Transcripts

The Impact of Rising Oil Prices On All Aspects of the Economy

SUSIE GHARIB: Oil prices spiked to $135 a barrel today before pulling back. In New York trading, July crude futures closed at $130.81 a barrel, down $2.36. Those sky-high crude prices are translating into record high gas prices which now average $3.83 a gallon nationwide and more than $4 at many stations across the country. As Suzanne Pratt reports, there are growing concerns about the impact of rising energy costs on the U.S. economy.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: So far, the economic fallout from higher oil costs has been fairly mild. Still, with the recent record run up in crude prices, economists are growing more concerned about the effect on U.S. consumers and businesses. It used to be that $100-a-barrel oil invoked a doom and gloom scenario. Now, some economists say that threshold is more like $150 a barrel. Economist Bob Brusca thinks if oil prices remain at current levels, the U.S. will tip into recession.

ROBERT BRUSCA, CHIEF ECONOMIST FACT AND OPINION ECONOMICS: If we were lumberjacks, we'd be hollering timber. This is it for the economy. This is too high an oil price for the economy to deal with. The rebates that are coming through to people aren't going to be sufficient to deal with this.

PRATT: But not all economists agree with that thinking. Lehman Brothers' Ethan Harris says monetary and fiscal policy responses should offset rising energy costs.

ETHAN HARRIS, ECONOMIST, LEHMAN BROTHERS: I don't think we're going to get an outright recession because we've had these very aggressive moves from the Fed in terms of supplying credit and cutting interest rates and because we have these big tax rebates that are helping in a sense to pay people's gas money over the next six months.

PRATT: Part of the reason the economy so far has been able to weather sky-high crude prices is that gasoline prices have not climbed as quickly. While crude prices have doubled since last year, the average cost of unleaded gas is up only 19 percent. But, if crude oil hits $150 a barrel, gasoline prices are expected to top $4.50 in many areas of the country, particularly as demand heats up in the summer driving season. Experts say at that level consumers will curb spending even further. Others say another sharp spike in crude prices and the economy, which is also coping with other headwinds, will not recover in the second half.

HARRIS: I think with each successive round higher in oil, we get more downward pressure in the economy. I mean, at this stage we're looking at an economy that's just barely in positive growth territory. So, it doesn't take that much more to finish the job and drive us into recession.

PRATT: Higher oil prices are a problem for economies worldwide. Some experts say if prices head sharply higher, there will be a global recession, not just one here in the U.S. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.