What Paulson did not mention was the surge in crude oil prices and the resulting spike in gasoline prices, which over the Memorial Day weekend topped $4.00 a gallon in the Washington area.

Crude oil prices, which reached a record $135 a barrel last week, have more than doubled over the past year and have soared 20 percent just in the month of May. Every recession since 1970 has been associated with a spike in oil prices.

Tax-Rebate Checks Won’t Help Much

Most economists believe that the tax-rebate checks being sent by the government will only provide a temporary boost to spending as smaller wage gains, declining home equity and soaring fuel costs keep eroding Americans' buying power.

Households will spend about $90 billion more this year on gasoline if fuel prices remain at current levels, according to a forecast by economists at Credit Suisse Holdings in New York. That will consume about 80 percent of the more than $110 billion in rebate checks the government is sending out.

The specter of $5.00 a gallon gas is also having its impact on the employment market. Businesses large and small are cutting back on investment and are scaling back their hiring plans.

Many technology, consulting and professional service firms are offering their employees the option of telecommuting one or two days a week to help offset the rising price of gas.

Nation’s Airlines Being Hit Hard

The nation's airlines are battling soaring aviation fuel costs by raising fares, charging for checked bags, cutting back on flights on many routes, and laying off workers. Many employers are cutting back on travel and using teleconferencing instead.

American, the world's largest airline, plans to scrap 75 planes and reduce the number of seats available on domestic routes by between 11 percent and 12 percent this year. An unspecified number of jobs will be lost from AA's 85,000-strong payroll as the airline closes and merges facilities.

Gerard Arpey, American's chief executive, says: "The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy."

Consumer Confidence Falling

Rising energy prices and falling home prices, coupled with tight credit and a weaker labor market are having a serious impact on consumer confidence.

The Conference Board's confidence measure fell to 60 this month, the lowest reading since August 1993. A similar index from Reuters/University of Michigan, to be released later this week, may have decreased to the lowest level since June 1980.

There may be a sliver lining according to several economists. They expect the economy to stabilize in the second half of this year, citing the fiscal stimulus (tax rebates), the impact of months of reduced borrowing costs through the Federal Reserves’ lowering of interest rates, and the hopeful final stage of bottoming for housing and the credit markets. This may then prompt an economic recovery expected to be slow and steady but protracted for the next several years.