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Leading economists in survey strongly confident in economy

The American economy is now strong enough to withstand Middle East turmoil and the Japanese nuclear crisis. Only a big rise in the price of oil could stop it now.

Those are the findings of an Associated Press survey of leading economists, who are increasingly confident in a recovery that is nearly two years old. They expect the economy to grow faster every quarter this year.

In part, that's because the economists think Americans will spend more freely in the coming months. Higher stock prices have made people wealthier. And a cut in the Social Security payroll tax is giving most households an extra $1,000 to $2,000 this year.

American exports and corporate spending, which have helped drive the recovery, are also expected to remain strong, according to the quarterly AP Economy Survey.

The one factor that could make a second recession a possibility would be a jump in oil prices to $150 a barrel, economists say. Oil trades at about $112 a barrel now. The record high, set in the summer of 2008, is about $147 a barrel.

While oil has risen almost $40 a barrel since Labor Day, analysts think it would take something extraordinary to drive the price all the way to a new record.

Economists think gas prices, now averaging $3.87 a gallon and rising every day, will stabilize by summer and drop to about $3.50 by fall. Rising gas prices are taking up much of what Americans are pocketing from the Social Security tax cut.

Still, Americans are spending more on furniture, cars and electronics. Apple Inc.'s earnings, for example, nearly doubled in its most recent quarter.

And businesses are buying more computers and other equipment. Last week, Intel Corp., the world's biggest semiconductor company, said its quarterly profit rose 29 percent. Corporate demand for PCs and the backroom hardware that powers computer data centers fueled orders for Intel chips. And Honeywell said its quarterly profit jumped 40 percent.

The AP survey collected the views of 42 private, corporate and academic economists on a range of indicators. Among their forecasts:

* The economy will grow at a 3.2 percent annual rate in this quarter, then 3.4 percent from July through September and 3.5 percent from October to December. That would be stronger than the expected 2.2 percent pace for the first quarter.

* Employers will hire more. The unemployment rate, now 8.8 percent, will drop to 8.4 percent by December. That's more optimistic than the economists' view three months ago, when they predicted unemployment would be 8.9 percent by year's end. The economists think employers will create 2.1 million jobs this year, more than double last year's 940,000.

* Average hourly pay, which has not increased fast enough over the past year to keep up with inflation, will rise. A majority of economists think pay will consistently exceed inflation beginning next year at the latest.

* Consumer spending will grow 2.8 percent this year. That's a bit weaker than economists predicted three months ago. But it's more than last year's 1.7 percent increase, when many Americans were still feeling the effects of the recession. The downturn wiped out $7 trillion in wealth and eliminated 7.5 million jobs.

* Inflation will come in at 2.8 percent this year, higher than predicted three months ago, mainly because of costlier energy and food. But 2.8 percent would still be lower than the average 3.2 percent inflation over the past 30 years. Last year, it was 1.5 percent.

All that has lifted confidence that the recovery will endure and even strengthen. Tax cuts and the Fed's $600 billion program to buy federal bonds have helped fortify the rebound, economists say. Many economists say the Fed's bond purchases helped keep interest rates low, encouraged spending and fueled a stock rally.

Another factor in the growing optimism: Hiring is up. Companies have added more than 200,000 jobs for two straight months -- the first time that's happened in five years.

Larger stock portfolios have emboldened consumers, too. The S&P 500 index has surged 28 percent the past eight months.

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