasion of Kuwait in August 1990, which sent oil prices soaring, caused such a collapse in confidence that consumers cut back their spending enough to trigger a recession that lasted until the following April.
That contrasts sharply with what has happened since oil prices began rising in the first half of 1999.
Most measures of consumer confidence are higher now than they were before oil prices started climbing.
As for the impact on the pace of economic growth, the recent slowing actually has been welcomed by policymakers at the White House and the Federal Reserve, who were worried that the extraordinarily strong growth of the past year posed an inflationary threat unrelated to oil.
Federal Reserve Board policymakers raised short-term interest rates six times beginning in June 1999 in an effort to slow growth to a more sustainable pace. |
