The National Association for Business Economics said a panel of its members recently estimated the U.S. economy will expand 4.3 percent this year, down from the 4.7 percent pace they had projected in May, when oil first crossed the $40 a barrel threshold.
Morgan Stanley has shaved its forecast of U.S. economic growth to 3.5 percent next year, from 3.8 percent previously.
European Central Bank President Jean-Claude Trichet said yesterday that rising oil prices are boosting the risks to growth in the 12 countries that share the euro currency, Bloomberg News reported.
Oil prices have clearly had some effect on the U.S. economy, Greenspan said. Economic growth slowed sharply in the early summer, after oil rose above $40 a barrel and gasoline peaked above $2 a gallon in May. Since then, consumer spending has swung up and down, job creation has been lackluster, and business investment has not risen as much as is typical at this point in an expansion.
Greenspan estimated the higher cost of imported oil this year to be worth about three-fourths of a percent of the nation's gross domestic product -- equivalent to more than $80 billion out of today's $11 trillion a year economy. But, he said, "the effects were far larger in the crises of the 1970s."
The impact was greater in the past largely because oil was much more expensive, peaking in 1981 at around $80 per barrel in today's dollars.
The U.S. economy today also is far more energy efficient, using half as much oil to produce a dollar of GDP as it did in the 1970s, for a variety of reasons. They include the development of more fuel-efficient cars and other technologies, the use of alternative energy sources, the shrinking of the more energy-intensive manufacturing sector and the growth of services.
Many companies have not yet felt the effects of higher oil prices because they locked in lower prices through futures contracts, analysts said. With U.S. corporate profit growth so strong over the past year, many companies also have been able to absorb higher energy costs without raising prices.
But economists worry that these same companies will feel the effects in months to come if oil prices stay high. Eventually, their lower-cost fuel contracts will expire, profits will shrink, and stock prices will sag. Some of the current corporate reluctance to add workers and expand production capacity may reflect these sorts of worries among executives.
High oil prices also had less effect on consumers than in the past because gasoline prices fell during the summer, reflecting the ample inventories at the time.
Now gasoline prices are rising again -- with the national average for a gallon of regular hitting $2 yesterday at the same time heating oil prices are rising. That raises the risk that high energy prices will dampen consumer spending.
Despite the rise in oil prices, inflation has remained mild in recent months. Prices paid to producers of finished goods rose just 0.1 percent last month, the Labor Department reported. If inflation rises, that would also cut into consumers' spending power.
Greenspan did not indicate yesterday how oil prices are likely to influence the Fed's interest rate decisions.
The Fed chairman attributed much of the recent increase in oil prices to temporary factors, such as the disruptions to supplies from the Gulf of Mexico because of the hurricanes. But he agreed that worries about war, terrorism and other geopolitical events that could hurt oil supplies "are not frivolous given the stark realities evident in many areas of the world. . . . We, and the rest of the world, doubtless will have to live with the uncertainties of the oil markets for some time to come."
