LOUIS UCHITELLE, NEW YORK TIMES, JULY 20, 2006
NEW YORK Every Monday morning, Dean England, chief executive of a family-owned trucking company in Utah, logs onto the U.S. Energy Department’s Web site and checks the latest average cost of a gallon of diesel fuel. If it is up enough, he raises the amount he charges to haul produce across the country in his tractor-trailers.
A formula has evolved. For every 5- cent rise in the price of fuel, England’s company, CR England, adds 1 percent to its freight rates. Since 2003, those rates are up 37 percent, yet demand has not slackened. The Salt Lake City-based company’s 2,800 trucks are constantly on the road.
“The market has been good to us,” England said. “But ultimately, the extra cost of hauling food has to fall on the consumer.”
Demand is similarly strong at other energy-dependent operations, notably railroads, airlines and chemical companies. They, too, are raising prices to recapture as much as they can of the run- up in oil prices.
That is gradually adding to the inflation rate and appears to be contributing to a slowdown in growth – but it has not crippled the U.S. economy.
“As oil prices rise, a noose does tighten around the expansion,” said Nigel Gault, chief domestic economist for Global Insight, a consulting firm.
Gault estimates that rising energy prices are currently shaving 1 to 1.5 percentage points from the economy’s annual growth rate, which is one reason that he expects the rate to slow from the robust 5.6 percent of the first quarter to roughly 3 percent for the rest of the year.
“I’m guessing that if oil gets to $100 a barrel, that could provoke a recession,” Gault said, “but even then, it depends on how quickly we get there. We do seem to be adjusting to gradual increases.”
The $8-a-barrel jump last week, to $78 a barrel, as violence spread in the Middle East, was hardly gradual. But prices did fall this week, to under $73, and the Energy Department forecasts that West Texas intermediate crude oil, a benchmark grade, will finish the year at $73.50 a barrel, up $8 from January.
Whatever the cost of energy, many companies have managed to absorb much of the price shock and preserve profits, which have risen to record levels recently as a share of national income. The companies have done this by raising prices and instituting efficiencies that reduce the use of petroleum and natural gas.
Consumers have not fared as well. Rising gasoline prices constitute what economists sometimes describe as a consumption tax. When such a tax is imposed on millions of workers whose incomes have not kept up with inflation in recent years, those consumers eventually cut back on spending. That is one reason that economists see a slowdown coming.
The consumption tax is likely to be $100 billion higher this year than last year, Gault estimated.
The increased caution in spending is evident in the weekly consumer surveys conducted by the University of Michigan. Respondents seem to be losing faith that oil prices can be checked now that the average price of a gallon of gasoline reached $3.03 this week, up 75 cents since January.
“For a long time, people anticipated that gas prices would fall back, so they ran up more debt to cover their higher expenses without cutting back on purchases,” said Richard Curtin, director of the Michigan surveys. “And now they have reluctantly concluded, in the past three or four months, that gasoline prices are not going to go down.”
But cutbacks in spending have been concentrated among households with annual incomes of less than $50,000, according to Curtin’s surveys. That is roughly half of all U.S. households. Most households with incomes above $50,000, which contribute to the bulk of consumer spending, are still managing to absorb the higher energy costs without cutting back much elsewhere.
Rising gasoline prices are really driving a wedge between lower- and higher- income households,” Curtin said.
Companies often have more room to maneuver compared to average consumers. Railroads, for example, are operating at high levels of capacity, mostly in transporting ever greater amounts of coal to power plants. That has given them the leverage to raise rates enough to cover 75 percent of their increased cost of diesel fuel, said Philip Baggaley, a managing director and transportation analyst at Standard & Poor’s.
The airlines, through surcharges and fare increases, are also covering three- quarters of the increase in their fuel costs, Baggaley said. After years of having to keep fares low, the big airlines have achieved a turnaround by shrinking their fleets and flying planes “jammed with people,” as Baggaley put it.
Even food companies are getting into the act. Kellogg will raise cereal prices by about 2 percent in September, the first increase since July 2004, said Neal Goldner, the company’s director of investor relations.
On the other hand, chemical companies are getting a break on natural gas. Petroleum and natural gas are often interchangeable feedstocks in the production of the chemical ingredients that go into foam for cushions, solvents for dry cleaning and plastic for bottles, as well as glues, synthetic rubber, electronic circuit boards and a host of other products.
While oil prices have remained high, natural gas has become cheaper. That is mainly because a milder-than-expected winter left the United States with huge unsold inventories of natural gas that cannot easily be shipped around the world, as oil is.
Dow Chemical takes advantage of the natural gas price drop in its American operations. But the real gain is overseas, said John Dearborn, Dow’s vice president for energy. While natural gas is about $6 per one million British thermal units in the United States, it is only $1 in various Middle East countries. “At Dow, our production is about 50 percent in the United States and 50 percent elsewhere,” Dearborn said, “but our preferential investment is elsewhere.”
Even so, Dow’s feedstock costs were $22 billion last year, up from $8 billion in 2003. “If we are going to survive, we have to get our prices up,” he said. With the global economy booming, prices on all Dow products are up 44 percent on average since 2001, the company reported.
Alexei Barrionuevo contributed reporting from Chicago for this article.
NEW YORK Every Monday morning, Dean England, chief executive of a family-owned trucking company in Utah, logs onto the U.S. Energy Department’s Web site and checks the latest average cost of a gallon of diesel fuel. If it is up enough, he raises the amount he charges to haul produce across the country in his tractor-trailers.
A formula has evolved. For every 5- cent rise in the price of fuel, England’s company, CR England, adds 1 percent to its freight rates. Since 2003, those rates are up 37 percent, yet demand has not slackened. The Salt Lake City-based company’s 2,800 trucks are constantly on the road.
“The market has been good to us,” England said. “But ultimately, the extra cost of hauling food has to fall on the consumer.”
Demand is similarly strong at other energy-dependent operations, notably railroads, airlines and chemical companies. They, too, are raising prices to recapture as much as they can of the run- up in oil prices.
That is gradually adding to the inflation rate and appears to be contributing to a slowdown in growth – but it has not crippled the U.S. economy.
“As oil prices rise, a noose does tighten around the expansion,” said Nigel Gault, chief domestic economist for Global Insight, a consulting firm.
Gault estimates that rising energy prices are currently shaving 1 to 1.5 percentage points from the economy’s annual growth rate, which is one reason that he expects the rate to slow from the robust 5.6 percent of the first quarter to roughly 3 percent for the rest of the year.
“I’m guessing that if oil gets to $100 a barrel, that could provoke a recession,” Gault said, “but even then, it depends on how quickly we get there. We do seem to be adjusting to gradual increases.”
The $8-a-barrel jump last week, to $78 a barrel, as violence spread in the Middle East, was hardly gradual. But prices did fall this week, to under $73, and the Energy Department forecasts that West Texas intermediate crude oil, a benchmark grade, will finish the year at $73.50 a barrel, up $8 from January.
Whatever the cost of energy, many companies have managed to absorb much of the price shock and preserve profits, which have risen to record levels recently as a share of national income. The companies have done this by raising prices and instituting efficiencies that reduce the use of petroleum and natural gas.
Consumers have not fared as well. Rising gasoline prices constitute what economists sometimes describe as a consumption tax. When such a tax is imposed on millions of workers whose incomes have not kept up with inflation in recent years, those consumers eventually cut back on spending. That is one reason that economists see a slowdown coming.
The consumption tax is likely to be $100 billion higher this year than last year, Gault estimated.
The increased caution in spending is evident in the weekly consumer surveys conducted by the University of Michigan. Respondents seem to be losing faith that oil prices can be checked now that the average price of a gallon of gasoline reached $3.03 this week, up 75 cents since January.
“For a long time, people anticipated that gas prices would fall back, so they ran up more debt to cover their higher expenses without cutting back on purchases,” said Richard Curtin, director of the Michigan surveys. “And now they have reluctantly concluded, in the past three or four months, that gasoline prices are not going to go down.”
But cutbacks in spending have been concentrated among households with annual incomes of less than $50,000, according to Curtin’s surveys. That is roughly half of all U.S. households. Most households with incomes above $50,000, which contribute to the bulk of consumer spending, are still managing to absorb the higher energy costs without cutting back much elsewhere.
Rising gasoline prices are really driving a wedge between lower- and higher- income households,” Curtin said.
Companies often have more room to maneuver compared to average consumers. Railroads, for example, are operating at high levels of capacity, mostly in transporting ever greater amounts of coal to power plants. That has given them the leverage to raise rates enough to cover 75 percent of their increased cost of diesel fuel, said Philip Baggaley, a managing director and transportation analyst at Standard & Poor’s.
The airlines, through surcharges and fare increases, are also covering three- quarters of the increase in their fuel costs, Baggaley said. After years of having to keep fares low, the big airlines have achieved a turnaround by shrinking their fleets and flying planes “jammed with people,” as Baggaley put it.
Even food companies are getting into the act. Kellogg will raise cereal prices by about 2 percent in September, the first increase since July 2004, said Neal Goldner, the company’s director of investor relations.
On the other hand, chemical companies are getting a break on natural gas. Petroleum and natural gas are often interchangeable feedstocks in the production of the chemical ingredients that go into foam for cushions, solvents for dry cleaning and plastic for bottles, as well as glues, synthetic rubber, electronic circuit boards and a host of other products.
While oil prices have remained high, natural gas has become cheaper. That is mainly because a milder-than-expected winter left the United States with huge unsold inventories of natural gas that cannot easily be shipped around the world, as oil is.
Dow Chemical takes advantage of the natural gas price drop in its American operations. But the real gain is overseas, said John Dearborn, Dow’s vice president for energy. While natural gas is about $6 per one million British thermal units in the United States, it is only $1 in various Middle East countries. “At Dow, our production is about 50 percent in the United States and 50 percent elsewhere,” Dearborn said, “but our preferential investment is elsewhere.”
Even so, Dow’s feedstock costs were $22 billion last year, up from $8 billion in 2003. “If we are going to survive, we have to get our prices up,” he said. With the global economy booming, prices on all Dow products are up 44 percent on average since 2001, the company reported.
Alexei Barrionuevo contributed reporting from Chicago for this article.
NEW YORK Every Monday morning, Dean England, chief executive of a family-owned trucking company in Utah, logs onto the U.S. Energy Department’s Web site and checks the latest average cost of a gallon of diesel fuel. If it is up enough, he raises the amount he charges to haul produce across the country in his tractor-trailers.
A formula has evolved. For every 5- cent rise in the price of fuel, England’s company, CR England, adds 1 percent to its freight rates. Since 2003, those rates are up 37 percent, yet demand has not slackened. The Salt Lake City-based company’s 2,800 trucks are constantly on the road.
“The market has been good to us,” England said. “But ultimately, the extra cost of hauling food has to fall on the consumer.”
Demand is similarly strong at other energy-dependent operations, notably railroads, airlines and chemical companies. They, too, are raising prices to recapture as much as they can of the run- up in oil prices.
That is gradually adding to the inflation rate and appears to be contributing to a slowdown in growth – but it has not crippled the U.S. economy.
“As oil prices rise, a noose does tighten around the expansion,” said Nigel Gault, chief domestic economist for Global Insight, a consulting firm.
Gault estimates that rising energy prices are currently shaving 1 to 1.5 percentage points from the economy’s annual growth rate, which is one reason that he expects the rate to slow from the robust 5.6 percent of the first quarter to roughly 3 percent for the rest of the year.
“I’m guessing that if oil gets to $100 a barrel, that could provoke a recession,” Gault said, “but even then, it depends on how quickly we get there. We do seem to be adjusting to gradual increases.”
The $8-a-barrel jump last week, to $78 a barrel, as violence spread in the Middle East, was hardly gradual. But prices did fall this week, to under $73, and the Energy Department forecasts that West Texas intermediate crude oil, a benchmark grade, will finish the year at $73.50 a barrel, up $8 from January.
Whatever the cost of energy, many companies have managed to absorb much of the price shock and preserve profits, which have risen to record levels recently as a share of national income. The companies have done this by raising prices and instituting efficiencies that reduce the use of petroleum and natural gas.
Consumers have not fared as well. Rising gasoline prices constitute what economists sometimes describe as a consumption tax. When such a tax is imposed on millions of workers whose incomes have not kept up with inflation in recent years, those consumers eventually cut back on spending. That is one reason that economists see a slowdown coming.
The consumption tax is likely to be $100 billion higher this year than last year, Gault estimated.
The increased caution in spending is evident in the weekly consumer surveys conducted by the University of Michigan. Respondents seem to be losing faith that oil prices can be checked now that the average price of a gallon of gasoline reached $3.03 this week, up 75 cents since January.
“For a long time, people anticipated that gas prices would fall back, so they ran up more debt to cover their higher expenses without cutting back on purchases,” said Richard Curtin, director of the Michigan surveys. “And now they have reluctantly concluded, in the past three or four months, that gasoline prices are not going to go down.”
But cutbacks in spending have been concentrated among households with annual incomes of less than $50,000, according to Curtin’s surveys. That is roughly half of all U.S. households. Most households with incomes above $50,000, which contribute to the bulk of consumer spending, are still managing to absorb the higher energy costs without cutting back much elsewhere.
Rising gasoline prices are really driving a wedge between lower- and higher- income households,” Curtin said.
Companies often have more room to maneuver compared to average consumers. Railroads, for example, are operating at high levels of capacity, mostly in transporting ever greater amounts of coal to power plants. That has given them the leverage to raise rates enough to cover 75 percent of their increased cost of diesel fuel, said Philip Baggaley, a managing director and transportation analyst at Standard & Poor’s.
The airlines, through surcharges and fare increases, are also covering three- quarters of the increase in their fuel costs, Baggaley said. After years of having to keep fares low, the big airlines have achieved a turnaround by shrinking their fleets and flying planes “jammed with people,” as Baggaley put it.
Even food companies are getting into the act. Kellogg will raise cereal prices by about 2 percent in September, the first increase since July 2004, said Neal Goldner, the company’s director of investor relations.
On the other hand, chemical companies are getting a break on natural gas. Petroleum and natural gas are often interchangeable feedstocks in the production of the chemical ingredients that go into foam for cushions, solvents for dry cleaning and plastic for bottles, as well as glues, synthetic rubber, electronic circuit boards and a host of other products.
While oil prices have remained high, natural gas has become cheaper. That is mainly because a milder-than-expected winter left the United States with huge unsold inventories of natural gas that cannot easily be shipped around the world, as oil is.
Dow Chemical takes advantage of the natural gas price drop in its American operations. But the real gain is overseas, said John Dearborn, Dow’s vice president for energy. While natural gas is about $6 per one million British thermal units in the United States, it is only $1 in various Middle East countries. “At Dow, our production is about 50 percent in the United States and 50 percent elsewhere,” Dearborn said, “but our preferential investment is elsewhere.”
Even so, Dow’s feedstock costs were $22 billion last year, up from $8 billion in 2003. “If we are going to survive, we have to get our prices up,” he said. With the global economy booming, prices on all Dow products are up 44 percent on average since 2001, the company reported.
Alexei Barrionuevo contributed reporting from Chicago for this article.
NEW YORK Every Monday morning, Dean England, chief executive of a family-owned trucking company in Utah, logs onto the U.S. Energy Department’s Web site and checks the latest average cost of a gallon of diesel fuel. If it is up enough, he raises the amount he charges to haul produce across the country in his tractor-trailers.
A formula has evolved. For every 5- cent rise in the price of fuel, England’s company, CR England, adds 1 percent to its freight rates. Since 2003, those rates are up 37 percent, yet demand has not slackened. The Salt Lake City-based company’s 2,800 trucks are constantly on the road.
“The market has been good to us,” England said. “But ultimately, the extra cost of hauling food has to fall on the consumer.”
Demand is similarly strong at other energy-dependent operations, notably railroads, airlines and chemical companies. They, too, are raising prices to recapture as much as they can of the run- up in oil prices.
That is gradually adding to the inflation rate and appears to be contributing to a slowdown in growth – but it has not crippled the U.S. economy.
“As oil prices rise, a noose does tighten around the expansion,” said Nigel Gault, chief domestic economist for Global Insight, a consulting firm.
Gault estimates that rising energy prices are currently shaving 1 to 1.5 percentage points from the economy’s annual growth rate, which is one reason that he expects the rate to slow from the robust 5.6 percent of the first quarter to roughly 3 percent for the rest of the year.
“I’m guessing that if oil gets to $100 a barrel, that could provoke a recession,” Gault said, “but even then, it depends on how quickly we get there. We do seem to be adjusting to gradual increases.”
The $8-a-barrel jump last week, to $78 a barrel, as violence spread in the Middle East, was hardly gradual. But prices did fall this week, to under $73, and the Energy Department forecasts that West Texas intermediate crude oil, a benchmark grade, will finish the year at $73.50 a barrel, up $8 from January.
Whatever the cost of energy, many companies have managed to absorb much of the price shock and preserve profits, which have risen to record levels recently as a share of national income. The companies have done this by raising prices and instituting efficiencies that reduce the use of petroleum and natural gas.
Consumers have not fared as well. Rising gasoline prices constitute what economists sometimes describe as a consumption tax. When such a tax is imposed on millions of workers whose incomes have not kept up with inflation in recent years, those consumers eventually cut back on spending. That is one reason that economists see a slowdown coming.
The consumption tax is likely to be $100 billion higher this year than last year, Gault estimated.
The increased caution in spending is evident in the weekly consumer surveys conducted by the University of Michigan. Respondents seem to be losing faith that oil prices can be checked now that the average price of a gallon of gasoline reached $3.03 this week, up 75 cents since January.
“For a long time, people anticipated that gas prices would fall back, so they ran up more debt to cover their higher expenses without cutting back on purchases,” said Richard Curtin, director of the Michigan surveys. “And now they have reluctantly concluded, in the past three or four months, that gasoline prices are not going to go down.”
But cutbacks in spending have been concentrated among households with annual incomes of less than $50,000, according to Curtin’s surveys. That is roughly half of all U.S. households. Most households with incomes above $50,000, which contribute to the bulk of consumer spending, are still managing to absorb the higher energy costs without cutting back much elsewhere.
Rising gasoline prices are really driving a wedge between lower- and higher- income households,” Curtin said.
Companies often have more room to maneuver compared to average consumers. Railroads, for example, are operating at high levels of capacity, mostly in transporting ever greater amounts of coal to power plants. That has given them the leverage to raise rates enough to cover 75 percent of their increased cost of diesel fuel, said Philip Baggaley, a managing director and transportation analyst at Standard & Poor’s.
The airlines, through surcharges and fare increases, are also covering three- quarters of the increase in their fuel costs, Baggaley said. After years of having to keep fares low, the big airlines have achieved a turnaround by shrinking their fleets and flying planes “jammed with people,” as Baggaley put it.
Even food companies are getting into the act. Kellogg will raise cereal prices by about 2 percent in September, the first increase since July 2004, said Neal Goldner, the company’s director of investor relations.
On the other hand, chemical companies are getting a break on natural gas. Petroleum and natural gas are often interchangeable feedstocks in the production of the chemical ingredients that go into foam for cushions, solvents for dry cleaning and plastic for bottles, as well as glues, synthetic rubber, electronic circuit boards and a host of other products.
While oil prices have remained high, natural gas has become cheaper. That is mainly because a milder-than-expected winter left the United States with huge unsold inventories of natural gas that cannot easily be shipped around the world, as oil is.
Dow Chemical takes advantage of the natural gas price drop in its American operations. But the real gain is overseas, said John Dearborn, Dow’s vice president for energy. While natural gas is about $6 per one million British thermal units in the United States, it is only $1 in various Middle East countries. “At Dow, our production is about 50 percent in the United States and 50 percent elsewhere,” Dearborn said, “but our preferential investment is elsewhere.”
Even so, Dow’s feedstock costs were $22 billion last year, up from $8 billion in 2003. “If we are going to survive, we have to get our prices up,” he said. With the global economy booming, prices on all Dow products are up 44 percent on average since 2001, the company reported.
Alexei Barrionuevo contributed reporting from Chicago for this article.

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