Job gains should offset higher gas and food prices

Posted May 12, 2011, at 7:54 p.m.

WASHINGTON — The best hiring market in five years should limit the damage from inflation and position the economy to thrive in the second half of the year.

Higher food and gas prices are threatening to slow growth this spring. But economists say the drag from inflation will likely be only temporary. Commodity prices are easing. Gas prices could follow in the weeks ahead.

“We are going to see the economy picking up steam,” said Joel Naroff of Naroff Economic Advisors, who is among many economists who think gas prices will taper off. “Lower energy prices will give consumers more confidence to spend, and higher consumer spending will give businesses more confidence to hire and invest.”

The nationwide average for a gallon of gas has jumped by more than a dollar in the past year, though it leveled off the past week slightly below $4 a gallon. And consumers are paying more for groceries, after the biggest monthly spike in food prices in nearly three years.

Surging prices for necessities, like gas and food, were the main reason sales at U.S. retailers rose 0.5 percent in April. It was the 10th straight monthly gain. But excluding sales at gas stations, the increase was a slighter 0.2 percent, the Commerce Department said. Grocery store sales rose at triple the rate from March.

Economists have expressed concerns that those higher prices could leave consumers with less money to spend on discretionary goods and services, such as cars and clothing, furniture and vacations. Those are the kinds of spending that help power the economy and embolden employers to hire.

But businesses felt confident enough in April to add 268,000 net jobs. It was the biggest monthly hiring gain in five years. Over the past three months, companies have added an average of 250,000 jobs a month — the best hiring stretch since a year before the recession began.

And the number of people seeking unemployment benefits dropped last week after a temporary spike in April, the Labor Department said Thursday.

The optimism is catching on with ordinary Americans. An Associated Press-GfK poll shows that more than two out of five people think the economy will improve. A third think it will stay the same. Nearly a fourth think it will worsen. The results mark a rebound from a more pessimistic attitude last month.

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