Americans are getting hit on all fronts nowadays. Wages are flat or falling. Income tax bills are due by April 18. Food prices are rising. And gas prices, which are soaring toward $4 a gallon, now threaten to reverse the nation's economic growth rate.
Gasoline prices are rising because of the skyrocketing price of oil, which this week topped $108 a barrel. A gallon of regular averaged $3.71, according to AAA's daily tracking survey on Wednesday, up by nearly 90 cents in the past year. But in many parts of the country, gas prices have soared to more than $4.
This is not only squeezing consumers and businesses across the board, it's also threatening the nation's economic recovery to the point where top economists are now dramatically lowering their previous growth forecasts. That means a weakening recovery and slower job growth.
"The surge in oil prices since the end of last year is already doing significant damage to the economy," says chief economist Mark Zandi at Moody's Analytics.
Zandi says economic growth will be 0.3 of a percentage point lower if oil prices remain more than $100 a barrel this year. Should prices surge to $125 a barrel, economic growth would be cut by a full percentage point, and if oil prices go higher, the economy could be driven back into a recession.
The economy was modestly growing by little more than 3 percent in the fourth quarter of 2010, not enough to make a big dent in a nearly 9 percent unemployment rate.
But Zandi estimates that oil prices have sliced half of a point from the January-March first-quarter growth rate. That will push economic growth to a feeble 2.6 percent, which could drive jobless rates back to higher levels again.
Bernard Baumohl, chief economist at the Economic Outlook Group, has reduced his growth forecast this year from 3.5 percent to 2.8 percent.
s consumers are forced to spend more at the pump, they have less to spend on everything else. An Associated Press- GfK poll released this week found that "Two-thirds of Americans say they expect rising gasoline prices to cause hardship for them or their families in the next six months."Seventy-one percent say they're cutting back on other purchases to offset higher gas prices; 64 percent were driving less; 53 percent said they were abandoning vacation plans this summer and staying "closer to home."
What is the Obama administration doing about higher oil and gas prices? The short answer is: "not much."
President Obama came into office emphasizing a major energy-policy switch, focusing on biofuel research -- still years away from becoming a viable, cost-efficient energy alternative.
But Obama played down or opposed new oil exploration in the United States and the addition of more gasoline refineries to make the country more energy independent.
Now, as he officially begins his presidential campaign, he's speaking out about energy independence again, though it sounds like the same old, same old.
"Presidents and politicians of every stripe have promised energy independence, but that promise has so far gone unmet. That has to change," Obama said in a speech last week, as oil and gas prices soared and polls showed it was becoming a threatening issue for his presidency.
The AP said the speech contained some new ideas, but also had "many he's previously announced." It had the hallmarks of a hastily put together message to show he was on top of this issue. He isn't. Energy independence means developing our own vast resources of oil in the Artic region and in deep water, offshore fields in the Gulf and elsewhere. But drilling permits have slowed to a snail's pace in the last two years. And drilling in the Arctic National Wildlife Refuge, along with other reserves, is off-limits.
The fact is that Obama's moratorium on deep-water exploration has made us more dependent on foreign oil, not less. And it is going to take a long time before these permits result in oil production.
Obama knows that America still runs on oil, but his heart isn't in it. In his speech last week, he talked wistfully of developing four new biofuel plants over the next several years. Years! But these biofuels -- made from switch grass, wood chips and other plant matter -- are far from becoming economically viable energy sources, and in the end, they may never be.
The administration said that Obama's futuristic energy plans will require a lot of money for research and development but gave no estimates of what it will cost.
Meantime, the president ordered every government agency to buy a fleet of costly alternative-fuel vehicles by 2015, including hybrid and electric. The taxpayers, who are paying through the nose to gas up their own cars, will have to foot the bill.