economists say current levels of energy prices won't push the economy into a recession or even slow growth perceptibily.greenspun.com : LUSENET : TB2K spinoff uncensored : One Thread
Oil spike not seen as economy killer
By Rex Nutting, CBS.MarketWatch.com Last Update: 5:27 PM ET Sep 20, 2000 NewsWatch Latest headlines
WASHINGTON (CBS.MW) -- Higher energy prices are spooking investors, who fear that oil will be a drag on the economy and on earnings.
They may be right about lower earnings, but economists say current levels of energy prices won't push the economy into a recession, or even slow growth perceptibly.
"The economy is resilient," said Diane Swonk, chief economist at Bank One.
Today on CBS MarketWatch U.S. may tap oil reserves again Oil,economic risks to headline G-7 First virus reportedly hits Palm handheld Clinton defends move to tap reserves A look at economic data for the coming week More top stories... CBS MarketWatch Columns Updated: 9/25/2000 1:36:50 AM ET "I'm having a hard time getting terribly excited" about oil, said Stephen Slifer, chief U.S. economist at Lehman Bros.
"I didn't see a big change in the economy when prices fell, so why should there be a big change when prices rise?" Slifer said.
Slifer and Swonk suggest that if energy prices remain at current levels, economic growth could be a few tenths of a percent lower. In other words, 5 percent instead of 5.3 percent. Or 4 percent instead of 4.25 percent.
So, it's not the end of the world.
Economic policymakers agree with the private-sector analysis. President Clinton said last week that he didn't see any chance of a recession due to energy prices. See full story. Dallas Fed President Robert McTeer said the same thing Wednesday.
Things were a lot different 20, 25 or 30 years ago. Then, rising crude oil prices were a big factor in the slumps that hit the economy hard. But oil doesn't command the same role in the economy now that it did then. Energy use per dollar of GDP is about 60 percent of what it was in 1970. See the graph.
Prices of crude oil have hit 10-year highs in the past few days. But the inflation-adjusted price is only about half what it was in early 1981 when crude topped $73 a barrel in current dollars.
The economy is more efficient at using energy. High oil prices in the late 1970s and early 1980s drove corporations and consumers to find ways to conserve energy. The economy itself is moving away from energy-intensive goods and services.
"What does Microsoft or Cisco care about the price of oil?" Slifer said.
Of course, the high prices are a big deal for some people. The Energy Department says heating fuels will be 20 to 40 percent more expensive this winter because of supply constraints for heating oil and natural gas. Heating oil is made from crude petroleum, while natural gas is a substitute for oil in many industries, including the electric utilities. If it's cold where you live, it's hard to escape the higher prices.
"Unless the winter in the Northeast is unusually mild and/or world crude oil prices collapse, substantial price strength gains for heating oil and diesel fuel are highly likely," the Energy Department said in its latest forecast. Read the short-term forecast.
Heating oil is expected to average $1.31 a gallon this winter, the department said.
The government has done a little to ease the crunch. Washington has established a heating oil reserve in the Northeast with 2 million barrels. But that's only supposed to be used to relieve short-term supply disruptions; it's not enough oil to change the market price if it were all released.
In response, politicians are heating up their rhetoric. The Gore campaign promises that Vice President Al Gore will unveil "very specific, very substantive" policies to address the "crisis" on Thursday.
Meanwhile, Rep. Dan Burton, R-Ind., will continue hearings into energy policies at the House Governmental Reform Committee. He'll have Energy Secretary Bill Richardson, Environmental Protection Agency chief Carol Browner and Federal Energy Regulatory Commission Chairman James J. Hoecker on the hot seat on Thursday.
President Clinton is still considering releasing some of the 500 million barrels of petroleum the government has stashed in the Gulf States, the Wall Street Journal said Wednesday. The strategic petroleum reserve is intended to be used only in case of a national energy crisis, a subjective designation that could be invoked if it gets really cold in some key states in the weeks before Nov. 7.
-------------------------------------------------------------------------------- Rex Nutting is Washington bureau chief of CBS.MarketWatch.com.
-- cpr (firstname.lastname@example.org), September 25, 2000
Purple Pubic Man we need your help!
-- butt nugget (email@example.com), September 25, 2000.
Guess it depends on who you're talking to. If you talk to the chief economists at banks and brokerage firms, of course they're going to say it doesn't matter. They make their money by moving money, and the more money they move, the more they make. Someone still has to move the goods. Try talking to truck drivers.
-- (firstname.lastname@example.org), September 25, 2000.
When you hear a couple of people whose income is such that 40% increases in fuel and gas are maybe at most an annoyance you have to wonder if they have any contact with the real world.
The financial community has said many times and also the Fed that this is a consumer driven economy. When we put an extra 20 in the gas tank that money does not show up in your account at Ms. Swonks' BancOne.
When an extra 150 a month goes to the utility company it does not go over to Lehman Bros. for a mutual fund purchase. It seems that this will be multiplied by millions of consumers. How can there be no effect?
Yes, adjusted for inflation oil is half of what it was 30 years ago. That was an embargo by opec. Very different. That came to an end after a time. Prices came down and actualy kept going down in relation to income.
There are also millions of families living much farther away from their workplaces because of the suburban explosion in housing. Trucks now supply goods to 70% of our cities now. 30 years ago railroads supplied goods to many of these towns.
When those "energy dollars" do not go toward clothing, food, etc I think it will have more than a minor effect on the economy. If people try to maintain their standard of living by additional credit card debt we may have an even worse situation develope.
I sure hope someone will show me how I am totally and absolutely wrong.
-- Chief (email@example.com), September 26, 2000.
""What does Microsoft or Cisco care about the price of oil?" Slifer said."
That has to be one of the dumbest remarks I've ever heard. There may not be a direct relationship to some high-tech companies, but there certainly is a lot of indirect relationships.
Oil is used to provide electrical power, power to manufacturers of computer hardware and software used by these companies. It is used for transportation and shipping. It affects the cost of living for employees and consumers of these companies, thus increasing demand for higher wages.
He can pretend they don't care, but if oil keeps going up, at some point they WILL care. Dumbass.
-- (new economy @ not. indestructible), September 26, 2000.
Where I live, some reporters are already mentioning the possibility of natural gas shortages this winter, and the governing politicians have already announced they will send cheques to every person over 18 to help offset the upcoming increasing costs in electricity and in heating. They later announced they will give an even better deal to businesses.
These "doomers" in the media and gov are ahead of the population in foreseeing a tough time this winter!
-- allisnot (firstname.lastname@example.org), September 26, 2000.
>> "I didn't see a big change in the economy when prices fell, so why should there be a big change when prices rise?" Slifer said. <<
If you look at all the theoretically possible prices oil could have, there is an absolute limit on the downside: zero. There is no limit at all on the upside: infinity.
If you look at all the rationally possible prices for oil, you find a downside limit that is almost as absolute: the break-even point, where the price exactly equals the cost. On the upside, there is a limit, too: what the market will bear. This is not a very exact limit, in that it is complicated by such factors as the availability of alternatives, the growth of the money supply and reduction of demand.
But, if you look at the complicating factors, you'll notice that:
- There isn't any alternative to oil that doesn't require massive new investment and years of lead time. Any affect this would have on oil prices would be gradual.
- The degree to which the money supply affects the price of oil, it also affects the price of everything else. Can you say "inflation"?
- Because of the lack of alternatives, any significant reduction in demand will be caused a reduction in economic activity. Can you say "recession"?
But, then, I'm not an economist, like this yahoo.
-- Brian McLaughlin (email@example.com), September 26, 2000.