Watch Oil Supplies Not Oil Prices

Mark Zandi in a new analysis letter is joining team optimism about 2012 growth, but does say that “there are numerous threats to this relatively optimistic baseline outlook: a rise in oil and gasoline prices, a rekindled European debt crisis, a deeper housing crash, more federal fiscal drag, and a harder landing in China and other emerging-market economies.”

He’s correct, of course, except I caution people to be careful with the oil and gasoline prices. What matters here is less the price than the supply. If terrorists blow up a bunch of oil refineries this will, among other things, cause the price of gasoline to skyrocket. But the key issue will be that gasoline supplies were disrupted. At the same time, if Europe magically solves all its problems tomorrow and China rapidly returns to 10 percent annual growth rates that will also drive up the price of oil. But the macroeconomic consequences of a price increase driven by a strong global economy are very different from the consequences of a supply disruption. Indeed, all else being equal recession in Europe and China should make gasoline cheap in the United States.