Recovery growing sturdier by the day, economists say

WASHINGTON — The U.S. economy is strong enough to withstand Middle East turmoil and the Japanese nuclear crisis. Only a big rise in the price of oil could stop it.

Those are the findings of a survey of leading economists who are increasingly confident in a recovery that is nearly 2 years old. They expect the economy to grow faster every quarter this year.

In part, that's because the economists believe Americans will spend more freely in coming months. Higher stock prices have made people wealthier. And a reduction in the Social Security payroll tax is giving most households an extra $1,000 to $2,000 this year.

Exports and corporate spending, which have helped drive the recovery, also are expected to remain strong, according to the survey.

The one factor that could make a second recession possible would be a jump in oil prices to $150 a barrel, economists say. Oil trades at about $112 a barrel now. The record high, set in summer 2008, is about $147.

"The economy is regaining some of its lost muscle and now seems to have a much thicker skin than it did six months or a year ago, and that's helping it handle various negative forces," said Lynn Reaser, a board member of the National Association for Business Economics.

While oil has risen almost $40 a barrel since Labor Day, analysts believe something extraordinary would be necessary to drive the price to a new high: either supply disruptions because of a new front in Mideast unrest or action by the Federal Reserve that brings down the value of the dollar.

Economists believe gas prices, now averaging $3.87 a gallon nationwide and rising every day, will stabilize by summer and drop to about $3.50 by fall. Rising gas prices are taking up much of what Americans are pocketing from the Social Security tax cut.

Still, Americans are spending more on furniture, cars and electronics. Apple's earnings, for example, nearly doubled in its most recent quarter, helped by record sales of iPhones and the iPad.

Businesses also are buying more computers and other equipment. Intel, the world's biggest semiconductor company, last week said its quarterly profit rose 29 percent. Corporate demand for PCs and the backroom hardware that powers computer data centers fueled orders for Intel chips.

Honeywell said its quarterly profit jumped 40 percent because of more demand for its industrial products.

The survey collected the views of 42 private, corporate and academic economists on a range of indicators. Among their forecasts:

• The economy will grow at a 3.2 percent annual rate in this quarter, then 3.4 percent from July through September and 3.5 percent from October to December. That would be stronger than the expected 2.2 percent pace for the first quarter.

• Employers will hire more. The unemployment rate, now 8.8 percent, will drop to 8.4 percent by December. That's more optimistic than the economists' view three months ago, when they predicted unemployment would be 8.9 percent by year's end. They believe employers will create 2.1 million jobs this year, more than double last year's 940,000.

• Average hourly pay, which has not risen fast enough over the past year to keep up with inflation, will rise. A majority of economists believe pay consistently will exceed inflation beginning in 2012 at the latest.

• Consumer spending will grow 2.8 percent this year. That's a bit weaker than economists predicted three months ago. But it's more than last year's 1.7 percent increase, when many Americans were still feeling the effects of the recession. The downturn wiped out $7 trillion in wealth and eliminated 7.5 million jobs.

• Inflation will come in at 2.8 percent this year, higher than predicted three months ago, mainly because of costlier energy and food. But 2.8 percent still would be lower than the average 3.2 percent inflation over the past 30 years. It was 1.5 percent last year.

Excluding food and energy prices, which tend to fluctuate, "core" inflation is expected to amount to 1.7 percent this year. That's within the range the Federal Reserve considers healthy.

Core prices last year rose 0.8 percent, the lowest since government records were first kept in 1958. Some Fed officials worried last year about the prospect of deflation — a destructive drop in prices. Those fears largely have faded as the economy has strengthened.

"We had a big jump in oil prices, but I think weather was the bigger factor" last quarter, said David Wyss, chief economist at Standard & Poor's. "So we'll return to stable growth through the rest of the year."

Still, depressed home prices and sales in many parts of the country are weighing on the economy. The Japan earthquake has slowed shipments of some manufacturing supplies, but it won't be enough to do real damage to the U.S. economic recovery.

Another factor in the growing optimism: Companies have added more than 200,000 jobs for two consecutive months, the first time that's happened in five years.