Troubling Signs That Oil Prices Could Hamper Recovery

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For the last several months, oil prices have been a bright spot in the economic picture. Most analysts believe that the recession would have been even worse than it is if oil prices had been in the $70 to $80 range. Consumers and industries like airlines would have faced even more financial pressure than they have.

Just as there are signs that the economy may no longer be roaring downward like an avalanche, oil prices are moving back up and crude now trades close to $60.

For the first time in months, oil prices have become a real threat to business and consumer activity.

Data shows that consumers are paying down credit balances and increasing savings. They are also economizing but chopping their monthly costs of living to the bone. If gasoline pushes back toward $3, much of the work that people are doing to balance their personal budgets would be ruined.

Higher oil could also undermine any recovery in the auto industry. Domestic sales are already running down 35% compared to last year. A spike in gas prices will probably lead drivers to spend less time in cars and trucks. That may delay new vehicle purchases as consumers hang on to old cars to keep their household costs low.

A number of other industries from petrochemicals to airlines may find it impossible to post positive earnings if oil heads well over $60.

High oil prices may be back. If so, the chances of an economic recovery this year will wane.

Douglas A. McIntyre

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