USA--Rising Oil May Hurt US Economy

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High Oil Prices May Hurt US Economy

Story Filed: Friday, March 10, 2000 6:36 PM EST

CINCINNATI (AP) -- Rising oil prices have hit American consumers at the gas pump and at the airline ticket counter, but few other places so far.

If the oil inflation continues that may soon change, as evidenced this week by word from a major consumer products company that its profits are suffering, due partly to rising costs of raw materials.

Procter & Gamble Co., maker of well-known consumer brands such as Crest toothpaste, Pampers diapers and Tide detergent, said Tuesday it will earn less than expected in the next quarter in part because prices are rising for the petroleum-based materials it needs for manufacturing.

Wall Street punished the company harshly, causing its stock to fall from $87.43 3/4 on Monday, down to $53.37 1/2 late Friday. Other consumer products companies such as Colgate-Palmolive Co. and Kimberly-Clark Corp. also saw their stocks suffer, although those two firms took pains to tell investors their profit picture hasn't changed.

These companies use petrochemical-based products a number of ways, from their plastic bottles to their detergents. They must also pay higher prices for fuel for the trucks that deliver their goods.

Despite high gas prices, the auto industry hasn't really suffered yet. Sales of light trucks increased by more than 10 percent from January to February, for instance.

``We sure aren't letting oil bother us,'' said David Wyss, chief economist for Standard & Pour's DRI in Lexington, Mass. ``I'm searching for an explanation (why) other than sheer stupidity.''

Still, some other trouble signs are beginning to show

Higher fuel costs for transporting products prompted Ford Motor Co. on Monday to raise delivery charges for vehicles by $25, or 4 percent to 6 percent. General Motors Corp. is considering raising its destination charge for shipment of products.

FedEx Corp., the big shipper, said last week it would increase the 3 percent surcharge it began last month to 4 percent.

And, on Friday, Continental Airlines attempted to impose a new fare increase of up to $40 per round trip, blaming the rising cost of fuel. The airline led the industry in a $20 boost in January, but had to back off on a second increase of $30 two weeks ago after other airlines wouldn't follow.

In seeking to explain why oil prices haven't spurred significantly higher overall inflation, economists point out that the country is less oil-dependent than it used to be.

In 1981, the U.S. oil bill was about 6.5 percent of the gross domestic product. Today, it is about 2 percent. That is partly because of conservation and partly because, when adjusted for inflation, oil prices have increased more slowly than other consumer prices.

Still, the need to spend more money filling up at the gas tank could eat away at consumer spending -- the main engine of economic growth -- if oil prices stay high for months, Wyss said.

``The money spent filling up at the gas tank is money you can't spent at the mall. I think we'll start to see that later this year,'' he said. ``It takes people a little while to adjust their habits.''

Meanwhile, P&G's chairman Durk Jager spent the better part of the week devoting himself to damage control.

He has been reassuring major investors that P&G will keep on its long-term program of getting new products to market more quickly and of increasing sales while ensuring that profits meet company targets.

``The stock will ultimately come back. We hope it will be pretty quickly, to restore investors' confidence,'' Jager told The Associated Press during an interview Thursday.

``People are still going to need diapers and toothpaste and toilet paper,'' added P&G spokeswoman Linda Ulrey.

Doug Christopher, an analyst with Crowell Weedon in Los Angeles, agreed saying the stock has fallen too far.

``It was a real overreaction. ... The company does have a depth of talent,'' Christopher said. ``This, too, shall pass.''

http://library.northernlight.com/ED20000310530000041.html?cb=0&dx=2006&sc=1#doc

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-- (Dee360Degree@aol.com), March 10, 2000

Answers

OPINION ahead

MAY?!?!?

The dow drops 300 points because of the P&G announcement alone!

Folks will wake up very soon when the next round of bills come due, because they've been living paycheck to paycheck as it is. And now that extra spending money was consumed by their car.

-- Perry DeFuzzy (perry@ofuzzy1.com), March 11, 2000.


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