The Oil Price Slide Stops & Stocks Soar
Wednesday, September 13, 2006
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SUSIE GHARIB: Stocks on Wall Street continued their climb higher today, even as oil prices halted their slide. In New York trading, October crude futures rose for the first time this month, up $0.21 to $63.97 a barrel. Still, oil prices have tumbled about 9 percent inSeptember and as Erika Miller reports, the question many investors are now asking is whether falling oil prices change the outlook for the economy.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For motorists, falling prices at the pump are a windfall. The cost of a gallon of gasoline has dropped roughly 12 percent in the past month, thanks to lower crude prices. But for the U.S. economy, there may not be much benefit. That`s partly because at $65 a barrel, crude is still relatively expensive.
DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR`S: We`ve got to get down below, well below where we were a year ago for it to have much significant impact. I just don`t think that`s going to happen. If we get down under $50, then I`ll start getting excited and saying the economy is going to strengthen again.
MILLER: If there is a benefit, experts say it will likely be limited. Falling prices could encourage spending by low- and middle-income consumers, benefiting stores like Wal-Mart, which were hurt by rising energy prices. But for the economy as a whole, falling oil prices are not always a good thing.
KATHLEEN CAMILLI, PRESIDENT, CAMILLI ECONOMICS: If oil prices are falling because global demand is weakening and because the overall global economy is weakening, it makes me more nervous about the outlook for recession in 2007.
MILLER: For now, Camilli does not expect that to happen. She thinks the latest pullback in prices is only temporary. What`s more, she doesn`t think lower energy costs will lead to lower inflation.
CAMILLI: There are offsetting factors in that wages are now starting to rise and labor shortages are getting more severe and so that is a factor in the inflation scenario.
MILLER: Most experts agree that falling oil prices probably won`t change the outlook for interest rates. They say Federal Reserve policymakers want to see proof of widespread price declines before concluding that inflation is waning.
WYSS: The Federal Reserve has been very careful to concentrate on core inflation. They take out food and energy, precisely because they don`t want to be swung too much by just what happens to oil prices.
MILLER: There`s a big debate about where oil prices head from here. Some traders think prices will fall below $60 a barrel, but other see a return to record highs, which would surely bring back economic worries.Erika Miller, NIGHTLY BUSINESS REPORT, New York.
