May 24, 2011

Energy prices play a role in GDP estimates

Thursday will bring a revision to first quarter GDP estimate, and economist Bruce Yandle says that it's possible that we’ll see the earlier 1.8 percent growth number nudged up a bit. 

“There is reason to be optimistic about the year’s economic growth, but not as optimistic as we were before the run up in oil prices and events like the natural disasters in Japan, Alabama, and Missouri occurred,” said Yandle.  “The disturbance in Japan is slowing down the arrival of parts, leading to a weakness that’s showing up in auto production, with vehicle production down 8.9 percent in April.  Some forecasters are revising their 2011 forecasts to 2.8 percent from 3.2 percent growth.”

Yandle says that it may be the case that the best medicine for high energy prices is high energy prices, because it encourages a growth in supply.  He says that natural gas prices have flattened, partially in response to finding new sources

“Additionally, people change their behavior in response to high prices,” said Yandle.  “People are saying ‘Walking is more fun than it used to be.’”