The highest retail gasoline prices in years are the latest development to raise concerns about one of the longest-running U.S. economic expansions on record.
Drivers across the U.S. in May paid as much as $2.96 a gallon on average, the most since 2014. Prices have climbed to $3.63 in California and $3.39 in Washington, states where prices tend to be higher because of factors such as higher taxes, environmental regulations and a lack of pipelines that transport oil west. As of Monday, the national average was $2.86 a gallon.
With wages in the U.S. climbing, Americans have so far been able to weather the higher prices. But analysts say that if average gas prices hit $3.50 or even $4 a gallon as global oil prices rise, that could dent growth by eating into disposable income and spending.
Some analysts say the recent run-up hasn’t pinched Americans too much. Drivers aren’t yet reshuffling plans or changing their habits.
But U.S. airlines have already increased ticket prices, and over time higher energy and manufacturing costs can eat into company profits, slowing hiring. Industrial giant 3M Co. MMM -1.89% and appliance maker Whirlpool Corp. WHR 0.08% are among those that have cited higher material costs as challenges. And despite improved incomes, consumers boosted spending only modestly in May, undershooting expectations.
The U.S. economy has entered its 10th year of expansion, one of the longest on record, but a Wall Street Journal survey shows that a majority of economists think a recession could come in 2020. Rising energy prices can also feed into inflation, which could prompt the Federal Reserve to raise interest rates more aggressively. The central bank has increased interest rates two times this year, and is expected to raise rates another two times.
Inflation data for June are due Thursday morning: The consumer-price index reflects the costs of everything Americans pay for, including gasoline.
“People are on the lookout for a downturn,” said Joseph LaVorgna, chief economist for the Americas at Natixis . “Tight monetary policy combined with rising energy costs is typically not a good development for U.S. households.”
While the stock market and employment trends remain strong, threats loom with the U.S.-China trade dispute. On Friday, both countries slapped levies of $34 billion on each others’ exports, kicking off America’s biggest trade battle since the Great Depression. Late Tuesday, the White House said tariffs are planned on an additional $200 billion in Chinese goods.
Investors have also spotted signs of a slowdown in other markets. Last week, a widely watched difference between Treasury yields—known as the yield curve—fell to its lowest in nearly 11 years—a development that can suggest economic weakness.
“Every recession has been preceded by two things: an inverted yield curve and rising oil and gas,” Mr. LaVorgna said.
Falling inventories and global demand have propelled oil to the highest prices in more than three years. Gasoline prices are closely linked with oil, but it can take time for increases in crude prices to translate to more expensive fuel.
And the oil market has also been volatile. U.S. crude futures closed near the highest levels since November 2014 on Tuesday but slid 2% Wednesday.
President Donald Trump has blamed the Organization of the Petroleum Exporting Countries for the oil rally and asked Saudi Arabia to further increase output. On July 4, he tweeted, “The OPEC Monopoly must remember that gas prices are up & they are doing little to help.”
Analysts said Mr. Trump may be trying to lower gas prices ahead of this year’s midterm elections. However, his tweets have had mixed effects.
“The gasoline story in the U.S. is very much a geopolitical story. It’s down to OPEC, its down to Saudi Arabia and it’s down to Iran,” said James McCullagh, an analyst at Energy Aspects. “Ultimately, the price of crude isn’t playing ball at the moment,” he said.
Average gas prices are still below their peak of $4.11 in 2008, when prices eventually topped $5 in parts of the country, expediting an economic downturn. Gasoline again reached the $3.50 to $4 range between 2011 and early 2014. But then, growth in the economy was robust, helping drivers pay more at the pump.
A surging oil market is rarely the sole factor in triggering a downturn. But in recent months, rising prices have been attributed to concerns over a possible supply shock, which could pose a greater threat to the global economy than a demand-driven rally.
Other indicators on the health of U.S. energy demand are mixed. Vehicle miles traveled in April fell a seasonally adjusted 0.6% compared with the previous year, according to the Transportation Department. Gasoline demand fell from a year earlier in both May and June, the first consecutive monthly decline since the start of 2017, the financial firm Cowen & Co. estimates.
Gasoline demand tends to be fixed as drivers rely on driving to get to work and for tasks such as grocery shopping. That makes high fuel prices especially concerning for the broader economy.
Deserey Morales, who works at a nightclub in L.A., said she finds current gas prices “ridiculous.”
But she said it wouldn’t change how much she drives.
“You still have to do what you have to do,” Ms. Morales said. “I don’t really have the choice.”
—Ian Lovett contributed to this article.
Write to Stephanie Yang at stephanie.yang@wsj.com