Although economists agree that surging energy costs in March and early April dampened economic growth, they say it is unclear whether the U.S. economy has cooled only briefly or has begun a more serious slump.
"Increases in energy prices are siphoning purchasing power of both households and businesses to suppliers overseas, leaving less for non-energy goods and services produced here at home. How large that effect will be is hard to predict," said Federal Reserve Board member Donald L. Kohn in a speech delivered yesterday in San Francisco. A copy was made available in Washington.
Josh Stump, of Albany, Ohio, fills his tank at a Citgo gas station earlier this month in Columbus, Ohio.
(Jay Laprete -- Bloomberg News)
Consumer spending dropped steeply last summer, after oil prices rose above $40 a barrel and gasoline first topped $2 a gallon last May. The economy quickly recovered and grew a healthy 4.4 percent for the year.
Kohn suggested the current episode may affect the economy more. He said the rise in energy prices last year "dampened spending to a limited extent. But the persistence of higher prices may have a cumulating effect on spending, early hints of which might now be showing up."
Kohn referred specifically to U.S. retail spending last month, which rose just 0.3 percent in March after growing 0.5 percent in February, the Commerce Department reported Wednesday. Consumers spent less on clothing, electronics, appliances, furniture and food services. Gasoline sales, meanwhile, rose 2.1 percent, and accounted for 9 percent of total retail sales, the highest monthly share since 1983, according to Mat Johnson, chief economist for ThinkEquity Partners LLC, a San Francisco investment bank.
Job growth also turned sluggish last month, as employers added 110,000 new workers -- fewer than half as many as in February.
Still, Kohn said, "the economy is likely to remain on a path of solid growth, strong enough to continue to gradually reduce unemployment" and increase production.
Oil prices eased this week, dropping to $51.13 a barrel yesterday for U.S. benchmark crude on the New York Mercantile Exchange. That's down from more than $57 a barrel earlier this month.
Gasoline prices also slipped a few pennies, to a national average of $2.26 a gallon for regular yesterday, from a record high, before adjusting for inflation, of $2.28 on Monday, according to the AAA Auto Club. That's up from $2.03 a month ago.
The behavior of crude oil prices in coming weeks "will influence the depth and persistence of the probable consumer spending slowdown," said Peter Kretzmer, senior economist for Bank of America Corp.