Rising oil prices are a "manageable headwind," Goldman analysts say
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The U.S. economy should be able to shrug off the recent rise in oil prices, Goldman Sachs analysts say.
Why it matters: While the American economy has been much stronger than expected in 2023, the recent rise in oil prices has emerged as a potential vulnerability.
- For consumers and companies, higher spending on gasoline and fuel can act as a tax, eating into their ability to continue spending elsewhere.
- Prices for oil — a cost component embedded in prices for every product that needs to be shipped to market — have also reinvigorated inflation in recent months.
Catch up fast: Production cuts from large oil producers Saudi Arabia and Russia have driven up prices of crude oil.
- Since the end of June, the benchmark U.S. oil price is up over 27% to roughly $90 a barrel.
The big picture: In response to rising energy costs, Goldman reduced its Q4 GDP forecast by 0.4 percentage points to a 0.7% annualized rate; and its Q1 2024 forecast by 0.2 percentage points to a 1.9% annual rate.
Yes, but: The growth hit will be limited for a few key reasons, Goldman analysts wrote.
- Energy consumption is a relatively small share of the total consumer spending pie.
- Though oil prices are up, coal and natural gas prices have gone down, which should deliver lower utility bills to consumers in the coming months.
- Higher energy prices won't push the Fed to raise interest rates further, as the central bank looks through short-term swings in fuel costs, the analysts argue.
💠Our thought bubble: Another key hedge that the U.S. economy has against higher oil prices is that the U.S. is the world's largest producer of oil.
- Energy-rich states like Texas, New Mexico, North Dakota and Louisiana all stand to benefit from the price jump.
