Consumers feeling bite of soaring cost of living

Consumers feeling bite of soaring cost of living

As energy, health care prices increase, inflation could bare its teeth

12:00 AM CDT on Tuesday, October 11, 2005

By BRENDAN M. CASE / The Dallas Morning News

Credit counselor Bonnie Peterson usually helps people get a handle on their finances. Now, with energy costs going through the roof, she's fretting about her own bottom line, too.

Checking personal spending records, she ticks off recent rises in her monthly bills and lists others that are on the way. Already, her gasoline prices have nearly doubled, and she's bracing for big jumps in electricity and natural gas.

"I wish there was some light at the end of the tunnel," said Ms. Peterson, director of education and marketing at Consumer Credit Counseling Service of North Central Texas. "But I don't see any right now."

The great consumer squeeze of 2005 has begun, and analysts say it will soon get worse.

As energy costs soar, there's more than a whiff of inflation in the air, and Federal Reserve officials are warning of further interest-rate increases.

Bigger energy bills come on top of years of steadily increasing health care costs. And for most people, wage and salary gains have been modest at best.

"The consumer's getting hit by a lot of different things," said Nariman Behravesh, the chief economist of Global Insight, a Massachusetts consulting firm. "Something's got to give, and that something is discretionary spending."

That might spell bad news for the holiday shopping binge, not to mention consumer spending on everything from stereos and restaurants to ski trips.

But it doesn't necessarily mean the economy's about to slip into a recession. By most measures, it's holding its own.

The leading cause of soaring oil prices is strong worldwide demand, not least in the U.S., which speaks of a healthy economy, analysts say. Soaring home prices, particularly in coastal states, have made millions of people feel wealthier than they did a few years ago.

Even September's U.S. unemployment data came in better than expected, despite massive dislocation on the Gulf Coast from the hurricanes last month.

But generally speaking, rising energy prices mean less money for people to spend on other goods, and consumer spending accounts for about two-thirds of economic activity.

Sales results mixed

Recent sales results for retailers were mixed. But the longer energy prices stay high, the worse the impact on consumer spending.

"It's not just a low-income-household story," said Michael Niemira, chief economist at International Council of Shopping Centers in New York. "Since about June or July, we started to see more middle-class households say they're scaling back on nonessentials. Now we've found that even high-income households are concerned and are cutting back."

There's no question that many people's sense of well-being has swooned in the wake of the hurricanes and rising energy prices.

Consumer confidence fell to its lowest level in 12 years in September, according to the University of Michigan's Index of Consumer Sentiment.

The Michigan index fell to 76.9 in September from 89.1 in August – the largest monthly decline since 1978. The index had stood at 96.5 in July.

A separate consumer confidence index, maintained by The Conference Board, a not-for-profit group, also fell in September, reaching its lowest level in nearly two years.

Sour consumer feelings don't necessarily translate into falling consumer spending, economists say. Besides, people always have a little more room to cram purchases onto their credit cards, right?

Maybe not as much as before. Credit card loan delinquencies climbed to a record high of 4.81 percent of accounts from April to June, the American Bankers Association said recently.

And that was before gasoline prices took off.

Ms. Peterson, the credit counselor, reports that she bought her first tank of gasoline this year at $1.64 a gallon. Now the price is nearly $3 in the Dallas area.

Natural gas prices are fueling increases in electricity and home-heating bills. TXU Energy has proposed a 24 percent rate hike in coming months. Heating bills are expected to jump as much as 90 percent this winter.

Tina Franco, a nurse in Wylie, is looking to save money by conserving.

She's keeping the lights off at home whenever she can and is carefully scheduling house calls to patients to reduce the number of times she has to drive to distant neighborhoods.

Ms. Franco is also cutting back her shopping, buying a big load of groceries monthly instead of stopping at the supermarket each week.

"One trip to Sam's Club or Costco will save a lot of money," she said. "Before, I went to the grocery every week."

Even so, some increases are hard to avoid.

Ms. Franco reckons she's spending an additional $100 per month for gasoline compared with what she spent earlier this year.

"I'm driving an SUV, so it's really killing me," she said.

Health care cost increases don't scream out from signs on every corner, as gas prices do.

But health insurance premiums increased 9.2 percent this year, according to a study covering January to May by the Kaiser Family Foundation and Health Research and Educational Trust.

Dallas Morning News | News for Dallas, Texas | Business


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