All this Oil chatter has a small silver lining: Energy remains a smaller portion of GDP, cost less per BTU, and is a smaller percentage of budgets than it was in the past.
The last time Oil caused a ruckus in the 1970’s, we were looking at a very different economic backdrop, with Oil as a much larger part of the economy:
click for larger graph
All that said, oil remains problematic as a drag on the economy. See the Wal-Mart Oil comparo as an example.
Here’s an excerpt:
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Not long ago, the notion that crude oil prices would ever reach $50 a barrel, much less surpass that, was a distant prospect. Some economists darkly predicted that sky-high oil prices would send the American economy into a recession, drive companies out of business and bring back both inflation and angry fuel lines.
Investors seem to have turned to this idea lately, reflecting a general uncertainty over the course of the economy. On Wednesday, they pushed stocks to their lowest point since October, in part because of worries that higher energy costs would crimp corporate earnings and stoke inflation.
But even as prices cling above $50 a barrel, those fears have proved to be exaggerated. So far, the economy has weathered the price increase with remarkable ease and there is reason to believe that high fuel costs do not have quite the impact they once did.
The reason is that oil has been knocked off center stage in the American economy. The decline in manufacturing and the rise in service-oriented jobs means oil is not as indispensable for economic growth. Manufacturers and electricity-generating plants, once among the biggest users of oil, now depend primarily on natural gas, coal and, to a lesser extent, nuclear power.
While the United States does consume more oil today, most of it is for transportation. And even as gasoline prices hover at record levels, the cost, adjusted for inflation, is still well below the peak reached in the early 1980’s. Even more important, fuel takes up a smaller share of Americans’ income.
I don’t neccessarily agree with this author’s
conclusion — its a bit too sanguine to say $50 oil is no big whoop:
This is not to say that the higher gasoline prices are not starting to pinch
– or that they will not send the economy for a loop if they go up sharply from
these levels. With retail prices expected to reach a nationwide average of
$2.35 a gallon this summer as travelers crowd the highways for vacations, the
high costs could become more of a burden.
Higher fuel prices have started to hurt slightly by curbing spending
elsewhere. Retail sales rose only 0.3 percent, to $339 billion, in March,
slower than February’s 0.5 percent gain and less than analysts expected. In
another tell-tale sign, consumer confidence declined for a second month in
Its also worth recognizing that the Hubbert’s Peak crowd has yet to be proven right. As is typically the case, the truth lay somewhere in between the extremes.
Oil’s Lesser Role in U.S. Economy Limits Damage From High Prices
NYT, April 23, 2005