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Warm Winter Is Helping Consumers Cope

Filed by KOSU News in US News.
February 27, 2012

The rapidly rising price of gasoline has not stalled the economic recovery — at least not yet. And one reason for that may be found in fields of daffodils.

This year’s unusually warm winter has held down heating costs, helping consumers spend less on their monthly utility bills.

“Weather plays a big role” in determining what’s left in your checking account as winter wraps up, said Jonathan Cogan, a spokesman for the Energy Information Administration.

Throughout large swaths of the country, February brought purple crocuses and yellow daffodils instead of snowdrifts. That means more green in your wallet, according to data compiled by the EIA.

The statistics show that in the winter of 2008-09, just as the economy was falling off a cliff, energy prices were still high. The total natural gas bill for the average consumer that winter was $888.

By the next year, after the Great Recession had dramatically reduced the demand for natural gas at factories, the price for the fuel was down. The average consumer spent just $749 on natural gas in the winter of 2009-10.

More Supply, Milder Temperatures

But this year, the bill is lower still — thanks to more natural gas from new sources and a slump in consumption, tied to warm weather. The National Oceanic and Atmospheric Administration says Americans enjoyed the fourth-warmest January since officials began keeping records in 1895. The average consumer is projected to spend only $643 this winter on natural gas.

And another help: electric bills are down too, thanks to the unusual winter. The EIA says the average winter-time residential expenditure for electricity was $938 in the 2008-09 season. This winter, it will be $918.

Bottom line: consumers will have a couple hundred dollars more in the piggy bank as spring arrives, compared with three years ago. Those savings will be augmented by the payroll tax holiday, which put another $160 on average into workers’ paychecks over the months of January and February.

Rolled together, the payroll tax savings and the lower utility bills will provide consumers more than $400 in extra cash this winter, compared with three years ago. That will help many Americans absorb the recent gasoline price spikes and maintain their confidence.

Consumer Confidence Inches Up

On Friday, the closely watched Reuters/University of Michigan consumer sentiment index showed that during the past month, confidence continued to inch up despite a nearly 9 percent rise in pump prices this year. The confidence index ticked up 0.3 point in February to 75.3, the highest level in a year.

“Consumers have shrugged off concerns about rising gas prices, the European crisis, and election year politics, preferring to focus on the favorable impact of job growth,” University of Michigan economist Richard Curtin wrote in his analysis of the survey.

IHS Global Insight U.S. economist Chris Christopher agreed in his analysis of the confidence data. “An improving labor market and increases in disposable income are boosting consumer optimism about the long-term economic outlook,” he said.

In a forecast released Monday, members of the National Association for Business Economics said they expect consumers to remain confident enough to continue spending this year, although at a sluggish pace. The historical norm is for consumers to spend 2.8 percent more each year, but growth is likely to be 2.1 percent this year, the economists said.

‘Pain At The Pump’

Christopher said the spending restraint will be tied to gasoline prices. “Americans are going to feel pain at the pump, since given the current state of affairs it is relatively safe to say that gasoline prices will surpass $4/gallon by Memorial Day,” he wrote.

Most analysts say that when the average price of gasoline exceeds $4 a gallon, the negative impact on the economy increases. Currently, unleaded gasoline running at about $3.60 a gallon, up sharply from February 2011, when it averaged $3.17.

Daniel Yergin, an energy expert with Cambridge Energy Research Associates, says gasoline prices are higher this winter largely because of a worsening confrontation with Iran over that country’s nuclear program. The dispute involves the West’s use of sanctions to punish Iran’s economy.

“Right now the market focus is on a tightening of supply, because the whole direction of these policies is to do one thing, which is to reduce Iran’s ability to export oil,” Yergin said.

Declines in refining capacity and increases in global demand are also driving up gasoline prices. [Copyright 2012 National Public Radio]

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