Edward Renshaw
Professor of Economics
State University of New York at Albany
Oil production in the lower 48 states has been trending downward since 1970. From 1977-86 less than two billion barrels of recoverable oil were found in new fields despite the greatest US well-drilling effort in history. This can be compared to more than 20 billion barrels of reserves added in and around old oil fields. By engaging in infill drilling and quickly utilizing secondary and tertiary production technology oil companies were able to speed the recovery of oil from both new and old oil fields and temporarily halt the downward plunge in oil production in 1983, 1984 and 1991.
This made the US more energy self-sufficient in the short run but will not be helpful in the long run. If a remarkable projection by the noted petroleum geologist M. King Hubbert in 1962 continues to explain the data fairly well US oil production outside of Alaska will continue to decline and be only about a third of what it once was by the end of this century. See Table 11.1. Even if one makes an adjustment for the fact that actual oil production has been averaging about one million more barrels per day than Hubbert predicted in recent years, the conclusion is that crude oil production in the lower 48 states will have declined by about 60 percent from 1970 to the year 2000. Alaskan oil production increased more than ten fold from 1976-88 but has now declined by more than 25 percent.
In this essay we examine the history of consumer price inflation and economic activity in the turbulent period since the peaking out of domestic oil in 1970 and then address the question, can there be another recession without an oil price shock? In this period the US has never experienced an economic recession that wasn't preceded by a yearly increase in the average cost of imported oil at US refineries amounting to 24 percent or more and an increase in the motor fuels component of the consumer price index of 9.4 percent or more.
In 1970 oil production in the lower 48 states peaked out and enabled the Organization of Petroleum Exporting Countries to become a not so well organized force that inflation fighters around the world would soon have to reckon with. The increases in the price of imported oil which followed can best be described by the tax paid by US oil companies to Saudi Arabia for light oil. The tax cost of this oil was approximately $1.10 per barrel in January 1971, $1.55 the following January and $1.62 in January 1973. The cost rose to $3.15 in October 1973 and $7.11 in January 1974.
When the mild recession of 1970 failed to reduce the CPI inflation rate in a dramatic fashion President Nixon did what he promised not to do and declared a 90 day wage-price freeze on August 15, 1971 to be followed by a more formal system of controls. The CPI inflation rate which had slowed to only 5.6 percent in 1970 dropped to 3.3 percent for all of 1971 and only increased to 3.4 percent during the first full year of controls in 1972. See Table 11.2.
In the Economic Report of the President which was transmitted to Congress in February 1973 the Council of Economic Advisers noted that price and wage controls had worked better than many had expected. The good news with regard to CPI inflation, however, was about to end as a result of uncontrolled prices for basic food stuffs. The world wide food shortage which followed crop failures in the Soviet Union and a number of other countries caused the price of wheat at the farm level to increase 124.4 percent and the price of corn to increase 62.4 percent on a year-to-year basis during 1973 after increases of 31.3 and 45.4 percent respectively in 1972. The food component of the CPI after increasing only 4.6 percent in 1972 rose 20.3 percent during 1973 (Table 11.2).
The 4th and biggest Arab-Israeli War in 25 years erupted in the afternoon of Yom Kippur on October 6, 1973. On October 19 a total ban on oil exports to the US was imposed by Arab oil producing nations. Food inflation in conjunction with a sizable increase in the price of household energy caused the CPI inflation rate to more than double from 3.4 percent in 1972 to 8.7 percent for 1973.
The average cost of imported oil to US refiners increased 174 percent between September 1973 and February 1974 and remained in excess of $12.50 per barrel after the lifting of the ban on Arab oil exports to the US on March 18th. The high cost of food and imported oil convinced most consumers, politicians and economists that price and wage controls were a failure. After controls on almost everything but domestically produced oil and gas were allowed to expire on April 30, 1974, increases in food and fuel prices, which had dominated changes in the CPI in the preceding year, gave way to increases over a broader range of goods and services. Wage rates also began to accelerate and in conjunction with falling output per manhour caused unit labor costs in manufacturing to increase 14 percent. A 6.0 percent plunge in the deflated value of manufacturing and trade sales during the fourth quarter of 1974, however, helped to limit the CPI inflation rate for all of 1974 to only 12.3 percent. The precipitous decline in economic activity caused CEA Chairman Alan Greenspan to put away his "whip inflation now" button and advocate a Keynesian type tax cut.
A 2.9 percent decline in payroll employment from October 1974 to April 1975 and the highest unemployment rate since the great depression of the 1930s helped to lower the CPI inflation rate from 12.3 percent to 6.9 percent in 1975 in spite of a 9.8 percent increase in the cost of medical care and a lingering problem of double digit increases in the cost of household energy.
A sharp reduction in food inflation from 6.6 percent in 1975 to only .5 percent in 1976 and moderate increases in the prices of many other commodities temporarily lowered the CPI inflation rate to only 4.9 percent in 1976.
A successful effort on the part of food processors to restore their profit margins to earlier levels caused the food component of the CPI to rise 8.1 percent and the all item CPI to accelerate from 4.7 percent in 1976 to 6.7 percent. While there may have been a temporary shortage of some food stuffs during the first few months of 1977 the index of prices received by farmers for all farm products is reported to have declined during 1977. The core inflation rate which excludes food and energy accelerated only modestly from 6.1 percent in 1976 to 6.5 percent. A slump in the growth of labor productivity caused the index of labor cost per unit of output in manufacturing to accelerate from 2.9 percent in 1976 to 6.2 percent. In the Economic Report of the President which was transmitted to Congress in January 1978 the CEA lamented "that inflationary expectations and institutional characteristics of modern economies have kept the inflation rate from declining".
In early 1978 the CPI was subject to further acceleration as a result of limited supplies of meat and the effects of cold weather on fruit and vegetable production. The index of prices received by farmers, which had drifted downward from 105 in 1974 to only 100 in 1977, increased 15 percent in 1978 and caused the overall inflation rate to rise to nine percent. The Humphrey-Hawkins "Full Employment and Balanced Growth Act" was signed into law by President Carter on October 27. This act established a national goal of reducing the unemployment rate to 4 percent by 1983 and the inflation rate to three percent during the same period of time. A Natural Gas Policy Act was also enacted in 1978. The intent of this Act was to encourage production by deregulating the prices of newly discovered gas while restraining the growth of average gas prices through permanent controls on the price of older gas.
Political unrest surrounding the overthrow of the Shah in January and February caused Iranian oil production to trend downward from 5.2 million barrels per day in 1978 to an average of 3.2 million barrels in 1979, 1.7 million barrels in 1980 and a low of only 1.4 million barrels in 1981. Household energy prices, which had increased only 7.9 percent in 1978, increased 37.5 percent in 1979 before tapering off to increases of 18 percent in 1980 and 11.9 percent in 1981. The CPI inflation rate soared to 13.3 percent in 1979 and only declined to 12.5 percent during the short lived recession of 1980.
On August 6, 1979 Paul Volcker was sworn in as a member and Chairman of the Board of Governors of the Federal Reserve. He was soon able to convince the Board that they should take whatever steps were necessary to end the specter of double digit inflation. On October 6 the Federal Reserve announced a major shift in its technique for implementing monetary policy. Previously it had attempted to control the expansion of the monetary aggregates by adopting a target for the Federal funds rate. Under the new approach the object of open market operations would be to supply the volume of bank reserves consistent with desired rates of monetary growth. Much greater variation in the Federal funds rate was to be permitted.
When an annualized decline in real GNP of almost ten percent in the second quarter of 1980 only reduced the CPI inflation rate for all of 1980 to 12.5 percent, the Federal Reserve let the Federal Funds Rate, which had been allowed to sink from 17.61 percent in April to only 9.03 percent in July, soar upward to a new all time high of 19.08 percent in January 1981.
On September 17, 1980 Iraq denounced its 1975 border agreement with Iran and within a week had mounted a full-scale invasion of Iran. Iran's success at defending itself and its ability to influence oil exports through the Persian Gulf caused Iraqi oil output to decline from 3.5 million barrels per day in 1979 to 2.5 million barrels per day in 1980 and an average of only 1.0 million barrels per day from 1981-83.
In January 1981, President Reagan ended the petroleum price and allocation controls which were imposed in 1971 and were scheduled to expire in September 1981. Oil prices in the US would henceforth be determined on the basis of competing supplies of foreign oil. The well head price of domestically produced oil, which had averaged $25.80 per barrel during December 1980 rose to $34.70 per barrel in March 1981 before beginning a gradual retreat to $24.09 in 1985 and then plunging to an average low of $12.51 during 1986. The short lived business expansion, which began in July 1980 and ended in July 1981, and a modest 4.3 percent increase in food prices for all of 1981 also helped to reduce the overall inflation rate for the CPI from 12.5 percent in 1980 to 8.9 percent.
Declining oil prices and a year end unemployment rate of 10.7 percent in 1982 lowered the CPI inflation rate to 3.8 percent and ushered in a new era of greater stability for the consumer price index.
Beginning in 1983 the Bureau of Labor Statistics began to use a rental equivalent index to measure the cost of owner occupied housing rather than the cost of purchasing and financing a newly constructed housing unit. From this year on food and energy price shocks would not be severely amplified by fluctuations in mortgage interest rates. During the 43 year period from 1939-82 there were only eight years when the change in the December-December inflation rate for the CPI was less than half a percentage point. During the more recent 13 year period from 1982-95 there were a total of seven years when the change in the inflation rate was under .4 percentage points.
As the growth in economic activity began to accelerate in 1983 the Fed allowed the average yield on new issues of three month Treasury bills to increase from 7.8 percent in January to 10.5 percent in August 1984. The large increase in interest rates was successful at slowing the growth of economic activity to a more sustainable rate and may help to explain why there was hardly any change in the CPI inflation rate from 1982-85.
The steepest year-to-year decline in domestic crude oil prices since the protracted 65 month recession which lasted from October 1873 to March 1879 reduced the cost of household energy by almost 20 percent and temporarily lowered the overall CPI inflation rate from 3.8 percent in 1985 to only 1.1 percent in 1986.
An 8.2 percent rebound in the cost of household energy and a 4.6 percent rise in the average price of all commodities in the CPI lifted the overall inflation rate to 4.4 percent for 1987--the highest inflation rate since the abortive economic recovery of 1981. The yield on three month Treasury bills, which had been allowed to drift down from 10.5 percent in August 1984 to only 5.18 percent in October 1986 was gradually increased to 6.4 percent in October 1987 and may have helped to trigger the most spectacular one-day decline in stock prices in the history of the New York Stock Exchange on October 19. Stock market crashes in the midst of prosperity will sometimes have a subduing effect on inflation.
An increase in the cost of household energy of only .5 percent was sufficient to offset an acceleration in the food component of the CPI and keep the overall inflation rate steady at 4.4 percent in spite of the largest reduction in US crop production per acre since the drought of 1936. By June 23 about half of the nation's agricultural counties had been designated disaster areas. The Fed reacted very quickly by letting short term interest rates increase by 2.29 percentage points on a December- December basis and by holding the growth of real M1 to a stingy increase of only one-half a percent. Large carry over stocks of food and feed grains in this country and abroad, in conjunction with the forced sale of some livestock, restrained the growth of food prices to only 5.2 percent in 1988 and 5.6 percent in 1989.
In 1989 the CPI inflation rate only accelerated from 4.4 to 4.6
percent in spite of a 26.1 percent increase in domestic crude oil prices,
a 5.6 percent increase in the food component of the CPI and an acceleration
in the inflation rate for medical care from 6.9 percent in 1988 to 8.5
percent. The spread of higher inflation to other sectors may have been
inhibited by a slight Dec.-Dec. decline in the Federal Reserve's index of
industrial production.
Iraq's invasion of Kuwait in August 1990 and the reduction of oil
production that followed increased the cost of household energy 18.1 percent
and raised the overall CPI inflation rate to 6.1 percent.
Increased oil production in other countries that was sufficient to
more than offset the reduction of petroleum exports from Iraq and Kuwait,
the successful completion of Operation Desert Storm and the economic
recession which had begun in the US in July 1990 lowered the cost of
household energy by 7.4 percent in 1991 and helped to reduce the overall
inflation rate to 3.1 percent.
A reduction in the core inflation rate, which excludes food and
energy, from 4.4 percent in 1991 to only 3.3 percent in 1992 was sufficient
to lower the overall CPI inflation rate from 3.1 to 2.9 percent. This was
the lowest core inflation rate since the Vietnam build-up year of 1966, if
one ignores the 3.1 and 3.0 percent rates which occurred during the first
two years of wage and price controls in 1971 and 1972.
A 1.4 percent decline in energy prices more than offset an
acceleration in food prices from 1.5 percent in 1992 to 2.9 percent in 1993
and enabled the all item CPI inflation rate to decline from 2.9 percent to
only 2.7 percent in 1993.
In April 1993 Federal Reserve Chairman Alan Greenspan, who is noted
for keeping a close eye on vendor performance and other inflation
indicators, suggested that "The inflationary pressures that so dominated the
economic events of the last quarter century appear largely though not as yet
wholly subdued". One reason for hoping that Greenspan is correct is the
success of the Volcker led effort to end the specter of run-away inflation.
From 1979-93 the inflation rate for the all item CPI declined from 13.3
percent to only 2.7 percent. During the last business expansion the
December-December inflation rate for the CPI core only increased 1.4
percentage points. This increase in the underlying inflation rate was only
about one-fifth as great as the average increase during the three preceding
periods of sustained expansion for the US economy from 1960-80.
Rapid increases in oil prices in conjunction with weak economic
indicators are of particular concern since they may indicate that the
economy has already slipped into another recession. The ten poorest growth
years for the US economy from 1948-95, were all preceded by a year-to-year
increase in the average first purchase price of domestic crude oil of five
percent or more and a June-December increase in industrial production of .1
percent or less. See Table 11.3.
While higher oil prices may not be the cause of economic recessions
they can lead to restrictive monetary policies that will help to terminate
a business expansion. Except for 1953 (when the consumer price index was
still increasing at a modest .7 percent annual rate) and 1971 and 1976 (when
the U.S. economy was beginning to recover from economic recessions), the
Federal Reserve has not allowed the conventional money supply M1 to increase
as rapidly as the consumer price index when crude oil prices were increasing
at an average rate of five percent or more.
If the economy was not already in an economic recession, the Fed has
often resisted the inflationary effect of large increases in crude oil
prices by allowing short-term interest rates to rise at a rapid rate. The
1990-91 recession was different, however. Between March 1989 and July 1990
the Fed allowed the yield on new issues of 91 day Treasury bills to decline
by 1.2 percentage points, or more than 13 percent, in an unsuccessful effort
to prevent an economic recession.
During the first quarter of 1995, when the producer price index for
crude oil averaged 28 percent more than during the first quarter of 1994,
the Fed continued to raise short term interest rates. This tightening in
conjunction with higher oil prices helped to slow the growth of payroll
employment from an unsustainable increase of almost 900,000 new jobs during
the fourth quarter of 1994 to a more anemic increase of about 245,000 new
jobs during the second quarter of 1995.
During the first five months of 1996 drought in the winter wheat belt
and low inventories of liquid hydrocarbons and worldwide grain stocks caused
commodity prices to soar upward at a rapid rate. Investors in fixed income
securities turned negative and allowed long term interest rates to increase
by more than one full percentage point.
With little evidence to support the conclusion that food and energy
inflation was having a spill over effect on wages and other prices, however,
and with higher interest rates likely to slow the growth of economic
activity in the second half of 1996, the Board of Governors of the Federal
Reserve was in a position to adopt a complacent or "wait and see" attitude
about the prospects for accelerating inflation and did not tighten monetary
policy to the point of immediately raising the federal funds rate.
It is easy to understand how a large increase in gasoline prices might
trigger a recession in the United States. It will reduce the demand for
large, gas guzzling motor vehicles produced by domestic auto makers and
siphon off purchasing power from consumers to oil companies and petroleum
exporting countries that might not be able to recycle the proceeds in a
manner that will quickly generate an offsetting demand for goods and
services produced in the USA.
US oil companies will use some of the extra revenue to look for
petroleum in other countries and petroleum exporting countries will use some
of their proceeds to purchase securities issued by the US Treasury, that
help to finance unemployment benefits, but don't generate jobs in this
country. An oil induced recession that begins at the gas pump and cripples
the auto industry, can then be expected to spread to other industries as
consumers cut back expenditures for other goods and services to keep their
motor vehicles operating. See the last three columns in Table 11.4 for a more vivid illustration of how large
increases in the price of motor fuels have been followed by crashes in auto
output and recessionary declines in real GDP.
Once an economic recession has begun in the United States it can
easily spread to other countries as a result of a reduction in imports for
other types of goods and services besides petroleum products. After the
Arab oil embargo of October 1973, for example, US imports in constant
dollars declined by 13.3 percent from the fourth quarter of 1973 to the
first quarter of 1975. During the milder recession of 1990-91 the reduction
in real imports was 5.1 percent.
The last oil related recession was unique in that the decline in
industrial production in Canada and the United Kingdom began before the
October 1990 drop in US industrial output. Japan and Germany were able to
weather the storm for a while but eventually slipped into recessions that
were partly the result of a very anemic recovery from the 1991-90 recession
in the United States.
The most disturbing aspect to the last recession in the United States
is that it occurred during a period of monetary easing without a very
precipitous increase in the price of motor fuels. The implication would
seem to be that the US economy may be even more vulnerable to oil price
shocks in the future as it becomes more dependent on imported oil.
From 1973 to 1991 there was a 63 percent increase in passenger car
miles per gallon in the USA. This helped to lower the real price of motor
fuels to levels not experienced since the great depression of the 1930s.
Since the collapse of world oil prices in the mid 1980s and the relapse
which occurred after the successful completion of Operation Desert Storm,
however, American motorists have become infatuated with minivans, light duty
trucks and sport utility vehicles that do not get very good gas mileage.
This can also be expected to make the US more vulnerable to another oil
price shock recession.
Increases in oil production in the North Sea and other areas outside
OPEC, and a slowdown in the growth of economic activity in some of the
larger industrial nations, however, have reduced the risk of a near term
supply shock. If OPEC can keep its act together, once Iraq is allowed to
export more of its oil, it may be several years before the world wide demand
for motor fuels increases enough to support a major increase in oil prices.
A prolonged period of oil price stability might help to answer the
question: do business expansions in the US die of old age or is their death
a phenomenon that can best be explained, in recent times, by earth quake
events beyond the control of economic policy makers such as wars and oil
price shocks that originate outside the USA.
One of the more interesting developments in recent years is the
discovery that relatively simple time-series models will some times provide
better forecasts than more elaborate theory based models.
In Table 11.5 we use moving medians to predict
the chain weighted growth rate for real GDP from 1985-95 on the assumption
that the growth rate will be equal to the median growth rate for the five
preceding recessionary trough years if crude oil prices in column (1) of Table 11.3 increased by five percent or more in the
preceding year and industrial production in column (2) of Table 11.3 increased by .1 percent or less on a June-
December basis. If there was no preceding bad year signal, the growth rate
for real GDP is assumed to be equal to the median growth rate for the five
preceding non trough years.
While there is no way to easily compare the error terms for this
forecasting system with other approaches without engaging in a lot of
refitting of alternative models, the moving median does seem to yield mean
absolute error terms that are not very different from the actual preliminary
error terms associated with the early February consensus forecasts compiled
by the Blue Chip Economic Indicators newsletter.
The error terms for both of these approaches are less than half as
large, on the average, as a more naive approach which assumes that there
will be no change in the year-to-year growth rate. A moving median, which
adjusts for poor growth year bias, it would seem, can at least provide a
more challenging standard for measuring the success of other forecasting
models than a no change in the growth rate assumption.
It should be noted, however, that chain weighted GDP has not been
growing as fast in recent years as was formerly the case. Since 1984 there
have only been four years when the actual growth rate in column (1) of Table 11.5 exceeded the predicted growth rate in column
(2). The first case occurred in 1988 when US exports increased 15.9 percent
after several years of large declines in the value of the US dollar. The
second case is associated with the recessionary peak year of 1990.
The third case occurred in 1994 when consumers and business
enterprises were rushing out to acquire durable goods before rising interest
rates made them unaffordable. In 1994 chain weighted gross private domestic
investment increased 14.3 percent and producers durable equipment increased
to 7.33 percent of real GDP--a new all time record. In 1996 five
consecutive years of very rapid growth of producers durable equipment may
have also helped to lift the actual growth rate for real GDP above the
median for the preceding five years without a recessionary trough in
economic activity.
Consumer debt as a percent of personal income has also been setting
new records. As the unprecedented demand for business equipment begins to
abate the US economy could become vulnerable to another recession. In such
a precarious environment it makes sense for the Federal Reserve to carefully
monitor the behavior of interest sensitive components of the national income
and product accounts and those cyclical indicators that are most impacted
by increases in the prime rate charged by banks.
*An earlier version of this essay was presented at the London Business
School/IFORS first joint international symposium on energy models for policy
and planning, London, July 18-20, 1995.
Footnotes for Table 11.1
(4)n. Hubbert's projected production for the 48 lower states has been
increased six percent each year to adjust for leased condensate which is
included in the Department of Energy's production figures.
(5)n. Column (3) minus column (4).
*Years when oil production in the lower 48 states increased.
Source of data: Monthly Energy Review and Perry Renshaw, "U.S. Oil
Discovery and Production: The Projections of M. King Hubbert,"
Futures, February 1980, Table 2, p. 61.
(6)n. Index of labor cost per unit of output in manufacturing (BCI Series
62.a).
Source of basic data: Economic Report of the President and the
Survey of Current Business.
Footnotes for Table 11.3
(1)n. The year-to-year growth rate for US crude oil prices at the well
head.
(2)n. The June-to-December percentage increase in industrial production.
(3)n. The December-to-December growth rate for the money supply M1
expressed in constant dollars.
(4)n. The December-to-December growth rate for the yield on new issues of
91 day Treasury bills.
**The growth rates for real GDP following increases in the price of crude
oil of five percent or more and a June-December increase in industrial
production of .1 percent or less.
Source of basic data: Monthly Energy Review and Economic Report
of the President.
H identifies the high value in the series.
L identifies the low value in the series.
* identifies output following motor fuel price increases of nine percent or
more.
Source of basic data: Monthly Energy Review and the Economic
Report of the President.
Footnotes for Table 11.5
(2)n. The Predicted growth rate for real chain weighted GDP is equal to the
median of the last five growth rates for non recessionary trough years, if
there was no poor growth rate indicated by a preceding year increase in the
price of crude oil at the well head of five percent or more and a June-
December increase in industrial production of .1 percent or less. If a poor
growth year signal occurred (as exemplified by those cases identified with
a double asterisk in column (5) of Table 11.3) the growth rate for real GDP
is assumed to equal the median growth rate for the last five years
containing a recessionary trough in real GDP.
(3)n. Column (1) minus column (2).
(4)n. The Blue Chip Economic Indicators newsletter consensus forecasts as
of early February are evaluated on the basis of preliminary growth rates for
real GNP or GDP published in the following January issue of the Survey of
Current Business. In calculating the error term for 1995 it was assumed
that the actual growth rate for GDP expressed in 1987 dollars was equal to
3.2 percent.
(5)n. Errors associated with a no change in the year to year growth rate
for real GDP obtained by computing first differences for the actual growth
rates in column (1).
P identifies an error term for a growth rate which occurred during a year
containing a recessionary peak in business activity.
T identifies a year containing a recessionary trough in economic activity.
Go on to Essay 12:
Return to the Introduction
1991
1992
1993
Can There be Another Recession Without an Oil Price Shock?
How an Increase in Oil Prices Can Cause a Recession
Improving Time Series Forecasts of Chain Weighted GDP
Crude Oil Production in the United States, 1970-
----------Lower 48 States----------
Actual
Total Alaskan Minus
Year Production Production Actual Projected Projected
---------------------Thousands of Barrels Per Day-----------
(1) (2) (3) (4)n (5)n
1970 9,637 229 9,408 8,393 1,015
1971 9,463 218 9,245 8,306 939
1972 9,441 199 9,242 8,248 994
1973 9,208 198 9,010 8,103 907
1974 8,774 193 8,581 8,016 565
1975 8,375 191 8,184 7,870 314
1976 8,132 173 7,959 7,696 263
1977 8,245 464 7,781 7,550 231
1978 8,707 1,229 7,478 7,377 101
1979 8,552 1,401 7,151 7,203 - 52
1980 8,597 1,617 6,980 6,970 10
1981 8,572 1,609 6,963 6,796 167
1982 8,649 1,696 6,953 6,564 389
1983 8,688 1,714 6,974* 6,360 614
1984 8,879 1,722 7,157* 6,128 1,029
1985 8,971 1,825 7,146 5,858 1,288
1986 8,680 1,867 6,813 5,692 1,121
1987 8,349 1,962 6,387 5,460 927
1988 8,140 2,017 6,123 5,256 867
1989 7,613 1,874 5,739 4,995 744
1990 7,355 1,773 5,582 4,821 761
1991 7,417 1,798 5,619* 4,559 1,060
1992 7,171 1,714 5,457 4,385 1,072
1993 6,847 1,582 5,265 4,182 1,083
1994 6,662 1,559 5,103 3,950 1,153
1995 6,530 1,484 5,046 3,891 1,155
2000 2,875
December-to-December Growth Rates for the Consumer Price Index and Related
Inflation Indicators
Year All Items All Item Food Energy Medical Unit
Less Food CPI Care Labor
and Energy Cost
(1) (2) (3) (4) (5) (6)n
1958 1.7 1.8 2.4 - .9 4.5 -1.3
1959 2.0 1.7 -1.0 4.7 3.8 - .6
1960 1.0 1.4 3.1 1.3 3.2 3.7
1961 1.3 .7 - .7 -1.3 3.1 -3.7
1962 1.3 1.3 1.3 2.2 2.2 1.1
1963 1.6 1.6 2.0 - .9 2.5 - .9
1964 1.2 1.0 1.3 .0 2.1 -1.5
1965 1.5 1.9 3.5 1.8 2.8 -1.3
1966 3.3 3.5 4.0 1.7 6.7 3.1
1967 3.8 3.0 1.2 1.7 6.3 1.5
1968 5.1 4.7 4.4 1.7 6.2 5.3
1969 6.2 6.2 7.0 2.9 6.2 5.6
1970 6.6 5.6 2.3 4.8 7.4 2.7
1971 3.1 3.3 4.3 3.1 4.6 .0
1972 3.0 3.4 4.6 2.6 3.3 .4
1973 4.7 8.7 20.3 17.0 5.3 7.9
1974 11.1 12.3 12.0 21.6 12.6 14.0
1975 6.7 6.9 6.6 11.4 9.8 4.9
1976 6.1 4.9 .5 7.1 10.0 2.9
1977 6.5 6.7 8.1 7.2 8.9 6.2
1978 8.5 9.0 11.8 7.9 8.8 5.6
1979 11.3 13.3 10.2 37.5 10.1 9.0
1980 12.2 12.5 10.2 18.0 9.9 8.5
1981 9.5 8.9 4.3 11.9 12.5 7.5
1982 4.5 3.8 3.1 1.3 11.0 2.6
1983 4.8 3.8 2.7 - .5 6.4 -3.5
1984 4.7 3.9 3.8 .2 6.1 2.1
1985 4.3 3.8 2.6 1.8 6.8 - .1
1986 3.8 1.1 3.8 -19.7 7.7 -2.5
1987 4.2 4.4 3.5 8.2 5.8 -1.3
1988 4.7 4.4 5.2 .5 6.9 3.1
1989 4.4 4.6 5.6 5.1 8.5 3.0
1990 5.2 6.1 5.3 18.1 9.6 4.1
Table 11.2 (continued).. December-to-December Growth Rates for the Consumer
Price Index and Related Inflation Indicators
Year All Items All Item Food Energy Medical Unit
Less Food CPI Care Labor
and Energy Cost
(1) (2) (3) (4) (5) (6)n
1991 4.4 3.1 1.9 -7.4 7.9 1.4
1992 3.3 2.9 1.5 2.7 6.6 - .4
1993 3.2 2.7 2.9 -1.4 5.4 -1.8
1994 2.6 2.7 2.9 2.2 4.9 -2.6
1995 3.0 2.5 2.1 -1.3 3.9 ---
1996 2.6 3.3 4.3 8.6 3.0 ---
Using Year-to-Year Increases of Five Percent or More in the Price of US
Crude Oil and declines or anemic increases in industrial production to
Forecast Poor Growth Years for the US Economy.
Year ----------------------Growth Rates for-----------------------
Crude Industrial The Real Treasury Following
Oil Production Money Bill Year Real
Price June-Dec. Supply Rate GDP
(1)n (2)n (3)n (4)n (5)
1948 34.7 - 2.5 - 4.0 21.1 .4**
1953 5.9 - 6.9 .5 -23.5 - .7**
1957 10.8 - 5.9 - 3.6 - 4.0 - .5**
1969 5.1 - .5 - 2.6 30.4 - .0**
1971 6.6 3.1 3.0 -17.3 5.4
1973 14.7 .1 - 3.0 45.5 - .4**
1974 76.6 - 8.0 - 7.0 - 2.4 - .6**
1975 11.6 5.8 - 2.0 -23.4 5.6
1976 6.8 4.3 1.6 -20.9 4.9
1978 5.0 2.8 - .7 50.5 2.9
1979 40.4 - .6 - 4.8 32.3 - .3**
1980 70.8 5.4 - 5.1 29.7 2.5
1981 47.2 - 2.3 - 2.2 -30.2 -2.1**
1987 23.1 2.5 - .9 6.0 3.8
1989 26.1 - .3 - 3.9 - 5.6 1.3**
1990 26.3 - 2.1 - 2.0 -17.5 -1.0**
1995 10.8 1.2 - 4.6 - 8.5 2.5
1996 23.0 2.1 - 7.8 - 5.6 ?
Passenger Car Efficiency, Gasoline Consumption, Motor Fuel Price Shocks and
the Growth of Economic Activity in the United States, 1973-
Year Passenger Gasoline -----------Growth Rates--------------
Car Miles Consumption Finished CPI Index Auto Real
per Gallon Thousands Gasoline for Motor Output GDP
of Barrels Supplied Fuels 1987$
per Day
(1) (2) (3) (4) (5) (6)
1973 13.30L 6,674 4.5 9.9 9.8 5.7
1974 13.42 6,537 - 2.1 35.3 -20.0* - .4*
1975 13.52 6,675 2.1 6.9 - 5.3* - .6*
1976 13.53 6,978 4.5 4.2 29.4 5.6
1977 13.80 7,177 2.9 5.7 9.5 4.9
1978 14.04 7,4l2 3.3 4.2 - 1.7 5.0
1979 14.41 7,034 - 5.1 35.3 - 9.0 2.9
1980 15.46 6,579 - 6.5 38.9 -16.6* - .3*
1981 15.94 6,588 .1 11.4 9.7 2.5*
1982 16.65 6,539L - .7 - 5.3 - 8.8* - 2.1*
1983 17.14 6,622 1.3 - 3.3 28.4 4.0
1984 17.83 6,692 1.1 - 1.5 13.9 6.8
1985 18.20 6,831 2.1 .8 7.9 3.7
1986 18.27 7,034 3.0 -21.9 - .5 3.0
1987 19.20 7,206 2.4 4.0 - 4.4 2.9
1988 19.87 7,336 1.8 .9 7.1 3.8
1989 20.31 7,328 - .1 9.4 .5 3.4
1990 21.02 7,235 - 1.3 14.4 - 5.2* 1.3*
1991 21.69H 7,188 - .6 - 1.8 -10.4* - 1.0*
1992 21.68 7,268 1.1 - .4 8.1 2.7
1993 21.04 7,476 2.9 - 1.0 3.4 2.2
1994 21.48 7,601H 1.3 .5 7.0 3.5
1995 7,785 2.8 - 4.0 - 9.7 2.0
Using Moving Medians to Predict the Chain Weighted Growth Rate for Real GDP
on the Assumption that Poor Years Can Be Identified Before They Occur, 1985-
96.
Year Growth Rates for Real GDP Actual Minus the Predicted Growth Rate
------------------------- --------------------------------------
Actual Predicted Moving Blue Chip No
Median Consensus Change
(1) (2)n (3)n (4)n (5)n
1985 3.7 4.0 - .3 -1.4 -3.1
1986 3.0 3.7 - .7 - .6 - .7
1987 2.9 3.7 - .8 .6 - .1
1988 3.8 3.7 .1 1.6 .9
1989 3.4 3.7 - .3 .2 - .4
1990P 1.3 - .3 1.6P - .7 -2.1
1991T -1.0 - .3 - .7T - .8 -2.3
1992 2.7 3.0 - .3 - .5 3.7
1993 2.3 2.9 - .6 - .2 - .4
1994 3.5 2.7 .8 .7 1.3
1995 2.0 2.7 - .7 .1 -1.5
1996 2.5 2.3 .2 ? .5
1997 ? 2.5
Mean Absolute Error 1985-95 .64 .67 1.50