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[Juliana Dutra <kila01 AT yahoo.com>]

    The great consumer squeeze of 2005 has begun, and
analysts say it will soon get worse.

    As energy costs soar, there's more than a whiff of
inflation in the air, and Federal Reserve officials
are warning of further interest-rate increases.

    Bigger energy bills come on top of years of
steadily increasing health care costs. And for most
people, wage and salary gains have been modest at
best.

    "The consumer's getting hit by a lot of different
things," said Nariman Behravesh, the chief economist
of Global Insight, a Massachusetts consulting firm.
"Something's got to give, and that something is
discretionary spending."

That might spell bad news for the holiday shopping
binge, not to mention consumer spending on everything
from stereos and restaurants to ski trips.

Let's start at the beginning:

Wages

After inflation, wage growth has been nearly stagnant
since Bush took office.  Production level hourly wages
- which represent about 80% of the US workforce - were
$14.27/hour in January 2001 and $16.18 in August 2005
for an increase of 13.38%.  Over the same period, the
inflation index increase for 175.1 to 196.4 for an
increase of 12.16%.  This makes the 4½ year wage
increase 1.22%.

Health Insurance

Kaiser Health recently issued its annual survey of
health care.  Here are some of the high points:

    Premiums increased an average of 9.2% in 2005,
down from the 11.2% average found in 2004. The 2005
increase ended four consecutive years of double-digit
increases, but the rate of growth is still more than
three times the growth in workers' earnings (2.7%) and
two-and-a-half times the rate of inflation (3.5%).
Since 2000, premiums have gone up 73%.

    The annual premiums for family coverage reached
$10,880 in 2005, eclipsing the gross earnings for a
full-time minimum-wage worker ($10,712). The average
worker paid $2,713 toward premiums for family coverage
in 2005 or 26% of the total health premium. While
workers' share of their premium has been relatively
stable over the past few years, they are now paying on
average $1,094 more in premiums for family coverage
than they did in 2000.

For those who want the hard numbers, annual premium
increases for 2001-2004 were 10.9%, 12.9%, 13.9%, and
11.2%.

Energy

Energy prices are skyrocketing.  Jerome wrote an
excellent diary on this a few days ago.  Of particular
importance is the increases are not just in the colder
areas of the country but instead all over the US. 
According to yesterday's USA Today:

    U.S. households can expect to pay sharply higher
monthly heating bills this winter, with the increases
ranging from 45% to 90% in much of the country,
utility companies and weather forecasters warn.

    Surging energy prices, which have been climbing
since spring, come at a time when many households are
contending with higher mortgage-finance costs, higher
taxes that accompany increased real estate assessments
and property-insurance price increases the past two
years.

The above article deals solely with heating expenses. 
It does not deal with transportation expenses, which
have nearly doubled this year in some places.

Consumer Debt

Consumers are already indebted at record levels. 
Households' debt service ratio which are "an estimate
of the ratio of debt payments to disposable personal
income" hit a record levels in the second quarter of
2005.  Moreover, consumers have gone on a debt
acquisition strategy for the last 5 years:

    Overall, U.S. consumers hold nearly $11 trillion
in debt, up from $6.8 trillion in 1999, according to
the Federal Reserve. To be sure, households' net
worth, bolstered by appreciating home prices, also has
risen over the period, to about $49 trillion from $42
trillion.

    The US consumer will be hard-pressed to increase
his debt level when his wages are stagnant and
necessary expenses such as health care and energy rise
far faster than inflation.

So where does this lead to?  A very questionable
holiday season.  Heating energy spikes will be in
their 2-3 month by the time the holiday shopping
season kicks into high gear.  Consumers will also be
feeling the pinch of higher health insurance premiums
and their record debt level.  It is possible consumers
will hold back on holiday purchases.  

Considering that 2/3 of the US economy is based on
consumer spending and retailers make about half of
their profits from the holiday season, the US economy
could be in for a world of hurt