Lofty oil could lead to more-resilient economy

By Joanne Morrison - Analysis

WASHINGTON (Reuters) - The wrenching adjustments U.S. consumers and businesses have begun to make to cope with sky-high energy costs mark the start of a painful process that should lead to a more energy-efficient, resilient economy.

U.S. households, forced to spend more at the gasoline pump, are shifting away from pricier items and cutting down on miles driven, while companies are planning to invest in more energy-efficient equipment to control costs.

Oil prices, which hit a record high near $140 a barrel earlier this month, are up about 40 percent so far this year.

While they are likely to stabilize, they are not expected to fall back to anywhere near the $66 a barrel seen in 2006 before the economy stumbled. Instead, government estimates see prices averaging $122 a barrel this year and $126 in 2009.

The relentless oil-price surge has pushed the cost of gasoline to record heights as well. Over the past year, U.S. gasoline prices have risen more than $1 a gallon to above $4 a gallon.

For consumers, every penny increase at the pump translates into $1 billion in spending. So far, consumers have spent about $80 billion more for gasoline this year alone.

These soaring costs have brought back the specter of 1970s-style stagflation. But analysts say things are not as dire now because the economy is more energy efficient than it was 30 years ago. While oil accounted for about 7 percent of U.S. gross domestic product in the 1970s, it accounts for only about 3 percent today.

Still, the energy-price run-up has whittled away at that gap and economists say the United States will need to adapt to the emerging reality of a higher cost environment and become even more efficient.