High Oil Prices Could Slow U.S. Economic Growth
RENEE MONTAGNE, host:
Tomorrow the government comes out with its latest monthly employment report, a key indicator of the health of the economy, which has been improving. But events around the world could drag down the economy.
To talk more about this, we called David Wessel. He's economics editor of The Wall Street Journal, and a guest rather frequently on our program.
Good morning, David.
Mr. DAVID WESSEL (Economic Editor, The Wall Street Journal): Good morning, Renee.
MONTAGNE: Is the U.S. economy being hurt by the trouble in Libya and the Middle East and Japan?
Mr. WESSEL: Well, none of this is good news for the U.S. economy. Higher oil prices aren't good. Anxiety about nuclear problems in Japan isn't good. The headlines about potential bailouts in Europe isn't good. We know that some of the effects are tangible. Some auto and consumer computer companies are having trouble getting parts from Japan. A couple of Japanese automaker plants in the United States can't produce because they can't get parts.
So far though, the U.S. economy is growing. The stock market's up about seven percent this quarter, so far. But economists have been marking down their forecast for growth in this quarter a little bit and that's concerning. One of them yesterday said instead of getting four percent growth in the first quarter, which is what they've been anticipating just six weeks ago, now they're seeing two percent growth in the quarter that ends today.
MONTAGNE: Well, how much of that might be because of how dependent the U.S. economy is on the rest of the world?
Mr. WESSEL: Well, quite a bit. I mean we do make most of what we consume here, and we do consume most of what we make here. But more than in previous recoveries, we were counting on exports for this one. After all, commercial construction is lousy; housing is a problem, still some talk of a double-dip in housing prices. States are squeezed. State revenues are still nine percent below 2008 peaks. And so we were hoping that exports would pull us along. Half the growth we've had since the recession ended was from exports, so if the rest of the world slows that will show up here in our growth and our jobs.
MONTAGNE: And oil prices, I think as everyone knows, are above $100 a barrel. What could that do to economic growth?
Mr. WESSEL: Nothing good. Look, that's a simple one. We've had $20, $25 increase in the price of oil. Each $10 increase in the price of oil shaves about two-tenths off our growth rate. It's like a tax on us. The money goes to the oil producers. It hurts growth. It means that people spend money on something - they have to spend money to fill their tank. They can't spend it on other things. It raises prices here, raises inflation threat, so it's all bad, and that's probably the biggest single risk to economy right now that oil prices goes still higher.
MONTAGNE: Okay, so let's get back to where we started, tomorrow's jobs report. What are we likely to see?
Mr. WESSEL: Well, the expectations are we'll see about 200,000 more private sectors jobs created. That's about what we saw in February. But with 14 million people still unemployed and looking for work, this is pretty slow progress. We won't see any effects on the Japanese earthquake in here. The survey that the Labor Department takes was taken before that earthquake hit. We know that business has been getting better for a lot of business.
The Business Roundtable CEOs, for instance, said nearly all of them expect sales to go higher in the next six months, but only half of them see adding workers in the next six months. That's more than we saw before; a higher percentage we saw before, but still worrisome. So I think what people are looking for is some sign that the private sector job engine is getting better and better. It's been getting better but it's such a painfully slow rate that it's really disappointing.
MONTAGNE: David Wessel of The Wall Street Journal. Thanks very much.
Mr. WESSEL: You're welcome.
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