The oil price increase and implied production restraints announced yesterday by the Organization of Petroleum Exporting Countries virtually assure that the U.S. economy will slip into a recession accompanied by higher inflation and increased unemployment, according to economic forecasters.
The increase will cost Americans 250,000 jobs by the end of this year and an additional 550,000 jobs by the end of 1980, according to the forecasts.
At the same time, the rate of inflation will go up by one percentage point both this year and next while U.S. economic growth would decline by one percentage point each year.
These are preliminary assessments of Carter administration officials based on cumulative effects of yesterday's sharp boost that was preceded by the 14 percent hike in oil prices adopted last December.
The government officials based their estimates on an assumed new average OPEC price of $20 a barrel. If many of the producers decide to adopt the full $2 surcharge allowable, however, the average price would be somewhat higher and the economic impact greater.
On the basis of passing through dollar-for-dollar last December's OPEC increase and all those since, the price of a gallon of gasoline or home heating oil should go up about 17 cents. The latest round is responsible for about five cents of that.
But because of the shortages caused by the halt in Iranian oil production and that country's failure to resume its full output, prices have already gone up more than 17 cents in most places.
That has happened because profit margins have risen all along the oil refining-marketing chain, particularly at retail gasoline stations.
Therefore, the precise amount by which prices will rise again as a result of the latest hike by OPEC is hard to predict. If the worldwide oil shortage should ease somewhat, those current extremely high margins should shrink to more normal levels - offsetting part or all the effect of the latest OPEC increase.
Last winter, with the December price increase already in place, the administration forecast a slowing of economic growth in the second half of this year that skirted a recession.
However, in a large part as a result of higher energy prices, the Commerce Department's first internal estimate for business activity for the quarter just ending showed a 2.4 percent drop.
Yesterday, after a briefing of congressional leaders Charles Schultze chairman of the Council of Economic Advisers, said, "It would be clearly premature to draw such a conclusion."
Subtracting the administration's own estimates of the depressing effects of OPEC's action from its forecast of last winter essentially turns that set of predictions into one of recession. Schultz was not denying that, but only saying it is too soon to be sure that is how it will turn out.
Brookings Institution economist Arthur Okun was among those forecasters who found the price hike and the provision for continued surcharges "discouraging news." The surcharges, Okun said, imply an expectation of a continued tight oil market resulting restraints on production.
"The recession I think we are already in looks more serious now," he said.
The combination of the OPEC increases this year, and the higher prices that U.S. producers can charge for oil whose price is not controlled, will suck about $30 billion to $35 billion worth of consumer purchasing power out of the economy.
Those increases are the equivalent of a direct tax boost and have the same adverse effect on the economy.
Moreover, many other industrial nations are moving to clamp down on thier economies because of the inflationary effect of higher oil prices. Slower growth abroad will cut markets for U.S. exports, and cause even more of a slowdown here.
In addition, if workers demand and get larger pay raises to try to keep up with the higher inflation, that could lead to still higher general inflation and curtail economic growth still more.
The administration's mid-year economic forecast and budget revisions will be released July 12, James McIntyre, director of the Office of Management and Budget, said after yesterday's meeting on Capitol Hill. He added, "we are not anticipating any major changes in budgetary policy."
As the full effect of the OPEC price hikes and production restraints hits the United States and other nations, and as evidence of recession mounts, that policy is probably going to change.
According to Sen. William Proxmire D-Wis.), McIntyre told the meeting that even if there is a recession it would be "too inflationary" to spend massive amounts of money on expanding public service jobs programs.
The change that is most likely, in other words - and it can be directly laid at OPEC's door - is an income tax cut for both individuals and business in 1980. CAPTION: Picture, OPEC president Otaiba, of the United Arab Emirates, explains cartel decisions. UPI