Rapidly rising fuel prices renew double dip recession concerns

Posted By on March 1, 2011

The pain at the pump over high fuel prices will most likely slow the pace of our tepid economic recovery. For Americans fortunate enough to be fully employed, that means spending more dollars on fuel and less in other areas that might have hired a new workers. For businesses that mean a higher cost of doing business something that will either decrease margins, slow sales or both. For many Americans thinking the worst was behind us, it means putting off that new purchase a little longer … and in turn slowing the US economy, something that relies on a robust exchange of goods and services to improve our economy, grow taxes and reduce the unemployment rate.

Chart from the US Energy Administration’s February 21, 2011 numbers release.

Of course that’s the best scenario … the worse is that high fuel prices and instability in middle eastern countries that produce much of the oil we consume, could end up sending our economy back into a recession. The doomers were already predicting a “double dip” recession, but now even mainline analysts and commentators from financial news channels are showing concern (snippet below).

Gasoline prices are at their highest levels ever for this time of year, when prices are typically low. And with unrest in the Middle East and North Africa lifting the price of oil to the $100-a-barrel range, analysts say pump prices are likely headed higher.
Investment guru and CNBC “Mad Money” host Jim Cramer has said that, if gasoline hits $4 a gallon, it could push the U.S. economy back into a recession.

"I’ve never been a believer in the double-dip scenario," says Cramer, according to CNBC. "But with $4 gasoline, it could happen, especially if high fuel costs create a palpable sense of inflation."
He’s not the only analyst worried about the economic impact of higher gas prices. Mark Haines, co-anchor of CNBC’s “Squawk on the Street” program, also said Monday on MSNBC’s Morning Joe program that he fears a double-dip recession if U.S. oil hits $150 a barrel.

“No one knows for sure,” he said. “But if you told me oil’s going to $150 by spring or summer, then I would say, ‘OK, I’m putting my money on a double dip.”’



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