Oil Prices and the U.S. Economy

According to the American Petroleum Institute, every one-cent increase in the price of gasoline in the United States costs consumers an additional $1.4 billion. Higher energy prices have reduced G.D.P, i.e., gross domestic product, growth by an estimated one-half-to-one percent this year alone.

Lyle Gramley, a former governor of the Federal Reserve Board, says that’s money that will not be spent on other goods such as televisions, toasters or refrigerators. “Until very recently, we’ve seen virtually no reaction of the economy and particularly no reaction to consumer spending at all to the rise in energy prices,” say Mr. Gramley. “The March data on consumer spending, however, suggests that it’s now beginning. And I think that if oil prices stay up in the $50 a barrel range, it’s going to take a significant toll on consumer spending. Are we going to have a recession? Most certainly not. This is an economy that has strong fundamentals. It will keep growing, but it will grow more slowly than it has been recently.”
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