"Oil Prices and the U.S. Economy"

Jim Hamilton is relatively unconcerned about oil prices:

Oil prices and the U.S. economy, by Jim Hamilton: Here's why I believe that the current high price of oil is not enough to derail the U.S. economic recovery.

Although the prices of oil and gasoline have risen significantly from their values in October, they are still not back to the levels we saw last spring or in the summer of 2008. There is a good deal of statistical evidence (for example, [1],[2]) that an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high. ...

For example, one thing we often observe when oil prices spike up is that U.S. consumers suddenly stop buying the less fuel-efficient vehicles that tend to be manufactured in North America. That drop in income for the domestic auto sector is one factor aggravating the overall economic consequences. But if consumers have recently seen even higher prices than they're paying at the moment, their spending plans and firms' production plans are likely already to have incorporated that reality. ...

Of course, there are other channels by which higher oil prices exert a drag on the U.S. economy besides the domestic auto sector. Another series I pay close attention to is the share of total consumer spending that is eaten up by the cost of energy. But the remarkable thing here is that nominal consumer spending on energy goods and services actually declined on a seasonally adjusted basis between September and January, even as the price of gasoline was going up considerably. This represents a combination of an unusually mild winter, very low natural gas prices, and consumers finding ways to reduce their energy consumption and thereby insulate their budgets from some of the damage of higher gasoline prices.

If tensions with Iran were to escalate, then I would start to worry a good deal more. But ... I find myself in the unusual position of being less concerned about the impact of oil prices on the U.S. economy than many other analysts.