This Week in the Economy

Take whatever stigma you've attached to economics and check it at the door. This stuff can really get you going. I know it gets me fired up. Of course, with all of the chatter about recession vs. recovery, inflation vs. stagflation, and bailout vs. bankruptcy, keeping abreast of the latest economic events can be a Herculean task.

Fear not, Fools. In this regular series, we're here to compress the week's economic developments into a simple-to-understand summary. And we promise to keep it completely free of the hieroglyphics and eight-syllable words that weasel their way into standard academic forecasts. Here's the latest scoop.

It's the oil, stupid
Nationwide, the average price of a gallon of gasoline now tops $3.87. Beyond pinching consumers, the soaring price of gas is starting to have a dramatic impact on businesses as well. Reacting to surging jet fuel costs, American Airlines parent AMR (NYSE: AMR  ) decided earlier this week to cut the number of seats offered by up to 12% in the fourth quarter of this year, and imposed a $15 fee on some domestic passengers for their first piece of checked luggage. Later in the week, Ford (NYSE: F  ) announced it would shut down a Michigan assembly plant that produces gas-guzzling SUVs for over a month this summer in response to tumbling demand.

The layoff blues
Filings for initial jobless claims took an unexpected dip, falling by 9,000 last week to settle at a seasonally adjusted 365,000. Despite the drop, JPMorgan Chase (NYSE: JPM  ) , inching closer to its adoption of embattled investment bank Bear Stearns (NYSE: BSC  ) , announced it planned on letting go almost 8,000 Bear Stearns employees. American Airlines, reacting to its woes mentioned above, plans to lay off thousands of workers, and Media General (NYSE: MEG  ) announced plans to hand out pink slips to nearly 11% of its headcount by this fall.

Lifestyles of the rich and overextended
A recent survey of 250 households with $500,000 or more in investable assets shows even those not scrimping for money are showing signs of economic strain. 65% of those surveyed said they planned on hanging on to their car for a longer period of time, 38% disclosed they would pare back travel, and 47% reported they would consider a vehicle with better fuel efficiency. None of that is good news for high-end companies like Tiffany (NYSE: TIF  ) and Sotheby's (NYSE: BID  ) , but then again, trying to keep up with the Joneses rarely goes out of style.

Time for a vacation, Bernanke
After financial markets gone awry ignited a campaign to slash interest rates, it looks like Bernanke & Co. have reached the end of their line. Minutes released from a recent Federal Reserve meeting show last month's decision to cut rates by 25 basis points was a "close call," leading some to believe the odds of future cuts are slim at best. For homeowners up to their eyeballs in adjustable rate mortgage products, that doesn't come as welcome news. Nonetheless, rampant inflation and a plummeting dollar could begin to subside if the market believes interest rates will stand pat, alleviating some of consumers' pain.

Half a trillion in bank relief
Since December, The Federal Reserve has auctioned off a staggering $510 billion to banks hit by the credit crunch. The loans -- the latest of which carry a skinny 2.1% interest rate -- are part of a new weapon the Fed designed to help unplug the debt market that threatened to wreak more havoc than was already done on the all-important banking sector.

That's the latest for this week. Check back in next Friday for the latest economic roundup.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. He appreciates your questions, comments, and complaints. The Fool's disclosure policy is all about investors writing for investors.


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