UPDATE: The Impact of Skyrocketing Energy Prices on American Families and Businesses

Increased energy costs are taking a toll on the American economy, businesses, consumers, and families. According to the Department of Energy, Americans will spend over $200 billion more on energy this year than they did last year, totaling over one trillion dollars.[1] That's an increase of 24 percent. The bottom lines of businesses across the country, particularly the airline, trucking, agriculture, and manufacturing sectors, have been hit hard. Unfortunately, rather than taking action to improve conservation and lower prices, the Bush Administration has stood by and allowed energy prices and oil company profits to reach unprecedented levels.

 

The Impact on Families

 

Heating fuel costs skyrocket. The average U.S. household will spend about $260 more for heating this winter compared to last year. Households that heat with natural gas are expected to pay an average of $350, or 48 percent, more this winter than last. Households that heat with heating oil can expect to pay an average of $378, or 32 percent, more this winter.^[2]

 

Winter heating bills are expected to soar. Heating costs for the average family using heating oil are projected to hit $1,666 during the upcoming winter. This represents an increase of over $400 over last winter's prices and $700 more than the winter heating season of 2003-04. For families using natural gas, prices are projected to hit $1,568, representing an increase of over $600 over last year's prices and $640 more than 2003-2004.[3]

 

States struggle to help residents pay heating bills. States providing assistance to low-income families face a funding shortfall in the federal Low Income Home Energy Assistance Program (LIHEAP). In Maine, the $480 provided to each household covered the cost of 275 gallons of heating oil last winter but will only cover 172 gallons this year. The Director of the Maine Housing Authority estimates that the average household in Maine will use this fuel in just three to four weeks.^[4]

 

Families have less money to pay bills. In the second quarter of 2005, the American Bankers Association (ABA) reported that the percentage of credit card bills 30 days or more past due reached the highest level since the ABA began recording this information in 1973. The ABA's chief economist cited high gasoline prices as a major factor.[5]

 

Lower-income Americans can least afford gas price increases. Households with incomes under $15,000--about one-fifth of all households--will spend approximately one-tenth of their income this year just on gasoline.[6]

 

Pensions at risk, taxpayers pay the price. The pensions of hundreds of thousands of airline workers are at risk.[7] United Airlines has already transferred $6.6 billion of its pension obligations to the government pension agency .[8] If Delta and Northwest terminate their pension plans following their bankruptcy declarations, taxpayers will have to cover another $12 billion.[9]

 

The Impact on Taxpayers

 

Taxpayers pay more for essential services. Higher fuel prices are expected to add $300 million to the Postal Service's transportation costs nationwide.[10]

 

The military pays more for fuel. In its Fiscal Year 2005 request for supplemental funds for the military in Iraq and Afghanistan, the Department of Defense estimated increased fuel costs of $909.3 million this year.[11]

 

Taxpayers pay more for the President's travel. The cost of jet fuel one hour of travel in Air Force One has increased from $3,974 in 2004 to $6,029 in 2005.[12] Between September 21 and September 28, 2005, President Bush spent about 15 hours on Air Force One[13], costing taxpayers over $90,000 in fuel costs alone.

 

The Impact on the Economy

 

Causing inflation. Energy prices contributed to a dramatic increase in the Consumer Price Index in September. The 1.2 percent rise in consumer prices is the fastest rise in consumer prices in 25 years.[14] Inflation in consumer prices is predicted to hit 3.9 percent this year, the highest rate since 1990.[15]

 

Increasing our trade deficit. In August 2005, the U.S. trade deficit reached $59 billion, which is 1.4 percent higher than the previous month. According to the Department of Commerce, larger and more expensive imports of energy commodities are largely responsible for the increase in the trade deficit.[16]

 

Losing jobs. On average, every time oil prices go up 10 percent, 150,000 Americans lose their jobs.[17]

 

Economic growth is being held back. Every time oil prices increase by 10 percent for a sustained period of time, we lose somewhere between $80 billion and $160 billion in economic growth.[18] September's 40 percent increase in gas prices will decrease total domestic consumption by 0.4 percent. And unless prices come down in the fourth quarter, GDP this year will fall by an estimated 0.9 percent.[19]

 

Energy prices are impacting key economic indicators. Leading economists noted after the release of monthly economic reports in September that energy prices are rising much faster than wages and becoming "increasingly difficult for consumers to absorb," which has resulted in lower consumer spending.[20]

 

The Impact on Businesses

 

Squeezing small and midsize businesses. Nearly half of small and midsize companies in a recent survey plan to raise consumer prices to cover rising energy costs, with 19 percent of those surveyed planning to increase prices by 5 percent or more.[21]

 

Diesel fuel price hits all-time high. The retail price of diesel fuel is projected to hit its highest monthly level ever at $3.00 per gallon in October 2005. This is the highest diesel price in real dollars in 50 years.[22]

 

Mail delivery services pinch their budgets. FedEx recently announced that it will increase its air shipment rates by 3.5 percent to cover rising fuel costs.[23] UPS will spend close to $2 billion for fuel in 2005, up from $1.4 billion in 2004.[24]

 

The future of the airline industry is in jeopardy. Airlines are expected to spend $30 billion on fuel alone this year, twice what they spent for fuel in 2003 and $9 billion more than 2004.[25] Increased fuel costs have led two airlines to file for bankrupcy and others to increase ticket prices and cancel routes.[26]

 

Trucking industry's operating expenses are skyrocketing. Diesel fuel accounts for a quarter of the trucking industry's operating expense, or $85 billion in 2005. Each penny increase in diesel costs the trucking industry $350 million over a full year.[27]

 

Farmers find it more difficult to make ends meet. Even during a good year, farmers operate on profit margins of only about 5 percent. Price increases of 20 percent or more on essential items like fertilizer, fuel, and pesticides have made it very difficult for farmers to get by.[28]

 

 

 

The Impact on Big Oil Companies

 

Increasing energy company profits in the wake of Hurricanes Katrina and Rita. Energy earnings in the third quarter of 2005 are expected to increase 61 percent from the third quarter of 2004. Refiners' profits in particular are expected to increase by 141 percent. By contrast, the profit growth rate across-the-board for companies in the Standard & Poor's 1500 index is expected to be 14.4 percent.[29]

 

Big oil companies are making record profits. Oil industry profits have nearly tripled over the last three years to roughly $87 billion last year[30] In the first half of 2005, the five largest oil companies made $52.2 billion in profits, compared to a record $39.5 billion in the first half of 2004.[31]

 

Refiners are making record profits. The profit refiners are collecting from gasoline sales has more than tripled from $7 per barrel in September 2004 to $22.77 per barrel on September 27, 2005.[32]

 

Big oil companies use their market advantage to drive out competition. When big oil companies have made small reductions in pump prices in recent weeks, they have continued to sell gasoline to independent gas stations at higher prices, effectively preventing independent gas stations from competing with their own branded stations.[33]

 

Redistribution of wealth from consumers to oil companies. The non-partisan Congressional Budget Office has called the increase in gasoline prices "basically a temporary redistribution of income from consumers of gasoline to the stockholders of refiners."[34]