Oil prices soar, economy borders on recession

Truck driver Mike Monnin fills his tank with fuel at a cost of $3.959 per gallon at a truck stop in Pembroke, N.Y. David Duprey, The Associated Press

AP

Truck driver Mike Monnin fills his tank with fuel at a cost of $3.959 per gallon at a truck stop in Pembroke, N.Y. David Duprey, The Associated Press

By Jeannine Aversa

WASHINGTON – The price of oil gushed to a record high Monday, spreading dangerously to factories, groceries, gas stations and every citizen’s pocketbook.

Builders are building less, the government reported. Manufacturers are cutting back, another report said. General Motors Corp. and Ford Motor Co. said they would cut second-quarter production.

The galloping energy prices are doubly painful as the nation teeters on the edge of recession: High energy costs push companies to charge shoppers higher prices, then those consumers and businesses cut back in turn, dumping more cold water on the economy.

“It’s like throwing sands in the wheels of the economy,” said Brian Bethune, economist at Global Insight. “Things slow down. There is more friction and there is more complaining.”

Oil prices marched past $103 a barrel on Monday, the latest in a recent string of record-high oil prices, before settling at $102.45.

The steep run-up in oil and other energy prices “hits deeper and deeper into the consumers’ ability to spend. With a lot of households stretched by high food prices as well, it creates real problems,” said Joel Naroff, president of Naroff Economic Advisors.

Reports Monday showed factories feeling the sting of soaring costs for oil as well as other raw materials – pushing production costs higher even as some have to cope with fallout from a sour housing market that has sapped demand for their products.

Manufacturers in February logged their weakest performance in nearly five years, the Institute for Supply Management said. Industries that suffered declines included makers of furniture, textiles, machinery and chemical products.

Construction spending plunged by 1.7 percent in January, the biggest decline in 14 years, the government said.

Cutbacks covered a wide range, from home building to hotels to highways.

Unsure what to make of it all, Wall Street ended the day narrowly mixed. The Dow Jones industrials dropped seven points.

The average price of a gallon of gasoline stood at $3.165 Monday, according to AAA and the Oil Price Information Service. The Energy Department expects gas prices to peak at a record level near $3.40 this spring.