Oil prices have risen amid growing unrest in the Middle East and North Africa, has Wall Street been reminded of An Inconvenient Truth: All five U.S. recessions since 1973, either followed or coincided with a spike in energy costs.
It is too early to call for a new recession this time around, but the $ 12 jump in oil prices this week has left at least every economic optimists somewhat nervous.
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Since the brutal 2008-09 recession officially ended, the U.S. economy is difficult to get enough momentum to reach “escape velocity”, meaning a growth strong enough to self-sustainability.
On Friday came word that we continue to escape velocity than we thought. The government revised its figures for the inflation-adjusted growth in gross domestic product in the fourth quarter, a disappointing 2.8% yoy from 3.2% previously estimated. | | Related article: Fourth quarter economic growth revised downwards
Now, rising oil prices to a faster growth, which is much harder to achieve. Every extra dollar in oil prices is a tax on consumers, many of whom can not afford another attack on their income.
The sudden jump in energy costs has also exposed the cold reality facing governments and central banks: After providing billions of dollars in aid to the global economy and financial system since 2008, policymakers have limited resources left to compensate for a sustainable oil shock.
For now, however, many economists warn against overreaction, despite the increasing pain at the pump.
After rocketing Tuesday and Wednesday, crude prices leveled off as the week ended, despite the ongoing insurgency in Libya. The benchmark U.S. price closed Friday at $ 97.88 a barrel in New York, up from 60 cents for the day. The peak was reached in the week beginning Thursday at $ 103.41.
The stock market also stabilized after selling early in the week. The Dow Jones Industrial Average on Friday 61.95 points, or 0.5%, to 12,130.45 so far gained. For the week, the Dow lost 261 points, or 2.1% – not steep enough to suggest that most investors fear the economy will quickly fall off a cliff.
On paper at least, a number of scenarios for the crude oil prices suggest that the economy may bend but not break.
If oil stabilizes around $ 99 and stays there in the area for the next year, it would be about 76 billion U.S. dollars from non-oil expenditure in the U.S. trap, “said Ian Shepherdson, a partner at High Frequency Economics in Valhalla, NY
That would reduce economic growth by about half a percentage point, he said. So instead of the minimum 3% growth most analysts now predict for 2011, real gross domestic product increased 2.5%, a decrease of 2.8% last year.
That would be an “unwelcome but not catastrophic” delay, Shepherdson said, like many other economists.
But Wall Street analysts admit that it is difficult for hard-and-fast advice on what the turmoil in the oil market will mean for the economy because there is no clarity on key variables – including how high the price can go, how long it would stay up late, and that significant production of exporters like Libya will be closed indefinitely.
What’s more, in a hot market, speculators could become a bigger factor than the fundamental supply and demand. This week’s jump in oil revived memories of the wild run-up in the first half of 2008, when speculators were accused of playing a major role in pushing crude to an all-time high of $ 147 per barrel.
“The prices are inflated by hedge funds and investment created to purchase products, said Tom Kloza, chief analyst at Oil Price Information Service in Wall, NJ
Rising oil prices put a damper on the clear recovery by forcing consumers to spending some of the things they want, like clothes or eating out, to instead cover energy to bend. The national average gasoline price hit $ 3.29 a gallon this week, which means that his drivers fill up 4% over one week ago and 22% cost more than one year ago, according to AAA.
The jump in oil prices could also prompt American companies to make rent, scotching hopes for accelerating employment growth, which is the missing link in the nearly 2-year economic recovery.
source:latimes
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