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Economic growth could be derailed by soaring energy prices NEW YORK - The troubled labor market might not be the only thorn in the economy's side. Surging energy prices could also do their part to throw the recovery off its course. In past recoveries, lower energy prices have helped boost the economy as it bounced from a prolonged slump. But we don't have that happening this go-around - in fact, prices are unexpectedly high, due to the troubling mix of shrinking supplies, a cold winter and the weak dollar. The big concern is whether prices will stick at these levels, and if that happens, how much - if anything - they'll knock out of economic growth. "Higher energy prices act like higher taxes on the economy," said Patrick Fearon, an economist at A.G. Edwards & Sons in St. Louis. "So far, this hasn't had a big impact, but it's something that must be watched." There has been so much good news lately regarding the economy. Manufacturing is up. Companies have started rebuilding their inventories. Both business and consumer confidence have surged in recent months. But new fears about the rebound's strength have started to percolate. Much focus has been on the still-sagging labor market, with businesses adding far fewer jobs than had been expected at this point in the recovery. And now attention is turning to the potential sting from higher energy prices. Prices skyrocketed, as expected, last winter as the war began in Iraq. The trouble is that they didn't then decline sharply once the military conflict ended. In fact, prices today are closing in on those levels reached as the war began. The price of crude is at a 10-month high, shooting above $36 a barrel last week on the New York Mercantile Exchange. The futures price of natural gas has climbed nearly 20 percent in recent months and now trades at levels around $6 per 1,000 cubic feet on the Nymex. It topped $7 earlier this month. Several factors are to blame. The frigid weather has bolstered demand and eaten away at already tight supplies. Commercial inventories of crude are now at the lowest level in at least two decades. There's also the effect of the dollar's slump against other major currencies, which is giving foreign oil producers less buying power because crude prices are set in dollars. Members of the Organization of Petroleum Exporting Countries, also known as OPEC, have said that it may cut production to protect themselves from the falling dollar, which would boost prices even higher. Should prices continue to climb, or even stay at these lofty levels, it could hit many parts of the economy. Start with consumers. When they pay more at the gas pump or see a big jump in the cost of heating their homes, that eats away at their disposable income and curbs the amount of money they have to spend in other places - including retail stores, restaurants, housing and travel. The price inflation can also hurt corporate earnings as companies have to shell out extra cash to operate. So while the economy has taken a turn toward improvement, the rising energy costs show that there still are some dangers ahead. Back to Original Article: Mortgage News You Can Use
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