Bush Aides, in Shift, Say Oil a Drag on Economy
By Adam Entous and Jeremy Pelofsky
CRAWFORD, Texas (Reuters) - President Bush (news - web sites)'s economic advisers are warning that high energy prices have become a drag on the U.S. economy and not merely a threat to growth, chipping away at Bush's upbeat election-year projections and increasing pressure on him to act.
Treasury Secretary John Snow warned on Friday that, "We're seeing some slowing in the United States directly attributable to high energy prices."
Gregory Mankiw, chairman of Bush's Council of Economic Advisers, went farther on Sunday, warning in a letter published in The New York Times: "High energy prices are now a drag on the economy, as well as a strain on family budgets."
The warnings appeared to be part of a concerted shift in tone by Bush's top economic advisers, who for months have sought to minimize the risk of an economic slowdown in the run-up to the November presidential election.
Bush's economic advisers have long described high energy prices as a threat or a burden to the U.S. recovery, but they said the impact was mostly being felt abroad rather than at home.
"It has nothing to do with the election," an administration official said of the new warnings on energy prices. "It's a reaction to changes in the economy."
CRUDE OIL NEAR $50 BARREL
Crude oil prices have soared to near $50 a barrel, and higher costs could eventually make their way through the refining system to send high gasoline prices higher. Crude oil prices account for nearly half the cost of making gasoline.
A senior Fed official acknowledged last week that high oil prices will be a dampener on growth, citing studies that a sustained $10 increase in oil cuts economic growth by about 0.5 percentage point in a year.
The economists' warnings could help the administration lower growth expectations in case the economy slows more than expected, though Bush's advisers say they remain upbeat.
Despite the drag from energy prices, Mankiw wrote on Sunday that the U.S. economy is "heading in the right direction," and that growth for the coming year is expected to remain "well above" 3 percent and that the unemployment rate would continue its decline.
The new warnings could also turn up pressure on Bush to tap into the nation's emergency oil stockpile, as called for by Democrats.
Snow said on Friday that there had not yet been a large enough disruption to the supply of oil to warrant tapping the stockpile. "I don't think we're there yet," Snow said in an interview with the financial cable news channel CNBC.
Bush's Democratic presidential rival, John Kerry (news - web sites), has made record gas prices a centerpiece of his campaign. He has accused Bush -- a former Texas oilman -- of inaction and of breaking a 2000 pledge to step up pressure on the Organization of Petroleum Exporting Countries to keep prices low.
KERRY WANTS RESERVES TAPPED
To lower gasoline prices, Kerry has called on Bush to temporarily stop putting crude supplies into strategic oil stockpile, which now holds about 660 million barrels.
So far, the Bush administration has insisted it will continue to fill the reserve. Currently about 100,000 barrels per day flow into the underground storage caverns in Texas and Louisiana.
But White House spokesman Scott McClellan said on Friday that the administration would act in order to "protect consumers and our economy" in the event of a national emergency or a severe disruption of supply.
The administration has refused to define what would be a triggering event for tapping the emergency reserve, and McClellan would not say whether an economic slowdown caused by rising energy prices would justify such a declaration.
Even signaling a willingness to tap the reserves could impact energy prices.
Robert Ebel, an energy expert at the Center for Strategic and International Studies in Washington, said suspending deliveries or making a "test sale" of 5 million barrels to U.S. refiners could be among the administration's options, though that is unlikely to have a significant impact on prices.
The Bush campaign has sought to deflect blame onto Kerry and other Democrats in Congress for blocking the president's energy reform package.
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