Oil shock threatens lasting changes to U.S. economy

By Emily Kaiser and Matt Daily - Analysis

WASHINGTON/NEW YORK (Reuters) - Oil's relentless price rise has pushed U.S. drivers off the road, curbed consumers' appetite for expensive goods, forced airlines into their deepest cuts in years and threatened car makers with a flood of red ink.

It all points to a dramatic shift in the U.S. economy as oil's surge above $130 per barrel forces already cash-strapped households and companies to rethink business as usual, and the changes are likely to be lasting, even if energy prices retreat.

"The weakness in the United States economy in housing, that we have read about for over a year, with the mortgage crisis and credit crunch, was one blow. But oil is another blow, and it's probably one blow too many," Dow Chemical (DOW.N) Chief Executive Andrew Liveris told Reuters.

The consumer response has been modest so far, but the pattern is clear. The number of miles travelled on U.S. roads fell 4.3 percent in March from a year earlier, the U.S. Department of Transportation said on Friday, the sharpest yearly drop on record and the first decline in the month of March since 1979, when the last major oil shock hit drivers.

Sales of gasoline-guzzling sport-utility vehicles have plummeted. The prices for used SUVs dropped by 17.5 percent year-over-year in April, according to Manheim Consulting, which tracks used vehicle sales. Compact cars were up 2 percent.

Businesses are reacting even more dramatically. "Going green" with energy efficiency programs, once a popular image-burnishing exercise, have now become a matter of survival for oil-intensive companies.

Gerard Arpey, CEO of American Airlines parent AMR Corp (AMR.N), said earlier this week the industry "will not and cannot continue in its current state" as he unveiled plans to cut thousands of jobs, retire old aircraft and charge passengers to check bags.

Automaker Ford Motor (F.N) announced production cuts on Thursday and said it no longer expected to return to profitability next year.