WASHINGTON (AP) — The American economy is now strong enough to withstand Middle East turmoil and the Japanese nuclear crisis. Only a big rise in the price of oil could stop it now.
Those are the findings of an Associated Press survey of leading economists, who are increasingly confident in a recovery that is nearly two years old. They expect the economy to grow faster every quarter this year.
In part, that’s because the economists think Americans will spend more freely in the coming months. Higher stock prices have made people wealthier. And a cut in the Social Security payroll tax is giving most households an extra $1,000 to $2,000 this year.
American exports and corporate spending, which have helped drive the recovery, are also expected to remain strong, according to the quarterly AP Economy Survey.
The one factor that could make a second recession a possibility would be a jump in oil prices to $150 a barrel, economists say. Oil trades at about $112 a barrel now. The record high, set in the summer of 2008, is about $147 a barrel.
“The economy is regaining some of its lost muscle and now seems to have a much thicker skin than it did six months or a year ago, and that’s helping it handle various negative forces,” said Lynn Reaser, a board member of the National Association for Business Economics.
While oil has risen almost $40 a barrel since Labor Day, analysts think it would take something extraordinary to drive the price all the way to a new record – either supply disruptions because of a new front in the Mideast unrest or action by the Federal Reserve that brings down the value of the dollar.
Economists think gas prices, now averaging $3.87 a gallon and rising every day, will stabilize by summer and drop to about $3.50 by fall. Rising gas prices are taking up much of what Americans are pocketing from the Social Security tax cut.
Still, Americans are spending more on furniture, cars and electronics. Apple Inc.’s earnings, for example, nearly doubled in its most recent quarter, helped by record sales of iPhones and the popular iPad.
And businesses are buying more computers and other equipment. Last week, Intel Corp., the world’s biggest semiconductor company, said its quarterly profit rose 29 percent. Corporate demand for PCs and the backroom hardware that powers computer data centers fueled orders for Intel chips. And Honeywell said its quarterly profit jumped 40 percent because of more demand for its industrial products.
The AP survey collected the views of 42 private, corporate and academic economists on a range of indicators. Among their forecasts:
– The economy will grow at a 3.2 percent annual rate in this quarter, then 3.4 percent from July through September and 3.5 percent from October to December. That would be stronger than the expected 2.2 percent pace for the first quarter.
– Employers will hire more. The unemployment rate, now 8.8 percent, will drop to 8.4 percent by December. That’s more optimistic than the economists’ view three months ago, when they predicted unemployment would be 8.9 percent by year’s end. The economists think employers will create 2.1 million jobs this year, more than double last year’s 940,000.
– Average hourly pay, which has not increased fast enough over the past year to keep up with inflation, will rise. A majority of economists think pay will consistently exceed inflation beginning next year at the latest.
– Consumer spending will grow 2.8 percent this year. That’s a bit weaker than economists predicted three months ago. But it’s more than last year’s 1.7 percent increase, when many Americans were still feeling the effects of the recession. The downturn wiped out $7 trillion in wealth and eliminated 7.5 million jobs.
– Inflation will come in at 2.8 percent this year, higher than predicted three months ago, mainly because of costlier energy and food. But 2.8 percent would still be lower than the average 3.2 percent inflation over the past 30 years. Last year, it was 1.5 percent.
Excluding food and energy prices, which tend to fluctuate, so-called core inflation is expected to amount to 1.7 percent this year. That’s within the range the Federal Reserve considers healthy.
Last year, core prices rose only 0.8 percent, the lowest since government records were first kept in 1958. Some Fed officials worried last year about the prospect of deflation – a destructive drop in prices. Those fears have largely faded as the economy has strengthened.
“We had a big jump in oil prices, but I think weather was the bigger factor” last quarter, said David Wyss, chief economist at Standard & Poor’s. “So we’ll return to stable growth through the rest of the year.”
The brighter forecasts come as U.S. companies are exporting more planes, industrial machinery, coal and other goods. IBM got a boost in its most recent quarter, for example, from brisk sales of hardware. Sales were especially robust in China and Russia.
All that has lifted confidence that the recovery will endure and even strengthen. Tax cuts and the Fed’s $600 billion program to buy federal bonds have helped fortify the rebound, economists say. Many economists say the Fed’s bond purchases helped keep interest rates low, encouraged spending and fueled a stock rally.
Solid demand from customers at home and overseas has invigorated U.S. factories. Factory production grew more than four times as fast as the overall economy likely did in the January-to-March quarter. The government will estimate first-quarter growth on Thursday.
Still, depressed home prices and sales in many parts of the country are weighing on the economy. The Japan earthquake has slowed shipments of some manufacturing supplies, but it won’t be enough to do real damage to the U.S. economic recovery. Apple says it sees no insurmountable supply shortage resulting from the disaster. IBM was hardly affected.
Another factor in the growing optimism: Hiring is up. Companies have added more than 200,000 jobs for two straight months – the first time that’s happened in five years.
Larger stock portfolios have emboldened consumers, too. The S&P 500 index has surged 28 percent the past eight months.