Costly oil meets feverish thrift

Tag : jet fuel

NEW YORK -- Conventional wisdom had long held that some industrieswould collapse if oil topped $100 a barrel. As oil neared $150,sending costs higher for everything from jet fuel to plastic jars,the question was how many companies would succumb.
The surprising answer: Not many. Some have even thrived.
Companies have culled unprofitable products, cut production costsand passed along price increases. Airlines have laid off thousandsof employees, dropped routes, sold planes and raised fares 20percent in the past year -- the fastest rate of increase in 15years. Consumer product-makers have shrunk everything from tubs ofSmart Balance Buttery Spread to jugs of laundry detergent.Retailers from The Yankee Candle Co. Inc. to Target Corp. havepassed on higher prices to consumers.
"We are squeezing every dollar out of our working capital," saidJames Craigie, chairman and chief executive of Church & DwightCo., on the company's second-quarter earnings call in August. Saleshave increased 50 percent over the past four years at the company,which makes detergent, toothpaste and Arm & Hammer baking soda,but the number of employees has stayed flat, at 3,700, Craigiesaid.
With oil prices roughly twice what they were in January 2007, manycompanies have simply adjusted. Now that oil's daily price swingsare moving down as well as up, that preparation has put them in astrong position -- leaner than they've been in years, withcustomers paying higher prices.
Of course, the adjustment hasn't been smooth.
Inflation concerns
Consumer inflation is the highest in 17 years, up 5.6 percent thisyear and unemployment is at a four-year high. Workers are doingmore, without earning more: Productivity, the output for every hourof work, jumped 4.3 percent at an annual rate in the April-Junequarter, while labor costs fell.
The auto industry has been hammered as gasoline prices climbedroughly $1.30 a gallon since the beginning of 2007. Higher pricesfor gas and food crimped consumer spending and slammed departmentstores and restaurants. Every penny increase for a gallon of gasequals more than $1 billion in consumer spending over a year,according to Citigroup Inc. Business bankruptcies are higher thanthey were a year ago, soaring in industries such as trucking, whichhave excess capacity and are unable to pass on higher costs.
But many businesses have proved resilient. A surge in exportsthanks to the weak dollar helped, but so have price increases andcost-cutting.
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