- Consumers struggling with $4 gasoline face ballooning costs for another energy source: natural gas. Natural gas futures have vaulted 154% since its Aug. 27 low to $13.203 per million British thermal units on Monday. The run-up has outpaced the rise in crude oil, which has doubled.
- Consumers may not feel the full impact immediately, but continued high prices will push up monthly utility bills, if they haven't already done so. Americans often use natural gas for heating stove tops and water, but they see a bigger hit when they fire up gas furnaces in the cold winter months. Also, rising prices show up in electricity costs, with natural gas providing the fuel for more power plants across the country.
- "The consumer really hasn't seen the impact of higher prices," said Chris Jarvis, president of Caprock Risk Management. "There aren't that many people griping about it yet."
- Utilities have begun to pass on some of those costs to customers. But rate increases vary widely, depending on location and other factors
- As a heavily regulated industry, utilities don't pass on higher energy costs as quickly as oil companies do at the pump. They also have long-term contracts, insulating them somewhat from soaring market natural gas prices.
- Xcel Energy (NYSE:XEL - News), which serves residents of Colorado and seven other states, has raised the price of electricity for customers by 15% in the first half of 2008 in Colorado, spokesman Tom Henley says. Xcel is proposing an additional 10% hike for the third quarter. Henley says natural gas prices are a key reason. Nearly half of Xcel's power capacity comes from natural gas. The other big power source is coal, which also is soaring in price.
- As for the natural gas that customers buy directly to heat their homes or water, Xcel wants rates in July that will be 38% above the year-ago period.
- Eisenhauer notes 44% of the utility's electricity comes from natural gas-fired power plants. Utilities rely on long-term contracts and other instruments, says Owen, shielding themselves from volatile spot and futures prices.
- Consumers should hope for no big hurricanes or a sweltering summer that requires more natural-gas fired electricity, they say (let's hope hurricane season is quiet this year, it would be the 3rd year in a row of no major hits - so we are pressing our bets)
Once again, I stress how anything consumer discretionary that does not cater to the upper 2% is in for a world of hurt in the year(s) ahead. Until home prices fall enough so people only use 1/3rd of their income on a rental/mortgage payment and/or people start getting wage increases of 7-10% type to reflect true cost of life the American consumer will be stressed. It is as simple as that - or I suppose if oil, gas et al drop to 2006 levels. People in power poo poo food and energy as if they were not the 2nd and 3rd/4th biggest line items in a persons expenses... the effects (psychological and economic) are tremendous. Without wages rising much, the pie of spending must draw down from one place (sporting events, camping trips, entertainment, non essential travel, Vegas, boating, eating out at restaurants, buying that extra pair of shoes) and go into essentials. This is pooring of America 101, and why sentiment gauges continue to fall to ungodly rates (in a low inflation, low unemployment - by government standards - economy).
- Consumer confidence fell in June to its lowest in 16 years as high inflation continued to sap confidence and pushed expectations for the future to a record low, the Conference Board said on Tuesday
- its inflation expectations gauge matched the record-high 7.7 percent (strange how consumers anticipate inflation, when government reports claim it's just silly to assume there is much)
- The Conference Board said its overall monthly measure of consumers' mood declined to 50.4 this month -- the lowest since 47.3 in February 1992 -- from a revised 58.1 in May.
- The index has now dropped by more than half since last July, when it was at 111.90.
- Consumers made a grim assessment of their present situation and their future prospects. The present situation index dropped to 64.5 from a revised 74.2 in May. The expectations barometer slid to an all-time low of 41.0 from a revised 47.3 in May.
4 comments:
Four + bedroom homes that heat with Heating Oil (Northeast) will take a direct hit and continue the trend down on selling homes. The volume of homes going on the market should increase tremendously. How come the geniuses in Congress have not piped up? Maybe in September, or closer to the election.
Their constituents have yet to really feel the hit - the grocery aisle and gas station are immediate so we will deal with that first. No one looks ahead or with timeline out farther than 8 weeks. So this is not on their radar
But shall we expect the Congressional Hearing on Utility Company Gouging by January 09 or March 09? :) Another parade of executives and another attack on speculators.
Perhaps oil will be back to $100-$110 and ng down by 25% by then and we can avoid part of the dog and pny show but most of these utilities are probably locked in at crude $60 and ng $6-8. So any increase will come as a shocker.
More fun for Congress!
OT: http://tinyurl.com/6zhq9g
"U.S. Sugar's land amounts to 9 percent of the total U.S. cane and beet acreage." Bought out by the state of Florida for wetland renewal.
DBA's holding are 22% sugar futures at present. One more inflationary pressure for the long term here.
Unless one thinks the sugar lobby will be allowing any more imports? McCain actually pledged to do so if elected, but I doubt he could keep that promise even if he were to win.
what is a good company to buy that will profit from the poeple freezing to death; that is, which electic company or other energy company..or will the ung do just fine..altho it doesnt move FAST>
Fed Keeps Rate at 2%, Cites `Upside' Inflation Risks (Update4)
By Craig Torres
June 25 (Bloomberg) -- The Federal Reserve kept its benchmark rate at 2 percent and warned that faster inflation may accompany some strengthening of the economy.
``Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased,'' the Federal Open Market Committee said in a statement today in Washington after a two-day meeting.
Fed Chairman Ben S. Bernanke and his colleagues ended the most aggressive monetary easing in two decades, refreshed their forecasts and reported some improvement in consumer spending. At the same time, crude oil prices have almost doubled in the past year and the cost of commodities from wheat to tin jumped to unprecedented levels.
``The Committee expects inflation to moderate later this year and next year,'' the Fed said. ``However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.''
Treasuries, which had fallen before the statement, dropped to their lows of the day before rebounding. Two-year note yields were 2.84 percent at 3:09 p.m. in New York, unchanged from late yesterday. The Standard & Poor's 500 Stock Index was up 1.5 percent at 1,333.71. The dollar weakened against the euro.
Next Meeting
``It is more or less a neutral statement, which is consistent with policy on hold pending more clarity,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``They are not tipping their hand for the next meeting.''
As policy makers convened, reports showed U.S. home prices fell the most on record, consumer confidence touched a 16-year low, and durable goods orders were unchanged in May. Households are also falling further behind on their debt, eroding profits at lenders. Banks and securities firms have taken almost $400 billion in asset writedowns and credit losses.
``Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters,'' the Fed said.
Dallas Fed President Richard Fisher dissented from today's decision, preferring an increase. He dissented against the rate cut at the April meeting.
Oil Prices
Oil prices touched a record $139.89 June 16, extending a rally that helped push the consumer price index up 4.2 percent in May compared with an average rate of 2.7 percent over the past decade. Energy costs are hurting profits and household incomes, and raising expectations for future inflation.
Dow Chemical Co. said yesterday that higher raw materials costs will cause the company to raise prices by as much as 25 percent in July, following an increase of as much as 20 percent. United Parcel Service Inc. lowered its second-quarter profit forecast on June 23 because of rising fuel costs and slowing U.S. growth.
American consumers foresee average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to the Reuters/University of Michigan survey.
Policy makers are ``going to remain about where they are until the data come in and make a strong case to move one way or the other,'' William Poole, former president of the St. Louis Fed, said in a Bloomberg Television interview.
Housing Recession
Home prices in 20 U.S. cities fell in April by the most on record, signaling the housing recession is far from over. The S&P/Case-Shiller home-price index dropped 15.3 percent from a year earlier. The gauge has fallen every month since January 2007. Employers have reduced payrolls for five consecutive months, helping push the unemployment rate to 5.5 percent.
Central bankers reduced the target rate for overnight loans between banks by 2.25 percentage points in 2008 with a series of aggressive rate actions, including two three-quarter-point cuts. In addition, the Fed invoked emergency authority in March to start lending directly to investment banks. The central bank also provided $29 billion of financing to secure JPMorgan Chase & Co.'s takeover of Bear Stearns Cos.
The financial system remains under stress. The Standard and Poor's Financials Index, which includes 90 bank, brokerage and insurance stocks, fell 21 percent from May 2 to June 24.
Chenault Warning
``Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,'' American Express Co. Chief Executive Officer Kenneth Chenault said in a statement today.
Financing rates are also rising for consumers. The rate on a 30-year fixed-rate mortgage rose to 6.3 percent June 24 versus 5.79 percent at the start of the year, according to Bankrate.com.
``There has been some tightening of financial conditions over the past month,'' Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington, said before the rate decision. ``That will certainly weigh on the outlook.''
Fed officials discussed their new forecasts for 2008, 2009 and 2010 at the meeting. Bernanke will reveal the FOMC's new outlook for inflation, growth and employment in his semi-annual congressional testimony next month.
Wall Street analysts are divided on how higher energy costs may affect growth. The 38 percent rise in oil prices this year absorbs more consumer dollars, pulling spending away from other goods and services. If inflation is allowed to rise further, the purchasing power of incomes could fall. After tax incomes adjusted for inflation rose at a 1.8 percent rate for the 12 months ending April, versus 3.1 percent for the same period a year earlier.
The federal government has also injected $70.8 billion into the economy through tax rebates, which could lead to one or two quarters of stronger growth and add momentum to price increases.
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