Think oil prices hurt now? Just wait

By Nick Carey - Analysis

DALLAS, Texas (Reuters) - Sky-high oil prices are causing pain at the pump, but bills for air conditioning this summer and heating next winter -- combined with rising food costs -- promise to squeeze U.S. consumers even more.

With gas at $4.00 a gallon, households already have less to spend on a new grill at Home Depot; a vacation at Walt Disney's Disney World; a new TV from Best Buy Co; or a new "hog" from Harley-Davidson Co.

And there are no signs things will get better soon for the consumer, long the driving force of U.S. economic growth.

"For the areas of the economy that rely on heating oil, high fuel prices are going to be another blow to the consumer this winter," said Jack Kyser, chief economist at the LA County Economic Development Corp.

"The hotter states will feel the pinch during the summer months but in the mid-America states where you get hot summers and cold winters, it's going to be very uncomfortable," he said.

"This is going to eat into the disposable income of American consumers -- supposing they have any left."

Oil prices, now $130 a barrel, have risen six-fold since 2002. On Wednesday, heating oil reached a record high above $3.90 a gallon and the price is expected to stay high.

Heating oil, which cost $3.29 a gallon in January, will likely cost $3.83 in December, according to the government's Energy Information Administration.

Those costs come at a time of rising food prices, forcing people to spend more on basics as wages fail to keep up. The effects on the economy could be profound.

"The American consumer will continue to pay for fuel, food and heat," said University of Maryland economist Peter Morici.

"But they will give everything else up," he said. "That's going to make it harder to sell the average consumer a television, a suit, or even a meal at a restaurant."

HARD TIMES

This could become an especially depressing reality in July and August, when back-to-school shopping starts, and in November, when holiday shopping gets under way.

Without strong sales during both of those shopping seasons, retailers including Wal-Mart, Target, J.C. Penney and Sears could post bleak results for the last two quarters of 2008 and the first quarter of 2009.

For many years, the consumer has been the engine of U.S. growth, accounting for around 70 percent of the economy.