From: Andrea Hopkins, Reuters
Published October 22, 2004 12:00 AM

U.S. Consumers Get Cold Feet as Energy Costs Soar

WASHINGTON — The surging cost of fuel oil and gasoline have set the stage for a cold, expensive winter in the United States and sparked concerns that consumers will cut spending, a move economists worry will hamper growth.

The chill of winter has already descended on Wisconsin, but Deidre May, a part-time hotel worker and divorced mother of five in this northern Midwest state, has yet to turn on the heat at home.

"I've purposefully kept the heat off because I know I can't afford to pay the bills right away," said May, a full-time Milwaukee college student with five daughters aged 6 to 19.

"I make sure the girls put on extra clothes and keep them as bundled up as they can be at night," she said, adding she has cut back on car trips and activities for the kids to save money for when winter descends and the heating bill soars.

On Wednesday, the average retail heating oil price hit a record $1.99 a gallon, while gasoline prices topped $2 a gallon earlier in the week, just 2.9 cents below the all-time high.


The inexorable rise in energy costs has prompted many Wall Street banks to lower their forecasts for 2005 economic growth, due to concerns the higher prices will finally derail the American consumer, whose stalwart spending kept the 2001 recession relatively short and shallow.

While U.S. gas prices are only about one-third of what many Europeans pay, economists said the price spikes have a big psychological impact in suburban and middle America, where car is king and prices are posted on nearly every street corner.

"Energy costs have already taken a toll on economic growth," said Jared Bernstein, an economist at the Economic Policy Institute. "Somehow that big sign on the gas station that says the price of a gallon just went up 2 cents, it just resonates in a way that other prices don't."

"(Add to that) the price of oil and expectations of where it is headed coming into the winter with home heating oil — it's leading consumers to be pretty nervous about their ability to meet their consumption needs," Bernstein said.

No Clarinet for You

Consumer sentiment fell sharply in early October, rattling some economists who say shoppers have already begun to cut back on luxuries and debt payments due to energy worries.

"As the prospects of a full-blown oil shock rise, the prospects of outright global recession in 2005 loom more and more likely," Morgan Stanley chief economist Stephen Roach said this week, in cutting his bank's growth outlook.

May said she knows her heating gas bill — which averaged about $200 a month last winter — will be more expensive this year, and she is braced for the worst, cutting back on the little extras like car trips to the library and clarinet lessons for her 11-year-old.

The Energy Information Administration forecast costs for heating with gas, oil, or propane will climb by at least 15 percent and by as much as 28 percent this year, taking the average winter heating bill to between $1,003 and $1,396. It also said the winter will likely be colder than usual.

Linda Meric, executive director of 9to5, the National Association of Working Women, said every day she hears from people who can barely get by in an economy that has not yet regained the jobs or momentum it had before the recession.

"We're still getting calls every day from people who have been looking for work for a very long time. And the ones who have found jobs have found jobs that pay significantly less and have fewer benefits than the job that have been lost," she said. "They are struggling now to make ends meet. With heating costs going up, it's only going to get worse."

Source: Reuters

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