How much of our economic woes are caused by oil?

The Labor Department released a rare bit of good news today: The number of new unemployment claims this week dropped to its lowest level in four months. Here’s a graph of weekly unemployment claims over the past decade:

Notice that in early 2011, unemployment claims were trending downward — suggesting that the jobs market was improving, however modestly — and then hit a bump about a quarter of the way through the year. What could’ve caused that?

One possible culprit was oil. Industry observer Stuart Saniford notes that the rough patch in employment this year lines up pretty well with the oil shock the country encountered after fighting in Libya took 2 percent of the world’s crude off the market. If true, notes Saniford, that could bode well for the months ahead: “Note that the slight elevation in new claims has been declining in recent weeks — just as global oil supply has been growing again.”

Are we really that in thrall to the oil markets? I asked James Hamilton, an economist at University of California, San Diego, who has researched the relationship between oil shocks and recessions. Earlier this year, he put out a study showing that 10 of 11 postwar recessions in the United States were preceded by a sharp uptick in the price of petroleum. While oil shocks, on their own, may not cause recessions, they can knock an already teetering economy over the edge. (And that includes the 2008 crash, which came about shortly after oil prices flickered near $150 a barrel.)

“I’d want to emphasize that this is really only one factor piled on top of other developments,” Hamilton says. “But there’s no question that higher oil prices contributed to slower economic growth earlier this year.” A rough estimate, he notes, was that the prices earlier this year shaved off anywhere from 0.5 to 1 percent of annualized GDP growth over that period. High oil prices tend to erode consumer confidence, and the squeeze on household budgets causes consumers to cut back on other spending. Even if oil prices then recede, that doesn’t mean the economy’s okay: “The ramifications of that drop in spending can take some time to ripple through the economy. Oil prices go up and it might be nine months later that we really see the full effects.”

And what about the months ahead? For now, the global oil supply appears to be expanding, though prices are still bouncing around, and it’s unclear where they’ll end up. What’s unnerving is that future oil shocks aren’t really something the United States can prevent. As Hamilton notes, even as Americans have been trimming their gasoline consumption in recent years, global prices have been driven by demand from fast-growing developing countries such as China, India and Brazil. Even if we’re in the clear now, it’s another thing to worry about.