Higher oil prices trickle through entire economy
WASHINGTON -- The price of oil gushed to a record high Monday, spreading dangerously to factories, groceries, gas stations and every citizen's pocketbook.
Builders are building less, the government reported. Manufacturers are cutting back, another report said. General Motors Corp. and Ford Motor Co. said they would cut second-quarter production.
The galloping energy prices are doubly painful as the nation teeters on the edge of recession: High energy costs push companies to charge shoppers higher prices, then those families and businesses cut back in turn, dumping more cold water on the economy.
"It's like throwing sands in the wheels of the economy," said Brian Bethune, economist at Global Insight. "Things slow down. There is more friction and there is more complaining."
Oil prices marched past $103 a barrel Monday, the latest in a recent string of record-high oil prices, before settling at $102.45.
The steep run-up in oil and other energy prices "hits deeper and deeper into the consumers' ability to spend. With a lot of households stretched by high food prices as well, it creates real problems," said Joel Naroff, president of Naroff Economic Advisors.
Reports Monday showed factories feeling the sting of soaring costs for oil as well as other raw materials -- pushing production costs higher even as some have to cope with fallout from a sour housing market that has sapped demand for their products.
Manufacturers in February logged their weakest performance in nearly five years, the Institute for Supply Management said. Industries that suffered declines included makers of furniture, textiles, machinery and chemical products.
Construction spending plunged by 1.7 percent in January, the biggest decline in 14 years, the government said. Cutbacks covered a wide range, from home building to hotels to highways.
Unsure what to make of it all, Wall Street ended the day narrowly mixed. The Dow Jones industrials dropped 7 points.
The average price of a gallon of gasoline stood at $3.165 Monday, according to AAA and the Oil Price Information Service.
The average price of a gallon of regular gasoline in the Chicago area Monday was $3.197, according to AAA.
The Energy Department expects gas prices to peak at a record level near $3.40 this spring, and some analysts predict pump prices could rise to nearly $4 a gallon when the busy summer driving season arrives.
It's not much better in the air. Airplane fares climbed 0.8 percent in January.
Diesel prices, used to transport the vast majority of the nation's goods, are also soaring. Diesel prices hit another new record of $3.674 a gallon Monday.
"Bulky items -- milk, soda pop, eggs, cheese, fruits and vegetables -- probably will have higher transportation costs to bring those items to stores," Bethune said. "How much of that is passed along to customers depends. In terms of overall costs of products, it might not be huge. It could be a few cents. But overall it will add up."
Food prices are rising but it's hard to divine exactly how much of that increase can be traced to higher energy prices. Food prices rose 0.7 percent in January, reflecting more expensive fruits, vegetables, poultry, pork and dairy products, according to the Labor Department's consumer price index.