The United States 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.
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.
Exports and corporate spending, which have helped drive the recovery, also are expected to remain strong, according to the survey. And looks like the auto industry backs these findings.
Ford posted its best first-quarter profit in 13 years thanks to an improving economy and a lineup of fuel-efficient vehicles that reached showrooms as gasoline prices surged.
Operating profit of $2.8 billion was the strongest for a first-quarter since 2004 and $2.1 billion of that was from automotive operations as consumers continue to embrace the automaker’s vehicles, which include new and fuel efficient models.
Gm did not post any numbers for the first-quarter, but analysts are expecting the automaker to post a profit of 93 cents per share on revenue of $35.59 billion. Technical indicators for the stock are bullish and S&P gives GM a positive 5 STARS (out of 5) strong buy ranking.
Fiat, the Italian carmaker that invested in Chrysler on the latter’s exit from bankruptcy, has said it will exercise an option to raise its stake in the US auto manufacturer from its current 30 per cent to 46 per cent. As a condition for the deal, Chrysler will repay a $7bn loan it received from the US and Canadian governments during the financial crisis. So, again, we expect to see positive indicators here.
The one factor that could make a second recession a possibility would be a jump in oil prices to $150 a barrel, economists say. World oil prices in the USD 130-150 range are cited by macro economic forecasters as levels that would sap consumer spending and threaten the fragile global economic recovery.
Oil trades at about $112 a barrel now. The record high, set in the summer of 2008, is about $147 a barrel.
“The danger is that if prices keep rising, any growth slowdown will be more severe, leading to a great chance of recession. This has been common following 100 per cent oil price rises,” said Richard Batty of Standard Life Investments.
Other pointers, used by Batty and other economists, are that each $10 per barrel rise, if sustained, adds 1 per cent to inflation and shaves 0.5 per cent off gross domestic product.
Libya and other OPEC members in the Middle East and North Africa (MENA) produce 34 million barrels of oil a day and represent three-quarters of the world’s reserves — so it’s not surprising that escalating tensions in the region have rattled the markets and sent crude prices soaring.
However, “The response from Opec to the loss of Libyan crude has been quite modest. We are still waiting to see much sign of a pick-up in terms of rising Opec supplies,” said Fyfe from IEA.
But a CNNMoney survey of economists predicts that the pace of growth slowed to just 2 percent in the first three months of this year. Only three weeks ago, expectations were for 2.7 percent, while some forecasts ran as high as 4.3 percent just one month earlier.