Surge in oil prices likely to take toll on economy

WASHINGTON – High oil prices, which have been a factor in virtually all U.S. 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 U.S. 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 United States 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.”

Stock prices, which have been buffeted by the surge in oil prices over the past few weeks, recovered a bit Friday, with the Dow Jones industrial average rising 69.32 points to 10,110.14. Investors were heartened that oil prices, which had been setting a string of record highs, retreated Friday to close at $47.60, down $1.10 from an all-time high of $48.70 set Thursday.

Many analysts believe the U.S. economy could still be jolted by oil prices above $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.