NEW YORK — The price of gas in the United States has jumped 45 cents since Jan. 1 and is the highest on record for this time of year, an average of $3.73 a gallon. On Wall Street, talk has turned from the European debt crisis to another worry: Will higher gas prices derail the economic recovery?
Not yet, economists say. They argue that the United States is in much better shape than early last year, when a similar surge in fuel prices weighed on economic growth by squeezing household budgets. Americans spent less on clothes, food and everything else.
Rising gas prices hurt less when an economy is improving than when it's slowing down. So economists expect other spending won't be badly hurt, at least for now. If gas breaks its record of $4.11 a gallon, however, all bets are off.
"Can the economy withstand the increase we've seen so far? The answer is yes," says David Kelly, chief market strategist at J.P. Morgan Funds.
Jobs: The country has added 2 million over the past year. Those 2 million people with paychecks will spend them, which helps the economy.
Job security: Unemployment claims, the best measure of layoffs, are at a four-year low. Fewer Americans are worrying about losing their job, so they can take the punch of higher gas prices and move on.
General improvements: A steadier housing market, the Dow Jones Industrial Average's ascent to 13,000 and other signs of an improving economy also help. Add them together and consumer confidence is the highest in a year. More confidence makes people more likely to keep spending on other things even if gas goes up.
"The public will howl as we approach $4 gas, but they will probably continue to increase spending," says Carl Riccadonna, a senior economist at Deutsche Bank.
The key is what impact gas prices have on other spending. All consumer spending isn't equal. A dollar spent on gas has less of an impact on the U.S. economy than a dollar spent in a restaurant or at a baseball game. The U.S. is an oil-importing country, so many of the dollars spent on gas ultimately leave the country.
The rule of thumb among economists is that a 25-cent increase in gas knocks $25 billion to $30 billion off consumer spending in a year and lowers economic growth by 0.2 percentage points, says Carl Riccadonna, senior economist at Deutsche Bank.
"It's really a two-horse race," Riccadonna says. "There's rising energy costs, and then there is households' ability to handle those rising costs."
So far, households appear to be keeping up. Economists think the economy will grow at a 2.2 percent annual rate in the first half of this year, compared with 0.9 percent in the first half of last year.
Some economists believe oil and gas prices are already nearing a danger zone. "We're getting close to a point where we should start worrying," says Thomas Simons, a market economist at Jefferies & Co. "People hate paying for gas. You get no pleasure out of it, unlike food or clothes."
If gas goes to $4.50 a gallon and stays there, it would cost each household about $1,000 more this year than last to buy the same amount of gas.