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Oil Prices and Recessions, 40 Years' Worth

Higher oil prices have in the past led the developed economies into recessions, as readers above the age of 50 will painfully recall. This idea was capably covered by my MoneyWatch colleague Jill Schlesinger the other day, so I will not repeat the analysis, but the weekend Financial Times featured a great, or should I say brilliant, graphic comparing the U.S. economy and oil prices since 1970, thus (click to enlarge):


There's been an oil spike before every recession. The wiggly line is the two-year percent change in oil prices.

The U.S. economy is far less sensitive to oil than it was 30 or 40 years ago -- note that the doubling in 2005 didn't get an immediate recessionary response -- but higher gasoline prices will reduce the income people have to spend, and dent whatever recovery is going on in the consumer sector. Enjoy the graph, if not the message.

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