2012年2月16日星期四

Which could make them less exposed to higher prices

Oil prices have climbed sharply in recent weeks as mounting tension with Iran has raised the threat of a

disruption in global supplies. On Wednesday, christian louboutin oil futures on the New York Mercantile Exchange rose $1.06 to $101.80 a barrel

on reports that Iran had cut off sales to six European countries in response to the European Union's newly

stepped-up sanctions. Iran's oil ministry later denied the report.

Pricier oil comes at a delicate time. The job market has begun showing signs of life, and other economic

indicators are pointing toward stronger growth. But the recovery remains too halting to easily absorb the shock of

sharply costlier oil.

An oil spike would also complicate the job of the Federal Reserve. The central bank would have to balance any

calls for more Fed action to stimulate the economy against rising inflation fears. Minutes of the Fed's last

policy-setting meeting in January, released Wednesday, showed the central bank divided over whether to launch a

new bond-buying program to support economic growth—but the bank kept the option open. In the past, the Fed has

been willing to look past temporary spikes in inflation, but it isn't clear it would be willing to do so again.

Higher crude prices are likely to translate into higher prices at the gas pump, where drivers already are paying

more to fill up. The average price of a gallon of regular gasoline has jumped 13.1 cents to $3.518 in the past

month, according to auto club AAA. Some parts of the country have seen even bigger increases, with prices

approaching $4 a gallon in parts of California.

Financial markets fell Wednesday as rising oil prices and new uncertainty about the latest Greek bailout rattled

investors. The Dow Jones Industrial Average suffered its biggest drop of the new year, falling 97.33 points, or

0.8%, to 12780.95. Other major U.S. indexes also fell.

Oil prices affect virtually every aspect of the U.S. economy. Higher prices at the pump force consumers to cut

back spending on discretionary items like restaurant meals, haircuts and family vacations, hurting those

industries.

Manufacturers face lower profit margins as they pay more to get their products to market and face higher costs for

plastics and other petroleum-based materials. A prolonged increase can drive up inflation and drive down hiring.

"It has the power to derail an economic recovery that's not looking very strong already," said Paul Dales, an

economist for research firm Capital Economics.

To be sure, there are factors that could mitigate the impact of rising oil prices. Low natural-gas prices,

combined with a warm winter, have pushed down heating bills for most homeowners and have held down the cost of raw

materials for many manufacturers. Americans are also driving fewer miles and using less fuel than they did three

years ago, which could make them less exposed to higher prices.

Higher oil prices tend to show up first in consumer spending. Americans spend less than 5% of their disposable

income on gas, but because most families can't easily cut back on driving, at least in the short term, higher gas

prices usually result in lower spending in other areas. Moreover, because gas prices are so public, they have an

outsize impact on consumer confidence, said Chris Christopher, an economist with IHS Global Insight.

"The average American can't say to their boss, 'Hey I need to be paid more because it costs more to get to work,'

" Mr. Christopher said.

Already, there are signs consumers are growing wary of higher gas prices. A preliminary reading of February

consumer sentiment from University of Michigan last week showed an unexpected drop in confidence that many

analysts attributed to higher gasoline prices.

Some economists fear a repeat of last year, when the economy appeared to be gaining strength only to stall when

oil prices spiked because of turmoil in Libya.

Gasoline prices are still well below the level they reached last May, when they briefly approached $4 a gallon.

And they are nowhere close to the all-time highs reached in 2008, when parts of the country saw gas exceed $4.50 a

gallon.

Tom Kloza, chief oil analyst for Oil Price Information Service, a research firm, said that barring a significant

supply disruption, there is little reason to expect oil prices to approach their 2008 level this year. He said

consumers have learned to expect oil prices to rise in the spring and could pre-emptively cut back on spending,

while the weak economy has left companies with little room to maneuver.

Oil-based products make up a majority of the dozens of raw materials that go into the models made by Goodyear Tire

& Rubber Co. In its fourth-quarter earnings Christian Louboutin Evening release Tuesday, the Akron, Ohio-based company

said the steady upward march of oil and other prices raised overall raw material costs about 30%, or $2 billion,

in 2011 over 2010. In the U.S. and most other parts of the world, the company was able to offset that pressure

with price increases and by introducing costlier models.

Robert Gross wasn't so lucky. Mr. Gross is chief executive of Monro Muffler Brake Inc., a Rochester, N.Y.-based

chain of muffler and automotive repair stores that generates 40% of sales from tires. With consumers hurting from

paltry income growth and high unemployment, Mr. Gross's company has had a hard time passing along increases.

Higher oil and tire costs were the main reason margins for the third quarter ended Dec. 24 shrank to 38.4% from

39.1%.

"They're shocked at how expensive tires are. If people they need something else they buy the something else

first," he said.

Other businesses have already shifted their operations in an effort to insulate themselves from rising energy

costs.

Forever Preserved, an Encinitas, Calif. maker of preserved plants and palm trees displayed in offices, malls and

other enclosed areas, can ill afford higher fuel prices, said owner Ronald Pecoff. Mr. Pecoff sold off four

commercial vehicles that he and his employees Christian Louboutin Suede Fringe Pumps

used to make thrice-weekly trips transporting harvested palm tree leaves between his production facility in

Encinitas and their tree farm 90 miles east in Borrego Springs. He now has a contractor make less frequent trips,

leaving the company with fewer workers, lower insurance costs and no need to pay mechanics for wear and tear.

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