Page 18 ■ Thursday, March 8, 2012


NATION & WORLD Will higher gas prices derail U.S. economic recovery?


NEW YORK (AP) — The price of gas has jumped 45 cents since Jan. 1 and is the highest on record for this time of year, an average of $3.73 a gallon. On Wall Street, talk has turned from the European debt crisis to another worry: Will higher gas prices derail the economic recovery? Not yet, economists say. They argue that the United States is in much better shape than early last year, when a similar surge in fuel prices weighed on economic growth by squeezing household budgets. Americans spent less on clothes, food and everything else. Rising gas prices hurt less when an


economy is improving than when it’s slowing down. So economists expect other spending won’t be badly hurt, at least for now. If gas breaks its record of $4.11 a gallon, however, all bets are off. The key is what impact gas prices


$25 billion to $30 billion off consumer spending in a year and lowers economic growth by 0.2 per- centage points, says Carl Riccadonna, senior economist at Deutsche Bank. The price of


gas averaged $3.51 last year, so a move above $4 should only divert $60 billion from con- sumer spending this year,


donna says.


the fi rst half of this year, compared with 0.9 percent while gas prices crept up in the fi rst half of last year. An oil shock


would change ev- erything. The sce- nario making the rounds on Wall Street starts with Israel bombing Iran’s nuclear fa- cilities.


year, it drained an estimated $120 bil- lion. “It’s really a


have on other spending in the economy. All consumer spending isn’t equal. A dol- lar spent on gas has less of an impact on the U.S. economy than a dollar spent in a restaurant or at a baseball game. The U.S. is an oil-importing country, so many of the dollars spent on gas ultimately leave the country. The rule of thumb among economists is that a 25-cent increase in gas knocks


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ing energy costs, and then there is households’ ability to handle those ris- ing costs.” So far, households appear to be keep-


ris-


Ricca- Last


two-horse race,” Riccadonna says. “There’s


expect Iran would retaliate by trying to block access to the Persian Gulf, an attempt to pull 20 percent of the world’s oil supply off the market. In the event of a


ing up. Economists think the economy will grow at a 2.2 percent annual rate in


J.P. Morgan. “That’s the really big ‘What if?”‘


“That’s the wild card,” says Kelly of


blockade, oil would skyrocket — think $150 or beyond — easily topping the record of $145 set in 2008.


Analysts


prices are already nearing a danger zone. If gas exceeds the all-time high of $4.11, they say, Americans will think twice about a trip to the restaurant. “We’re getting close to a point where


we should start worrying,” says Thomas Simons, a market economist at Jefferies & Co. “People hate paying for gas. You get no pleasure out of it, unlike food or clothes.” If gas goes to $4.50 a gallon and stays


there, it would cost each household about $1,000 more this year than last to buy the same amount of gas. That would eat half of the $2,000 savings a typical household will get from this year’s cut in Social Security taxes. It would also land a hard psychologi-


Some economists believe oil and gas


cal blow, Kelly says. Jumps in oil and gas prices triggered recessions in 1973 and 1990, and gas prices last peaked months before the fi nancial crisis shook markets in 2008. Kelly says another spike could lead


many Americans to worry that history will repeat itself. “Americans have a fuzzy grasp on


most economic matters,” he says, “but one thing they’re clear on is that high gas prices are a danger sign.”


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