Higher enegy prices hurt economy

by William Yeatman on August 3, 2004

in Blog

The slowdown in the growth of the U. S. economy in the second quarter has been put down to rising energy prices. the rate of annual growth in gross domestic product declined from 4.5 percent in the first quarter to 3 percent in the past three months. Consumer spending also dropped from a growth rate of 4.1 percent to a meager 1 percent in the second quarter.

Although economists predict the economy to rebound over the next few months, analysts say rising oil prices are the biggest threat to this recovery. Crude oil is up 35 percent since January 1, at around $44/barrel on the New York Mercantile Exchange. Sung Won Sohn, chief economist at Wells Fargo Bank, told the Boston Globe (July 31), “Rising oil prices are one of the biggest concerns I have. Its like a tax, and that will hurt consumers and the economy in general.” Economists generally agree that long-term high oil prices hurt consumer spending, which is one of the primary drivers of economic growth.

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