High prices may hurt US spending

Mitchell Gryboski is spending less on restaurants and video rentals because surging natural-gas prices and colder-than-normal weather are jacking up his heating bills.

Gryboski, who heats his 500m2 bungalow on Chicago's northwest side with natural gas, is feeling the pinch from a doubling in wholesale prices since the heating season began in October. Homeowners in the Northeast who use heating oil are also paying more because of the cold and concern that there may soon be a war in Iraq.

"It hurts," said Gryboski, 33, who installs digital controls on boilers for a living. Bigger energy bills "are taking money away that I would've spent elsewhere."

Higher costs may restrict consumer and business spending at a time when growth has slowed, economists said. Almost half of all Americans consider the cost and availability of energy to be a "crisis" or a "major problem," according to a Gallup poll.

"It will affect the consumer's capacity to spend, and will affect sentiment," said Steven Wieting, an economist at Salomon Smith Barney Inc.

Wieting that US consumers' spending on gasoline, heating oil and natural gas is currently running at an annual pace that is US$50 billion higher than a year ago. That's about 0.7 percent of disposable personal income, which could be a ``meaningful drag'' on an economy that grew at a 0.7 percent annual pace in the fourth quarter, he said.

"It's going to kill any recovery that you're dreaming of if prices are going to stay this high," said Jim Knight, a gas manager at Metropolitan Utilities in Omaha, Nebraska. He said natural gas will remain "expensive" all summer.

Natural-gas are up 79 percent since the year began and touched a record US$11.899 per million British thermal units yesterday on the New York Mercantile Exchange. Residential consumers burn 25 percent of the nation's gas.

The average Midwest heating bill, where natural gas is widely burned in home furnaces, will rise US$166, or 28 percent, to US$762, the Energy Department predicted Feb. 7.

"These higher costs are all being passed on to consumers," said Purdue University economist Otto Doering.