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Choose Your Own Demise

MarketWatch columnist Paul Farrell has thrown down the gauntlet. Last night, he challenged readers of his column to a contest. Farrell said:

So here’s the new contest: Pick the No. 1 tipping point that’ll push us over the edge, into a recession and bear market… Folks, with so many tipping points, we have the makings of a perfect storm. But in our new poll, please go beyond the short-term. Please tell us: (1) When do you predict it will happen? And (2) Which of these “moments” or “events” will push America over the edge and into a recession and bear market? Later we’ll summarize the results … and offer strategies.

Apparently, Farrell has spent the last two years asking readers to identify potential triggers for a recession and bear market. The submissions range from “usual suspects” like the real estate bubble busting, to less obvious catalysts such as global wars fueled by climate change. Farrell predicts that “it’ll probably be some combo of multiple triggers, a perfect storm.” However, according to the rules you can choose only one “trigger” from the twenty listed in his column.

I’m sure that I’ll take part in the “contest.” But right now I’m thinking of that saying that goes, “It doesn’t matter who wins, because they’re all losers.”

Weekend Edition: July 28-July 29, 2007

Last week, I published “The Dollar Crisis Examined” where I discussed the huge concentration of U.S. dollars overseas. If foreigners stop accumulating dollars, U.S. stock and bond prices, as well as the dollar, will plummet in value. Here in the United States, we will see higher import prices, inflation, and the erosion of consumer purchasing power. On July 20, I told readers that I’d look overseas for any sign that foreigners are growing weary of the U.S. dollar. My research shows that central bank dollar holdings continue to climb, despite all the diversification talk. On June 30, Reuters reported that the global central banks had hit a record in reserves held in U.S. dollars at $2.24 trillion in the first quarter. Dollar holdings in the International Monetary Fund data, which covers about two-thirds of the world’s currency reserves, remained around the 65% level, roughly the same as in the previous 3 years. In the days prior to the Reuters article, the European Central Bank said the euro’s share in global reserves had also remained stable since 2005, which suggests that the U.S. dollar is still preferred by the central banks. Brad Setser, an economist at NYC-based Roubini Global Economics, told Reuters that as long as these two trends continue, “The overall story is one of more central bank demand for dollars, not less.”

However, some analysts are starting to question the sustainability of the rise in dollar reserves. “We don’t see any significant sell-off in the positions foreigners currently have in Treasury and agency debt, we do see the pace of investment beginning to decline, which will prompt a further decline in the US dollar,” said Bank of New York strategist Michael Woolfolk to Reuters on June 30. Emma Lawson, currency strategist at Merrill Lynch, added she expects emerging markets, like China with its $1.2 trillion in reserves, to let their currencies appreciate further on in 2007 in order to stem capital inflows and cool inflation. To achieve this requires the Chinese central bank to buy fewer dollars, adding downward pressure to the currency, and force other central banks to actively increase holdings in other currencies over the coming years. Furthremore, state-run investment funds, using a portion of reserves that usually go to U.S. securities, may also work against the dollar.

It’s interesting to note that China reduced its holdings of U.S. Treasuries to $407.4 billion from $414.0 billion in May, the second month in a row China cut such holdings. Chris Turner, currency strategist at London-based ING Groep NV, told the Wall Street Journal on July 18 that the drop may reflect “custodial practices.” Still, Mr. Turner said further changes in Chinese holdings need to be watched, as another decline “may add to fears that China is quietly finding more-valuable investment products than U.S. Treasuries — an activity that potentially accounts for some of the heavy [U.S. dollar] losses seen over recent weeks.”

Weaker Dollar Contributes To Higher Oil Prices

The Gulf Times (Qatar) is reporting today that the Organization of Petroleum Exporting Countries (OPEC), which produces about 40% of the world’s crude oil, is “quietly content to see oil prices flirt with record highs to compensate for the declining dollar.” Since the U.S. dollar is the dominant currency for global oil transactions, a weakening dollar leaves little incentive for OPEC members to pump more crude to ease high prices amid rising concerns about the impact of the dollar’s decline on their economies. Shokri Ghanem, the head of Libya’s state-run National Oil Company (Africa’s largest holder of oil reserves), told the Gulf Times that, “The only way to compensate for the weaker dollar is a higher oil price.” Manouchehr Takin, a senior petroleum analyst at the Center for Global Energy Studies in London said, “When the dollar is weak OPEC can argue to support a higher price.” Takin added that OPEC was “happy” with oil prices at their current levels.

It is easy to understand OPEC’s hesitation to add to existing oil supplies. According to research by the Credit Agricole Group, one of the world’s largest banks by shareholders’ equity, 36% of imports into Saudi Arabia, Qatar, Kuwait, the United Arab Emirates (UAE), Oman, and Bahrain come from the Eurozone. Hussain al-Nowais, chairman of UAE-based industrial group Emirates Holdings, told the Gulf Times that, “We buy imports from Europe and our purchasing power is eroded by the dollar and to a certain extent it’s adding to inflation.” OPEC members are disregarding calls for an emergency meeting before their September meeting. However, some members are again discussing how the euro may be incorporated into the reference basket for oil to provide more stability to its purchasing power. Shokri Ghanem told the Times that, “Yes, people are talking about how the euro becomes part of the basket mix but we can’t do anything about the value of the dollar. If this goes on for another five years I’d think there will be changes of some kind.”

However, one OPEC member is taking currency matters into its own hands. Iran has asked Japanese refiners to pay in yen for all crude oil purchases, whereas Iran had previously accepted dollars for payment. According to Bloomberg on July 13, Iran wants yen-based transactions “for any/all of your forthcoming Iranian crude oil liftings,” according to a letter sent to Japanese refiners. The new requirement was to take place immediately. Hirofumi Kawachi, an analyst at Tokyo-based Mizuho Investors Securities Co. told Bloomberg, “What else can Japan do but to accept the request, once the oil producer sent its wish?” The switch to yen comes at a time when Iran has declared its intent to cut back on U.S. dollar holdings to less than 20% of its total foreign currency holdings, and to acquire more euros and yen as a result of escalating tensions with the United States, according to its central bank.

Auto Sector Affected By Housing Slump

The “mainstream news” constantly reminds me that not only has housing bottomed (according to such reliable and unbiased sources as the Treasury Secretary and real estate industry leaders), but that the soon-to-be-over housing decline poses no threat to the broader U.S. economy. Today’s Wall Street Journal analyzed the relationship between the U.S. housing and auto sectors, and concluded that:

The housing market has already taken a toll on auto sales, as weak home values dim consumer appetite for big-ticket purchases. But as more economists predict continued housing weakness, auto sales could remain under pressure the rest of the year.

According to the Journal, some auto sector analysts are forecasting car and truck sales at their lowest rate in a decade.

Mike Jackson, Chief Executive of AutoNation Inc., the largest U.S. car dealership chain, told Reuters today that, “We don’t see light at the end of the tunnel yet, we still have a lot of difficulty to work through. As best as we can tell, we see no indication it’s going to get any better this year.” Stagnant home prices combined with resetting adjustable rate mortgages have resulted in consumers with reduced or negative equity in their homes, according to Jackson. As a result, “Those consumers are not willing to make any big ticket purchases.” Reuters noted that the two markets most affected by the housing slump are California and Florida, which account for about 50% of AutoNation’s new vehicle revenue and 20% of total U.S. new vehicle sales. In an apparent correlation to housing, industry new vehicle sales declined 14% in Florida and California in the second quarter while AutoNation’s sales dropped 16% in both states.

The profitable pickup truck segment is also getting hit hard. According to the Wall Street Journal, slowing home construction is decreasing demand for pickups. Autodata Corp. reports that pickup sales are off 3.8% this year (5.6% by Detroit’s Big Three). Bear Stearns analyst Peter Nesvold told the Journal that, “Continued housing weakness will likely further weigh on truck demand.”

All I can say (sing?) at this point is, “Like a rock.”

More Mortgage Woes To Follow

According to the Associated Press earlier today, analysts fear the next wave of problem loans as monthly payments soar for both prime and subprime borrowers who took out adjustable rate loans with little/no documentation, or who used piggyback loans on top of their first mortgages to make up the difference for small down payments. Due to soaring U.S. real estate values over the last few years, the use of these exotic loans were the only way many borrowers could afford to buy a home.

Yesterday, Angelo Mozilo, CEO of Countrywide Financial Corp., the biggest U.S. mortgage lender, said, “Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories.” Bloomberg noted that the third straight quarterly earnings decline for the lender decline adds to signs that late payments on consumer loans are spreading from subprime borrowers (those with poor/limited credit histories) to people with more reliable repayment records. According to the Associated Press, analysts said the trend could continue, particularly in areas suffering from unemployment or a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas. Mark Zandi, chief economist at Moody’s Economy.com, told AP that, “As housing values weaken broadly and the job market slows in these areas that we’re focused on, all borrowers will be touched,” Zandi said subprime borrowers, those with poor/limited credit histories, will likely be the source of the greatest number of defaults. “But even prime, fixed-rate first mortgage borrowers will experience more credit problems,” he predicted.

Even though the U.S. unemployment rate is low by historical standards, the mortgage industry anticipates a growing number of defaults in coming months as many adjustable mortgages that originated in 2005 and 2006 (during the housing boom) will begin to reset to higher interest rates. Christopher Brendler, and analyst with Stifel Nicolaus & Co., told the Associated Press that:

The losses are just beginning… Housing is increasingly a problem, prices are likely to go down, and so these loans underwritten in the best of times will now season in the worst of times… The same problems you saw in the subprime sector that caused the big meltdown in March is now a broader industry problem that’s hitting the prime sector.

Countrywide’s Bombshell

Countrywide Financial Corp., the biggest U.S. mortgage lender, saw its shares drop by more than 10% earlier today (the worst performance in the S&P 500) after the lender said overdue payments reduced second-quarter profit by $388 million. CNNMoney quoted CEO Angelo Mozilo as saying, “Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories.” The third straight quarterly earnings decline for the lender decline adds to signs that late payments on consumer loans are spreading from subprime borrowers (those with poor/limited credit histories) to people with more reliable repayment records, according to Bloomberg today. A June 14 report issued by the Mortgage Bankers Association showed that loans held by prime borrowers entered foreclosure at a record pace in the first quarter of 2007.

Countrywide’s CEO Angelo Mozilo went on to say in an afternoon conference call that, “We are experiencing home price depreciation almost like never before, with the exception of the Great Depression.” According to Forbes, Mozilo told Wall Street analysts in the phone call that, “This is a huge battleship and it’s headed in the wrong direction.” Lawrence Yun, a National Association of Realtors economist, said that the median U.S. home price is forecast to fall 1.4% to $218,800 this year, the first national decline since the Great Depression in the 1930s. In addition, declining home values make it difficult for people with adjustable rate mortgages, whose payments are increasing, to refinance or sell the property.

Mozilo said the U.S. housing market won’t recover until 2009, according to Liz Rappaport of TheStreet. “Nobody saw this coming,” he claimed.

Weekend Edition: July 21-22, 2007

I’ll admit it- I’m a packrat. I think I inherited this trait from my parents, who never throw out anything and are renowned for the quantity and quality of items made available at their garage sales. My problem is with paper- lots and lots of paper. Yet, there are occasions when a few useful items turn up in the clutter. Case in point, the August 14, 2005, issue of Parade, a newspaper magazine found in your Sunday paper. I remember saving this particular issue because it focused on the U.S. housing market. I had a pretty good idea we were fast approaching the residential real estate market top, and wanted a “keepsake” to remember the housing bubble by as well as use as a point of reference in the future.

The U.S. housing market was still in a state of euphoria that summer. Research by the National Association of Realtors (NAR) in July 2005 showed:
• The median price of existing homes was $219,000, 14.7% higher than 12 months earlier.
• Sales of existing homes over that last year set records, with increases in 44 states.
• The rate of new home sales reached 1.3 million units.

Parade described the frenzy in detail:

We’re in one of the most gung-ho real estate markets since pioneer homesteaders raced covered wagons to stake a claim. SUV’s now screech up to open houses where passionate shoppers compare square footage and granite countertops. The Internet has become a mega open house with people checking their homes’ worth- and what their neighbors’ sold for.

American homeowners bought into the hype as well. Parade poll respondents in 2005 revealed that 61% of U.S. households believed the upswing in housing prices would continue, and 47% of Americans said investing in the real estate market back in August 2005 was a wise decision. According to David Lereah, the chief economist for the NAR at that time:

The reason we’re in this boom is the biggest generation ever- the boomers. They are in their peak earning years and spending on real estate at a record-setting pace. Will the boom last forever? No. But it will last as long as the boomers are in it- probably another 10 years.

Just 2 years later, the story is quite different. On Friday, CNBC real estate reporter Diana Olick characterized the U.S. housing market as “quite weak, as new and existing home sales show no sign of recovery, and prices for both continue to slide from their peaks in 2005.” Challenging recent claims that the housing decline is at or near a bottom, Olick stated:

For those who may have thought the worst was over for the housing industry, none other than Federal Reserve Chairman Ben Bernanke this week threw cold water on that hope when he revised his own prognosis… Chairman Bernanke admitted that, “conditions in the subprime mortgage sector have deteriorated significantly, reflecting mounting delinquency rates on adjustable-rate loans.” He went on to say that, “the ongoing housing correction might prove larger than anticipated, with possible spillovers onto consumer spending.”

Today Bloomberg said that housing reports this week are forecast to show a continuation of the U.S. housing recession. According to economists surveyed by Bloomberg, existing home sales fell to an annual rate of 5.87 million, the lowest in 4 years, from a 5.99 million annual pace in May. The report from the National Association of Realtors will be released on July 25. Government figures due out the next day may reveal that new home sales fell to an 892,000 annual rate in June from 915,000 in the previous month. Federal Reserve policy makers last week lowered forecasts for U.S. economic growth this year and in 2008 as a recovery in home building remains to be seen…

The Dollar Crisis Examined

The other day I published a post about the recent dismal performance of the U.S. dollar against other currencies and the potential harm that could arise from a declining dollar. Last night I came across a superb article in Time by Jeremy Siegel, the Russell E. Palmer professor of finance at the University of Pennsylvania’s Wharton School and author of Stocks for the Long Run and The Future for Investors. In “Investing: Greenback Mountain,” Siegel points out the following facts regarding U.S. dollar holdings overseas:

The numbers are stunning. Governments around the world hold nearly $5.5 trillion dollars in reserves—an amount greater than the gross national product of any country except the U.S. China has by far the largest horde, with over $1.3 trillion in the till and almost one-quarter of the world’s total. But the rest of Asia is far from poor: Japan holds more than $900 billion, Taiwan and South Korea together own over $500 billion and India’s reserves crossed $200 billion this year, up more than 30% from a year ago. About two-thirds of these reserves are denominated in dollars and about 60% of those are in U.S. government treasuries—meaning that more than half of America’s publicly held national debt is now owned by foreign governments.

And why are some out there, myself included, concerned about the huge concentration of U.S. dollars overseas? Professor Siegel explains that:

Not surprisingly, these huge dollar holdings are a source of considerable anxiety for capital markets. Any hint that Asian countries in general—and China in particular—are going to sell their dollars causes the greenback to sink and sends treasury rates higher. There is evidence that governments are worried about the size of their caches. Foreign holdings of dollar-based assets doubled from $1 trillion to $2 trillion from the end of 2001 through to the spring of 2005, but since have increased less than 10%. China, which must continue to buy dollar assets if it wishes to keep its currency from appreciating too rapidly, has switched out of treasuries into more promising investments, such as Blackstone, the giant U.S. hedge fund that recently went public.

Siegel points out the consequences of overseas investors losing their appetite for U.S. dollars:

… And if foreigners turn away from dollar investments, the economic repercussions will be severe. Without overseas buyers, stock and bond prices in the U.S. will fall and the dollar will continue to slide. This will drive up the price of imports, especially oil, worsening inflation and reducing consumers’ income.

Next week I’ll be looking overseas for the latest signals showing a waning interest in the U.S. dollar. Make sure you check back with Boom2Bust.com for my findings.

Latest Housing Sector Forecasts

It’s been a while since I published a post on the U.S. housing sector. However, with Federal Reserve Chairman Ben Bernanke calling attention to housing’s drag on the U.S. economy in his semiannual testimony for the House of Representatives Financial Services Committee, I thought we’d take a look at some of the latest forecasts. According to David Berson, vice president and chief economist at Fannie Mae, the U.S. housing market slump will continue throughout the remainder of 2007, with home sales falling further and price growth continuing to slow. The leading industry economist predicts that 2006 and 2007 combined will show the biggest drop in sales since the housing downturn of 1989-91. According to Reuters on Wednesday, Berson said, “If you combine the drop in affordability, the slowdown in job growth, the still-good demographics for housing and the continued pull-out of investor demand, we expect housing activity to continue to fall this year.” In addition, mortgage rate increases will soon have an additional negative impact on housing demand, said Berson in the company’s 2007 Economic and U.S. Mortgage Market Outlook conference call. He predicted that the housing market should bottom at the end of this year with a small increase in demand in the second half of 2008. However, housing starts will continue to fall through 2007 and perhaps into early 2008.

Reuters also spoke to Jeffrey Mezger, chief executive of KB Home (the number 5 U.S. home builder), who expects the overall U.S. home market to bottom out at the end of 2008. with prices not increasing until well into 2009. Earlier today, Mezger said, “By the end of ‘08 it will start to stabilize. Then it will start to go back up on in ‘09. I think it will take a year.” He feels that the oversupply of existing homes on the market is the main reason for housing’s weakness. “The bigger factor to me is how many of the markets have this huge resale inventory that has to clear and is going to keep pressure on pricing,” Mezger told Reuters. “If they do by the end of ‘08 you’ll start to see some traction in demand and supply in balance.”

Paul McCulley, a bond fund manager at Pacific Investment Management Co., goes so far as to suggest that the housing slump’s impact on the broader U.S. economy will be so significant that it will force the Federal Reserve Bank to cut rates. McCulley told Bloomberg today that, “The recession we have in the housing market is going to be a very long, protracted affair. That’s going to lead the average consumer to recognize that he needs to save more out of current income, which is going to weaken consumption in the economy.” He also suggested that the subprime mortgage losses will spread beyond financial markets. He said, “This whole subprime crisis has been more of a Wall Street event than it has been a Main Street event, but that’s going to change. You’ve got overpriced homes and inventory that’s half the distance to the moon. Nationwide deflation in home prices will follow.” McCulley suggests that companies marketing mortgage-linked bonds are the culprits. “The first sin was created on Wall Street. Wall Street created the demand for originators to create this crap type of mortgage product.”

Dollar Daze

The almighty dollar set off some alarms earlier today when it fell to a new low against the euro. Increased speculation of an interest rate cut, and fears that subprime lending woes will have a much larger impact on the broader U.S. economy, helped pressure the U.S. dollar. This comes after last week’s more than 1% decline against the euro and the yen in response to Wall Street’s two largest rating agencies signaling that subprime market problems will probably get worse. The dollar is losing ground against other currencies as well. Today, the British pound soared above $2.05 for the first time in 26 years today. And on Monday, the Canadian dollar reached 96 cents per dollar, closing in on parity. According to MarketWatch today, Bear Stearns economist David Brown said in a note to clients that, “The dollar continues to plumb new depths against most currencies and the slide is not about to stop here. Tensions in markets such as housing and corporate credit seem to be weighing on the dollar.” In addition, Ashraf Laidi, chief foreign exchange strategist at CMC Markets in New York, told clients that, “The dollar resumes its broad sell-off as [Fed Chairman Ben] Bernanke’s speech and the Fed’s central tendency forecasts present no real deviation in the existing negative dollar flows, which have escalated in the Asian session following Bear Stearns’ announcement on its sub-prime hedge funds.”

Differences in long-term interest rates have also played an important role in the U.S. currency’s decline. Money flows to the currency of the country with the highest interest rates and greatest security. In the past, foreign investors have chosen the U.S. dollar for its safety and returns. However, the difference in

interest rates between the United States and Europe has been narrowing, prompting the dollar’s decline as investors become increasingly concerned about the United States’s trade and budget deficits, and the potential of an economic slowdown brought on by a housing recession. Many believe European rates will eventually rise and U.S. rates will fall, extending the dollar’s slide.

The value of the dollar affects everything from the price of consumer electronics and clothing, to mortgage rates and the job market, and to whether a vacation overseas is more affordable for Americans or Europeans. If foreign investment in U.S. bonds and equities in the United States suffers as the result of a declining dollar, that could force up yields on government bonds, because higher rates would be needed to attract these overseas investors (who, by the way, make our massive twin deficits possible!). And bond yields have a direct impact on a wide variety of interest rates paid by consumers and businesses. Many goods produced overseas with no domestic competition could cost more here. And if Americans keep on buying imported goods, this could lead to an even larger trade deficit and dollar decline. In addition, American companies that buy raw materials and parts overseas would see their costs rise in dollar terms. This has the potential of cutting into profits (if they can’t raise prices) and eventually hiring. Finally, Americans traveling abroad would find prices for just about everything higher.

There is a silver lining with a weak dollar, as many big U.S. companies get a boost in overseas sales, where their products become more competitive. Economists believe this benefit should offset inflationary pressures caused by higher import prices. But if the dollar were to plummet, long-term Treasury yields could soar. “Profits would go south, and stocks would plunge,” according to Moody’s Investors Service chief economist John Lonski in Monday’s USAToday.

Getting Back To Business

Since last week there have been no new posts while I’ve been upgrading the website. During the downtime, I did manage to sneak away for a day to go boating in Wisconsin. I’ll tell you, it felt great to anchor my boat in the shallows, light up a cigar, and kick back. I brought that day’s edition of the Wall Street Journal along, but I was having too much fun doing nothing.

Alas, all good things must come to an end…

Improvements

Because of some upgrades to the website, Boom2Bust.com posts will resume on Tuesday, July 17.

“The biggest room in the world is the room for improvement.”
-Unknown Author

Consumer Bankruptcies Climb

I came across a piece in today’s Wall Street Journal that talked about how consumer bankruptcies are climbing. According to the American Bankruptcy Institute, U.S. consumer bankruptcy filings in June were 37.1% higher than a year ago. In the article, Samuel Gerdano, ABI’s executive director, said, “Underlying concerns of high debt loads are still a constant, pointing to rising filings in the future.” Other research confirms this disturbing trend. On July 3, the National Bankruptcy Research Center, a subsidiary of Lundquist Consulting, Inc., industry leader in bankruptcy statistics and analytics, released their 2Q 2007 findings, which showed the fifth consecutive increase in bankruptcy filings since the first quarter of 2006. From April to June 2007, 200,732 filings took place, an 11.6% increase over the first quarter of 2007 and 40.6% higher than the same period in 2006. NBKRC found that on an annualized basis, 1 in every 136 households filed bankruptcy in 2Q 2007, as opposed to 1 in every 190 households in 2Q 2006. California led the country with 16,251 bankruptcy filings in the second quarter of 2007.

IEA Warns Of Energy Crunch

The International Energy Agency today warned of tight oil and natural gas supplies in the coming years in its “Medium-Term Oil Market Report.” The IEA, a Paris-based intergovernmental organization founded in 1974 in the wake of the oil crisis, acts as an energy policy advisor to 26 member countries (including the United States). In the report, the Agency forecasts that while demand for oil and natural gas is expected to grow through 2012, the Organization of Petroleum Exporting Countries (OPEC) spare capacity is expected to remain constrained until 2010, then shrink to minimal levels by 2012. In addition, the IEA predicts supply increases from non-OPEC oil producers will start receding in 2009. Natural gas markets will also be tight because of inadequate supply increases, leaving the consumer with limited options. According to the report:

“Not only does oil look extremely tight in five years time, but this coincides with the prospects of even tighter natural gas markets at the turn of the decade. Over the past 25 years there has been substitution away from fuel oil and towards natural gas. However, when natural gas supplies have been insufficient or there have been supply problems (such as those seen following Hurricanes Katrina and Rita in 2005, Russia in 2006), fuel oil has been the natural substitute. By the end of the decade, such flexibility may be constrained, producing upward pressures on all hydrocarbons. Slower-than-expected GDP growth may provide a breathing space, but it is abundantly clear that if the path of demand does not change on its own, it may well be driven to change by higher prices.”

The Wall Street Journal said this afternoon that, “The IEA doesn’t forecast oil prices, though its conclusions imply that consumers should expect continued upward pressure on the cost of energy.” Back on July 2, the Christian Science Monitor looked at the present effects of high energy costs on the American household, and had this to say:

“Energy is now sucking money out of Americans’ bank accounts at a record level — hitting $612 billion at an annual rate in the month of April, the last month of data. Over the past two years, energy bills as a share of income have risen and are now at their highest point since 1987, but still below the levels of the 1970s and early 1980s. For low-income households, some economists estimate energy consumption as a percentage of income is closing in on 10 percent.”

Mark Zandi, chief economist at Moody’s Economy.com, told the Monitor that the higher cost of energy “shows up in weaker real incomes, since it results in higher rates of inflation. If it rises much more, it will become a significant problem, particularly for lower-income households.”