WASHINGTON, Aug 12 (AFP) - Super-heated world oil prices kept American economic worries on the boil Thursday even as fresh data showed shoppers creeping back to the malls in July.
World oil prices careened to record highs as the US-led assault on Iraq's holy Muslim Shiite city of Najaf ignited fears of retaliatory attacks on the oil infrastructure.
Light sweet crude for delivery in September soared 70 cents to finish at 45.50 dollars a barrel, a record settlement price. It spiked at an all-time high of 45.75 dollars.
The news overshadowed a Commerce Department report showing retail sales rose 0.7 percent in July, recovering moderately from a June slump albeit at a slower pace than anticipated by private economists.
Stripping out motor vehicle sales, retail sales edged up 0.2 percent in July.
In June, overall retail sales declined 0.5 percent, a little better than the first estimate of a 1.1 percent slump, which had exacerbated fears of a mid-summer soft spot lingering.
"On the strength of not just rebounding motor vehicle demand, but improving demand in also most every other category, retail spending rose solidly in July," said Naroff Economic Advisors chief economist Joel Naroff.
"But if oil stays up so high and households and businesses start assuming this is a permanent, not temporary, price hike, there will be adjustments to demand. And the pressure to pass along the continued high energy costs will only build," Naroff said.
"Thus, the greatest risk to the economy is not the economic fundamentals, which remain solid, but the energy tax. That is not enough to derail the expansion, but it is enough to slow it down and cause firms to go back into turtle shell mode when it comes to hiring and investing."
Wachovia senior economist said the June retail spending slide had been cited as evidence that higher energy prices and sluggish wage growth were curbing spending.
"Higher energy prices are taking a toll on consumers budgets and psyche. The toll, however, is not nearly as great as earlier feared. Retail sales now show a drop of just 0.5 percent in June, which is weak, but not alarming," he said.
Federal Reserve policymakers raised the federal funds target rate, which banks charge each other overnight, by a quarter-point to 1.5 percent this week, saying high oil prices had bogged down the economy, including hiring, but they were confident in a rebound.
If oil prices stay high, those calculations would be in disarray.
American employers hired a meagre 32,000 extra workers in July, a government report showed last week, crushing market expectations for a gain of at least 240,000.
In a modestly encouraging sign for job hunters, however, the queue of Americans lodging new applications for jobless benefits shrank a little last week, a government report showed.
The number of new claimants fell 4,000 to a seasonally adjusted 333,000 in the week ended August 7, after a drop of 9,000 the previous week, the Labor Department said.