High oil prices, which have been a factor in virtually all US recessions over the past three decades, are surging again this year. And the higher crude-oil prices climb, the more risk energy costs pose to what, until recently, many expected to be a banner year for the US economy.
Some economists are even beginning to worry about an outright recession if oil prices, already at record levels, go much higher. And concerns are rising about the threat of "stagflation," a dreaded economic malady of stagnant growth coupled with rising prices that had the US in its grip during the oil shocks of the 1970s.
It isn't just higher energy prices that are inflicting the damage, but the ripple effect these higher costs have on such critical areas as consumer spending.
"Oil has become a barometer of confidence in the global economy," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "Higher oil prices mean uncertainty is rising and economic growth is going to be weaker."
Many analysts believe the US economy could still be jolted by oil prices above US$50 per barrel with all the lingering concerns about possible supply disruptions in Iraq and elsewhere.
"If you look at what is going on in the economy, there is a lot to make you nervous," said David Wyss, chief economist at Standard & Poor's in New York.
Those concerns have caused analysts to trim their forecasts for economic growth in recent weeks. A quarterly survey of 30 top economists done by the Federal Reserve Bank of Philadelphia found them forecasting growth of 4.3 percent this year, down from their estimate three months ago of 4.6 percent growth, which would have been the strongest pace in 20 years.
The 4.3 percent forecast for the gross domestic product would still be faster than the 3 percent gain of 2003, but it would be slower than the 4.5 percent growth rates hit in both 1999 and 1997 during the US' record-breaking, decade-long economic expansion.
Some pessimists are slashing their forecasts even more. Stephen Roach, chief economist at Morgan Stanley, notified clients last week that if oil prices remain around present levels they "could lead to a recession in 2005."
The rise in energy costs since early this year has already exacted a toll. The gross domestic product, which was racing ahead at a 4.5 percent rate in the first three months of this year, slowed to a 3 percent pace in the April-June quarter as consumers cut back sharply on spending.
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