Higher Oil Costs Show Imprint: U.S. Economy Preview

Skyrocketing fuel costs will probably imprint almost every piece of U.S. economic data this week, from retail sales to the trade deficit and import prices, according to economists’ forecasts.

“The run up in energy prices is clearly going to affect much of the data for a little while,” said Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York-based forecasting firm.
Skyrocketing fuel costs will probably imprint almost every piece of U.S. economic data this week, from retail sales to the trade deficit and import prices, according to economists’ forecasts.

“The run up in energy prices is clearly going to affect much of the data for a little while,” said Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York-based forecasting firm.

A jump in receipts at service stations as gasoline prices rose to a record probably lead to a 0.8 percent rise in retail sales last month, the biggest gain in three months, according to the median estimate of 53 economists surveyed by Bloomberg News. A price-induced surge in oil imports probably caused the trade deficit to widen to $59 billion in February, the second biggest ever, the survey showed.

Consumers also bought more cars in March, capping a solid quarter for consumer spending, according to economists such as Shapiro. The specter of even higher fuel costs in coming months raises concern incomes will fail to keep pace with prices, threatening to slow consumer spending and economic growth.

Energy costs “aren’t going to have a huge impact on the first quarter because the momentum in consumer spending in pretty good,” said Shapiro. “It’s mostly going forward that energy will weigh a little on consumer spending.”

Slower Growth

Energy prices and higher interest rates will cause economic growth to slow to an average 3.5 percent annual pace in the last six months of 2005 after growing an estimated 3.9 percent from January through June, according to the median forecast of economists surveyed by Bloomberg News from April 1 to April 7.

The average price for a gallon of gasoline at the pump rose to a record $2.26 in the week ended April 4, according to figures from the Energy Department. Gasoline has tracked a rally in crude oil, which accounts for about half the retail fuel price. Crude oil prices in New York surged to $58.28 on April 4, the highest since the contract was introduced in 1983.

Consumer spending probably rose at a 3.5 percent annual rate last quarter and will average 3.2 percent in the last nine months of the year, economists surveyed earlier this month said. Spending increased at an average 3.4 percent annual pace per quarter in the last three decades, according to Commerce Department figures.

“For the time being, things are very good,” James Tisch, chief executive of New York-based Loews Corp., an owner of insurance, tobacco and energy businesses, said in an interview April 6. “The issue will be: what is the outlook? My guess is the economy is going to continue to grow at this 3 to 4 percent rate, but inflation is going to pick up significantly.”

Fed’s Concern

Investors may get a glimpse of how concerned Federal Reserve policy makers are about inflation when minutes from the central bank’s March 22 meeting are released in two days. In raising the target interest rate a quarter percentage point to 2.75 percent last month, the Fed said pricing pressures had increased.

Cars and light trucks sold at a 16.8 million annual rate last month compared with a 16.3 million pace in February, industry reports earlier this month showed. The April 13 retail sales report from the Commerce Department is projected to show sales excluding autos rose 0.6 percent in March after rising 0.4 percent a month earlier, according to the survey median.

The jump in gas prices and colder-than-usual weather in March caused sales at chain stores to slow, an industry report last week showed. Sales at stores open at least a year rose 4.1 percent from March 2004, less than February’s 4.7 percent year- over-year increase, the International Council of Shopping Centers said.

Consumer Spending

With consumers still spending last quarter, economists expect non-petroleum imports also rose in February, further widening the trade gap. The projected deficit in February would be just shy of the record $59.4 billion gap reached in November.

A jump in clothing imports from China following the expiration of apparel quotas and rising demand for more fuel- efficient hybrid cars from Japan, probably contributed to import demand, economists said. The trade report is due from the Commerce Department in two days.

An April 15 report from the Labor Department is projected to show the price of imported goods surged 1.4 percent last month, the most since October, led by petroleum costs, according to the survey median.

Oil prices are also influencing what the economy produces. Industrial production rose 0.3 percent last month, matching the previous month’s increase, the Federal Reserve is projected to report April 15, according to the median estimate. A jump in oil drilling and refining as mining companies tried to take advantage of price increases, probably paced the gain, according to economists at Morgan Stanley in New York.

Factory Output

Less than an hour before the production report, an index of regional factory activity this month from the New York Fed may show manufacturing in the area is expanding at a slower pace.

Also on the 15th, consumer sentiment as measured by the University of Michigan in a preliminary survey for this month, dropped to 91.6, the lowest since March 2004, from 92.6, according to the median estimate. The high cost of gasoline is again to blame, economists said.

In other reports this week, first-time claims for jobless benefits probably fell to 330,000 in the week ended yesterday from 334,000 the previous week, the Labor Department is expected to report April 14.

The nation’s factories, wholesalers and retailers probably boosted inventories by 0.5 percent in February after a 0.9 percent increase a month earlier, a report from Commerce also on April 14 is projected to show.

Bloomberg.com