- by Joel Naroff

The global economic recovery has been tootling along at a slow but steady pace. Consumers were spending their tax cuts, businesses were hiring and investing and it looked as if the economy was ready to shift gears from recovery into expansion. Recent events have produced political instability in some oil producing nations and the earthquake and tsunami in Japan has devastated its infrastructure. Suddenly, the path to economic recovery has become bumpier. Still, barring persistently higher energy costs, we should get through this challenging time.

The economic stars were aligning. Job growth was improving as the private sector added a solid 222,000 new positions in February. The gains were widespread as manufacturing, services and even construction companies decided it was time to meet the growing demand with additional workers. The public sector, however, continued to slash their workforces, especially in education. The need to balance budgets is great and the gamble is that by cutting teachers, education and long-term economic competitiveness will not suffer. We shall see.

With hiring ramping up, the unemployment rate is coming down, declining to 8.9 percent, the lowest since April 2009. Clearly, there are still too many people out of work, but the nearly 1 percentage decline in unemployment in just three months is heartening. The rapid reduction may slow as discouraged workers come back into the market, but the trend is down.

There were other indications the economy was starting to pick up steam. So far this year, retail sales have been impressive. People are buying big-ticket items such as vehicles, appliances and electronics as well as clothing and sporting goods. Consumer confidence has improved, though recently the rise in gasoline prices has begun to rain on the economic parade.

Indeed, the path from recovery to strong growth now has to go through high energy costs. We are spending billions more money on a gallon for regular gas, as prices have jumped fifty cents this year alone. It now looks like we could pump all the extra money from the tax cuts into our gas tanks. It is impossible to know how the chaos in North Africa and the Middle East will play out, but we could be in for an extended period of elevated gasoline prices.

But energy is not the only concern as food prices are surging as well. Wholesale food costs have soared at the fastest pace in decades. The higher producer costs have not been passed through to consumers as rapidly as in the past but more price hikes are coming. Rising consumer costs are not good news for households that are already stretched.

And then there is the Japanese situation. The human toll has been enormous and we still don’t know what the economic costs will be but they, too, will be huge. Japan is a major trading partner of the United States and there is little doubt their economy is in for a long period of rough times. That could lower our exports and slow our growth.

The economic recovery is still on track but now we face additional hurdles. Unlike three years ago when we were already in recession and $4.00 a gallon gasoline crushed spending, this time the economy is growing. That should help us get through this difficult time and, when conditions settle down, look for stronger growth to appear. Unfortunately, getting there may be more of a challenge than expected.