NEW YORK - The price of gas 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 nationwide (it's $3.74 in Arizona). 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, 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. The reasons:
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• Jobs. The country has added 2 million over the past year. Those 2 million people with paychecks will spend them.
• 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.
• A steadier housing market, the Dow Jones industrial average's clearing 13,000 and other signs of an improving economy also help. Add them together and consumer confidence is the highest in a year. "The public will howl as we approach $4 gas, but they will probably continue to increase spending," says Carl Riccadonna, an economist at Deutsche Bank.
• Gas wasn't the only thing getting more expensive last year. Prices for milk, meat, bread and other foods were rising because of higher prices for grains and other farm goods. Natural-gas prices were also on the rise. This year, natural-gas prices have plummeted. Filling up the car's tank is about the only thing getting dramatically more expensive.
An oil shock would change everything. The scenario making the rounds on Wall Street starts with Israel bombing Iran's nuclear facilities. Analysts expect Iran would retaliate by trying to block access to the Persian Gulf, an attempt to pull 20 percent of the world's oil supply off the market.
In the event of a blockade, oil would skyrocket - think $150 or beyond - easily topping the record of $145 set in 2008.
"That's the wild card," says Kelly of J.P. Morgan. "That's the really big 'What if?' "