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Perhaps the biggest economic concern faced today is the skyrocketing price of oil, which seems to hit new highs on a daily basis. The sharp increase has had profound ramifications for many industries, notably the airline and car sectors, where gas prices are forcing changes in business models and creating increasingly hesitant customers. Given their direct connection to gas prices, it’s not surprising that those groups would suffer in this environment, but Credit Suisse is speculating that gas prices will create a casualty seeming unrelated to black gold: the restaurant sector.

In a note to clients, Credit Suisse singled out Sonic and Cheesecake Factory as two companies that could be hurt as customers reduce driving. Sonic in particular has a “disproportionate market dependence” on driving, the firm wrote, which is logical given Sonic’s eating model (the company refers to itself as “America’s Drive-In”).

“Sonic’s core markets are those most heavily dependent on driving vs. public transportation,” the firm wrote, noting that the company’s Oklahoma City market is first in the nation for consumer reliance on gas.

Cheesecake Factory is also expected to suffer from high gas prices, though perhaps not to the same extent as Sonic. Other macroeconomic factors could also hurt it, including its reliance on retail shopping for traffic and an above-average need for produce. As Daniel Plainview, the evil oil baron in “There Will Be Blood” once screamed, “I drink your milkshake! Or I would, restaurant chains, if I could afford it.”

Credit Suisse downgraded both Sonic and Cheesecake Factory to neutral from outperform and both fell to multi-year lows as a result. Sonic shares hit an intraday low of $15.65, their lowest price since September 2004, while Cheesecake Factory’s intraday low of $16.59 was their lowest price since October 2001.

But not all restaurants are expected to take a hit from gas prices. Credit Suisse noted that Texas Roadhouse was opening locations near residential areas, which could make it a gas tank-friendly place to drive to as customers look to spend their rebate checks.

Commercial and retail real estate lending standards have tightened significantly at major banks as lenders remain nervous about the broad economic environment, fall-off in market liquidity and downturn in residential housing markets across the U.S.

So says an annual Treasury Department survey released Thursday that looks at underwriting standards across the banking industry over the 12 months ending March 31. The survey covered 62 of the largest national banks, which together held loans totaling $3.7 trillion at the end of last year, or around 83% of all loans in the national banking system as of Dec. 31. Examiners looked at credit trends across the gamut of commercial and retail credit products, from residential first mortgages to commercial leasing to credit card lending.

After four consecutive years of “increasingly accommodative credit terms” the degeneration of financial markets in 2007 has led most banks to conclude that they’re less interested in risk and more interested in changing tack on loan standards and returning to “fundamental credit principles,” the survey’s authors at the Office of the Comptroller of the Currency wrote.

That account is in line with analyst warnings that banks face ongoing risk from exposure to bad loans. In a note to clients Friday Morgan Stanley analyst Betsy Graseck said she expects “cumulative loss forecasts to rise in residential mortgage related loans as housing values fall, in consumer loans as credit availability shrinks, and in commercial loans as consumer spending slows.”

Lenders have already begun to exercise some of the prudence in lending that the OCC sees continuing ahead – net tightening of underwriting practices for commercial residential construction, for example, rose to 62% of institutions in the year ending March 31 from 33% a year earlier and 11% in 2006. Only 2% of banks eased CRE lending standards in the most recent period, the agency said.

Fitch Ratings expects homebuilders will have to take more concessions at lenders in loan negotiations down the road. “Most of the public builders that Fitch tracks have negotiated new revolving credit agreements either late last year or so far in 2008,” the ratings agency wrote in a U.S. housing report last week. “Nevertheless, some builders may have to revisit their bank syndicates and request further covenant adjustments, especially relating to tangible net worth. During more recent negotiations banks have been lowering commitment amounts and charging higher fees.”

Banks are more vigilant when it comes to retail lending, too. Some 68% of retail lending institutions raised overall underwriting standards in the past year, up from 13% in 2007 and 7% in 2006 — a “major change from the past three surveys,” the OCC said. Residential real estate lending criteria tightened at 56% of banks this year. Additionally, high loan-to-value home equity loans, which typically exceed the value of a home, were harder to get at 89% of banks, compared with a 17% tightening a year earlier. The bar for conventional home equity underwriting was raised at 52% of institutions this year, up from 16% in 2007.

“Tightened credit standards should continue to largely offset improving affordability,” Fitch Ratings said of the current housing scenario. “The market for subprime loans is essentially non-existent, and within Alt-A, only a limited number of prime-like Alt-A loans are currently being originated,” the agency added.

Earlier last week Credit Suisse estimated 2008 residential mortgage originations at $1.65 trillion, the lowest level of activity since 2000.

Every bank surveyed by the OCC sees greater risk ahead in HLTV home-equity lending and more than two-thirds expect greater risk with conventional home equity loans. Some 60% of banks told the OCC they see more risk ahead in residential real estate lending.

Given the volume of housing loans outstanding, continued mortgage trouble ahead could sting banks. First lien and second lien mortgages account for about 40% of large-cap bank loan portfolios, Graseck said. As broad economic conditions deteriorate, and housing values continue to plummet, loan losses are accelerating, she said. Large-cap banks have so far taken only $48 billion of the total $229 billion in provisions Graseck expects from the fourth quarter of last year through the fourth quarter of next year.

It’s clear from the better-than-expected May retail sales data that Americans are spending their federal stimulus checks. And it’s equally clear that the spending is coming sooner than expected, which could mean a sharper slowdown in the fall - just in time for a hike in the Fed funds rate.

A highly-publicized campaign and a U.S. Treasury that moved the money out faster have caused spending to rise more than originally expected, analysts said, with consumers in some cases spending the cash before they even got it.

Retails sales jumped 1% in May, above the consensus for a 0.5% rise - and April’s data were revised to a 0.4% increase from a 0.2% decline.

Lehman Brothers estimates that just under half of the government’s $106.7 billion in tax rebates was delivered in May, and about 40% will be spent on goods or services over the next few months.

“Some will claim ‘resilience’ on the part of the consumer, but we view it like this - give the American consumer free money, and they will spend it,” said economist David Rosenberg, of Merrill Lynch.

Few observers, if any, viewed the government cash as anything but a temporary boost, with many estimates pointing to higher third-quarter spending and GDP growth in the third and fourth quarters.

If consumers spend 50% of the rebates, with about two-thirds of that showing up in core retail sales, “then it is quite likely that retail sales will be slumping three to six months from now, or at least underperforming the trend by a wide margin,” according to Goldman Sachs.

And then what? Will the consumer feel better? Not with home prices falling, gas above $4 a gallon and consumer sentiment dipping.

Consumer sentiment fell for the fifth consecutive month to its lowest level in almost three decades, to 56.7 in early June from a reading of 59.8 in late May, and beneath the consensus of 59.8 from a survey of economists polled by Thomson’s IFR Markets.

“Consumers spent more in May, buying food, shirts and gadgets, but they didn’t feel any better about their economic condition,” said Rosenberg.

If the effect of the stimulus wanes, which may dim expectations of a rate hike in September, the anti-inflation and strong dollar comments from Fed speakers in recent weeks is pointing the other way. The Fed funds futures are forecasting that a 25-basis point rate increase is more likely than not when the FOMC meets in August.

That’d be a rate hike to curb inflation for consumers who’ve already spent their free money.

A frequent complaint of Empire Staters is that New York has one of the highest tax rates in the nation. Those dissenting voices are apt to get a little louder now, as a law signed by Governor David Paterson created a sales tax for online purchases, making New York one of the first states to have such a plan.

There’s an old saying that no tax is a good tax, so there’s no surprise that online retailers Amazon and Overstock have already filed lawsuits challenging the tax, claiming it unconstitutional. But legality aside, will the tax really have much of an effect on online purchases in the state, which accounts for about 6% of total U.S. sales?

The measure is expected to raise about $50 million; a paltry sum as far as the budget goes, especially for a state as heavily populated as New York. In a research note, Deutsche Bank speculated that the new tax would only have a minimal tax on most online retailers, though it could pose a bigger issue for high-end luxury retailers.

The firm estimated that the impact of the law would be less than a penny a share for most companies in 2009, and that it wouldn’t impact online retailers by more than $1 in equity value. This is even if spending slows and some customers cease online purchases, an outcome Deutsche Bank doubts. “Because we estimate Amazon’s average order value to be in the $50-$60 range,” it said, “we don’t expect consumers to radically pull back on the spending, given taxes, on a dollar basis, is immaterial.”

The minimal impact for smaller orders goes to explain why Deutsche Bank sees bigger repercussions for such high-end retailers as Blue Nile, where the estimated average ticket value is $1,600. “Items with a higher basket value could cause incremental hesitation in shopping behavior, especially if tax becomes a factor in the shopping process,” the firm wrote. “With the backdrop of a tough consumer spending environment and a likely curb in luxury goods spending, we estimate 25% of consumers could choose alternatives through traditional channels.”

The firm expects that Blue Nile’s 2009 earnings could take a hit of 2 cents a share from the tax, despite New York’s reputation as a “tier-two city” for the company’s sales (Blue Nile’s biggest markets are San Francisco, Austin and Boston).

The full impact of the tax is yet to be seen, but it’s likely that if online sales don’t slow too much, other states may try and legislate similar taxes. This would only heighten the constitutionally question. Deutsche Bank didn’t go so far as to say it was unconstitutional, but it did say that it “certainly goes against the grain of Quill Corp. vs. North Dakota, as it leaves open the idea that any affiliate, rep, agent, salesperson that steps into the state will create a tax nexus for a company.”

Newspaper publishers might find themselves scanning the help wanted section in the not too distant future - that is, unless they can find a way to cash in on the Internet. More and more consumers are turning to the Web for the day’s top stories to conserve both time and money, leaving the online news providers to soak up advertising dollars that were once reserved for the black-and-white print providers.

Hitting the industry the hardest has been the drop in classified revenue as employers remain in a hiring hold pattern, fueld by macro-economic concerns, while consumers take their listings to the likes of craigslist.com for free. In fact, major classified segments have declined in the double-digit range year-to-date, according to the latest note from JPMorgan analyst Alexia Quadrani. “As ad dollars migrate out of print into digital areas, newspapers are contending with fewer ad pages and less pricing flexibility leading to ongoing low to mid single-digit declines,” Quadrani said.

Circulation revenue has also been on the decline as cheaper broadband connection options have given rise to greater Internet adoption in the U.S. Armed with a faster and more readily-available news alternative (not to mention free), consumers prefer to scan colorful Web pages or get their headlines through an RSS feed, as opposed to thumbing through the traditional sources.

“Near-term, we believe the cyclical headwinds that have beleaguered the (publishing) sector will continue with no significant economic turnaround expected in the short-term,” Quadrani said.

On a long-term growth basis, however, Quadrani acknowledged that Gannett Co. may exceed that of its peers because of its diverse assets, which include small-market newspapers, the USA Today (which earns premium pricing on high color content), online investments such as PointRoll and stakes in CareerBuilder, and high-quality broadcast TV assets that rank No. 1 and No. 2 in news in several important markets.

The weakness in the U.S. dollar has often been cited as a main reason behind the spike in oil prices this year, but some market observers are getting increasingly worried over the potential harm rising oil could do to the greenback.

Long-term evidence suggests that oil and the Dollar Index have shown a strong negative correlation at about 0.7. In other words, as oil prices rise, the dollar would fall and vice versa. The logic behind this is simple: as oil rises, consumers scale back spending, therefore slowing down the economy and leading to lower interest rates and a depreciating currency.

This inverse relationship didn’t hold in previous oil shocks, said Kathy Lien, chief strategist at DailyFX.com. But, she said, the current problems in the U.S. economy have made the dollar more vulnerable to downside risks.

There were three occasions over the past half century when oil prices spiked abruptly.

In 1973, oil jumped 134% after members of the then OAPEC (OPEC plus Egypt and Syria) announced that they were no longer exporting oil to nations that supported Israel in conflict with Syria and Egypt – a move that effectively shut down exports to the U.S., Western Europe and Japan.

In 1979, the price of crude oil soared 118% between January and December, with many analysts attributing the spike to the Iranian revolution and a gasoline shortage.

In both cases, the trade-weighted U.S. Dollar Index, which measures the greenback against a basket of the world’s major currencies, initially rallied along with oil as the Federal Reserve hiked interest rates to combat inflation, then sold off as growth contracted.

But the dollar behaved differently during the 1990 oil shock. Crude prices jumped 113% between June and October that year as a result of the Gulf War. The dollar, which was already in a downtrend because of Federal Reserve’s monetary easing, saw continued weakness this time as U.S. economic growth slowed.

Lien said the characteristics surrounding the oil price surge this time are more similar to the one in 1990 than those shocks of 1973 and 1979. “Therefore, it is easy to understand why the U.S. dollar has continued to weaken despite growing inflationary pressures,” she said.

The Federal Reserve has been consistently cutting interest and these rate cuts have played a far more dominant role in the price action of the dollar than the rise in oil, Lien said. “The market basically doesn’t believe that the Fed will start raising interest rates - and they have good reason to feel this way because based upon the last three oil shocks, growth in coming quarters should contract.”

The skyrocketing price of oil has sent tremors into all corners of the economy, but it’s likely that few areas have seen as powerful or negative an impact as the airline industry, which JPMorgan expects will report a record operating loss of $7.2 billion in 2008. It reported profits of $6.6 billion in 2007, and the swing is thanks almost solely to fuel prices, which are expected to rise $17.5 billion over 2007 levels. One trembles in the face of such numbers, and JPMorgan said that legacy bankruptcies and merge-at-all-cost attempts in the sector “are a question of when, not if.” It added that airline companies would engage in value destructive behavior “as they attempt to merely outlast one another.”

Compounding this problem is the belief that a merged airline would do little to offset fuel prices. The idea that it would “leaves out the fact that mergers take a lot of time and money, and don’t do diddly to reduce the price of a gall of jet-A,” said Michael Boyd, as quoted in an earlier post. Meanwhile, a move by the federal government is also expected to have little to no effect.

If airlines are to withstand the new fuel prices, JPMorgan said they would need to cut capacity by 20% in 2008. Current estimates put the change in capacity as just a 2% drop. Meanwhile, the prospect for traffic growth looks dim. On May 13, the Air Transport Association forecast a “marginal” 1% decline in passengers over the busy summer traffic season.

Instead of trimming the capacity fat, JPMorgan said the airlines are stockpiling cash in an attempt to outlast each other. But raising capital, it said, “buys time, but not much else.” The additional time could allow for fuel prices to drop, or for competitors to drop dead.

Waiting for competitors to die isn’t exactly the most responsible business plan, especially in a sector where JPMorgan considers most of the members having at least some risk of running into bankruptcy.

“If it sounds like we’re panicking,” the firm said, “it’s because few managements appear to be.”

Crude-oil futures staged a dramatic reversal in midday trading Thursday, at one point falling nearly $6 below its intraday high before recovering. Traders attributed the reversal to a combination of factors, including a sharp drop in natural gas prices, the options expiration of the June contract and broad fund-selling as traders locked in profits.

But for market bulls, there is little to fear.

UBS Investment Research’s Jan Stuart joined the growing chorus of Wall Street economists Thursday in predicting that the oil bull market still has much further room to run as demand growth is accelerating and supply remains tight.

“We are abandoning the idea of a near-term collapse in oil prices under the weight of a U.S. recession,” Stuart said in a research note.

UBS now expects the price for Brent oil will average $113.50 per barrel this year, $120 barrel in 2009 and $116 barrel in 2010. The new forecasts are 30%, 52% and 55% higher than prior estimates, and exceed consensus by 25% for 2008. For WTI (West Texas Intermediate) crude oil, the brokerage forecasts the price will average $115 this year, $120 next year, and $116 in 2010, which are 32%, 54% and 53% higher than previous forecasts.

Oil prices have rallied so sharply and counter-intuitively in the last seven months that it’s tempting to think that speculation or the slumping dollar are to blame, Stuart said. But when you look closely, it’s clear that fundamentals are at work, that oil markets are tight in key places and that relief from that tightening is still several quarters away, he said.

Real demand growth for several key oil products accelerated last winter, while their supply was constrained. “The resultant tension in oil markets has not abated,” he said. “Stress may well intensify this summer and in any case should play out all over again next winter. We therefore see no reason for prices to ‘correct’ until mid-2009.”

As oil hits record highs almost daily, many Wall Street analysts have been rushing to revise their oil price forecasts upward. Earlier this month, Goldman Sachs Arjun Murti argued that the possibility of oil at $150 to $200 per barrel “seems increasingly likely” over the next six to 24 months. In late April, CIBC World Markets wrote in a report that the “unprecedented scarcity” in supply will push oil prices to $150 a barrel by 2010, and $225 a barrel by 2012.

But a recent survey of oil and gas executives showed a majority expect oil prices will drop “significantly” from the current record level to less than $100 a barrel by the end of the year.