The U.S. economy can absorb the hit from the past week’s rise in oil prices, but could stumble anew if continuing Mideast turmoil pushes crude prices significantly higher.
Benchmark crude-oil prices in the U.S. have jumped about $6.50 since Thursday to more than $92 a barrel Monday, their highest point since October 2008.
If prices stay around that level they will likely exert a drag on growth by crimping household spending, damping consumer confidence and squeezing business profits. The economy would likely continue to expand at a solid pace, but not fast enough to bring down unemployment much, forecasters said.
If oil prices jump a further $10.70 a barrel, an accompanying 25-cent-a-gallon increase in gasoline prices would sap U.S. economic output by 0.4% in the first year, economists at IHS Global Insight estimated. That jump in fuel costs would cost about 270,000 jobs over a year, the analysts said.
If oil prices were to surge an additional $40 a barrel, all bets would be off. The hit to consumers’ wallets would easily erase the income boost from the payroll-tax cut that took effect in January. Retailers that have avoided raising prices due to weak demand would either pass on higher energy costs through raising prices or accept lower revenue, possibly resulting in more job cuts.
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