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Specter of U.S. recession rises from turmoil Economists cite high oil prices, earnings woes, Mideast tension By Dina Temple-Ralston USA TODAY

During the past eight years the word recession had almost fallen out of U.S. economists' lexicon. But in recent weeks, the possibility of an economic downturn has grown, spurred by rising oil prices, a faltering euro and the latest Mideast turmoil.

Jason Trennert, managing director at ISI Group, puts the odds of recession at 35% in his economic forecast, up from 10% last month.

''Stock prices are down, oil prices are up and interest rates are high. The combination is lethal,'' he says. ''In the last couple of years, we've had high stock prices to boost the economy. In 1998, we had low oil prices. That's what makes this year different: We don't have one of those releases.''

Stephen Roach, chief economist at Morgan Stanley says the events unfolding around the world bear an eerie similarity to those of 1990. Then, the U.S. economy was coming in for a soft landing when Saddam Hussein marched into Kuwait. A brief energy shock ensued and that was enough to slow the global economy and spark a brief recession in the USA.

Before the latest run-up in oil prices, Roach says he put the chances of a global recession at 1-in-10. Today he sees the odds as high as 1-in-3. ''The point is when higher oil prices hit an economy that is already slowing, the risk of recession is very real,'' he says.

Investors can smell the fear. Despite a rally Friday, the Dow Jones industrial average is down 12% from its high and the Standard & Poor's 500 is down 10%. The tech-heavy Nasdaq has fallen 31%.

The latest stock market declines came in the wake of warnings of weaker earnings or slowing sales from big U.S. companies, including Home Depot and Dell Computer.

Adding to those worries, oil prices have soared. Crude for November delivery hovered around $35 a barrel Friday on the New York Mercantile Exchange -- more than 50% higher than a year ago. A day earlier, prices leapt more than 8%, the biggest one-day gain on a percentage basis since June 1998, as investors worried that escalating violence in the Middle East could disrupt oil supplies. With U.S. heating oil inventories already 51% lower now than at this time last year, the Northeast could suffer fuel shortages this winter.

Closely watched this week: Federal Reserve Board Chairman Alan Greenspan speaks today and Thursday to groups in Georgia and Washington.

There are bright spots in the economy. Retail sales rose 0.9% last month after increasing just 0.1% in August, the Commerce Department said Friday. ''We're still looking for a soft landing at the end of the year and 2% growth rate in the first quarter,'' says Paul Christopher at A.G. Edwards, who sees a 20% chance of a recession. ''Oil prices are the main reason we'd be more worried.''

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-- Martin Thompson (mthom1927@aol.com), October 16, 2000