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| Economists: Current Oil Prices Don't Threaten Recession |
| 2005-04-19 |
| EFL. Tabular data and other articles linked in the original Just how high would oil prices have to rise in order to tip the U.S. economy into recession? Last summer, one-third of economists who participated in The Wall Street Journal Online's economic forecasting survey said a recession would follow if crude-oil stuck in between $50 and $59 a barrel -- exactly where futures prices have traded since late February. But the economy isn't in peril today and, in the latest forecasting survey, the economists have changed their minds. None feel that $50 oil will trigger a recession. Thirty-one percent said they feel oil would have to be sustained at $80-89 a barrel to snuff out growth, while 48% believe crude would have to top $90. Despite some recent spikes in oil prices, the economists don't expect energy prices to reach levels that would endanger the economy. In crafting their forecasts for growth this year, the economists, on average, say they have assumed that oil would remain at around $47.46 a barrel. Indeed, the economists have kept their forecasts for economic growth relatively stable over recent months, even as oil has hit new nominal highs. This month, their forecasts for gross domestic product growth in the first quarter were nudged higher to an average 4.1%, up from the 4.0% rate they predicted when asked last month. For the balance of 2005, they put growth at an average 3.6% rate. "Economists and others are perhaps still struggling to understand how oil prices affect the economy," says John Lonski of Moody's Investors Service, who was among the economists who said in August that oil in the range of $50 to $59 could provoke a recession, but who now say it would take oil prices of more than $80 to slow economic growth. He says that one reason that high oil prices haven't had as detrimental an impact on the economy as initially predicted is that there is a "plentiful amount of liquidity" in the economy thanks to the Federal Reserve's accommodative monetary policy. Despite rate increases over the past 10 months, borrowing costs for business and consumers remain low relative to historical standards. Several economists say that the absolute level of crude oil isn't as important as the rate at which it climbs. Sudden spikes — that are sustained — can have a big psychological effect on consumers and businesses, causing them to restrain spending. "The economy adjusts more easily to higher prices when they occur gradually," says Richard D. Rippe, chief economist at Prudential Equity Group. |
| Posted by:too true |
| #2 Next year we will dream about oil trading at 50$ |
| Posted by: True German Ally 2005-04-19 4:12:08 PM |
| #1 As the Economist points out on a regular basis, economists have a terrible record in forecasting recessions. Not surprising since they are non-lineal events. The stock market is generally considered the best forward indicator of a recession since it is driven by the same force that causes recessions (generally referred to as sentiment). |
| Posted by: phil_b 2005-04-19 3:47:08 PM |