01:00 AM EDT on Sunday, October 16, 2005

Everybody is paying more for energy.

Motorists are digging deeper into their wallets to fill their gas tanks at an average price of $2.83 a gallon.

Homeowners' bills for oil and natural gas this winter will go through the roof.

Business owners will have to pare margins by shaving expenses or boosting the price of their products to cover the higher cost of running and heating their plants.

The energy-price spike that has required families and companies to tighten their budgets is also rippling through the economy.

Already, consumer confidence has slumped in the wake of hurricanes Katrina and Rita and the resulting increases in energy prices. That makes retailers nervous when they think about how much shoppers will spend this holiday season.

The boost in the cost of gasoline, electricity, oil and natural gas has also caused a spike in energy-related inflation. For the last 12 months, the core rate is running at 3.6 percent -- the highest in years.

The rise in inflation has prompted the governors of the Federal Reserve Board, under the direction of chairman Alan Greenspan, to signal that they are not yet done raising short-term interest rates. Economists forecast that the Fed will raise rates in short bursts, from 3.75 percent to 4.5 percent next year.

So far, long-term interest rates have not followed the movement in short-term rates. But that may be ending. Last week, 30-year mortgage rates rose above 6 percent for the first time since March, and housing analysts forecast that they are headed higher.

Frank Nothaft, chief economist at Freddie Mac, said he expected mortgage rates to keep rising gradually in the coming months and predicted that the 30-year mortgage could hit 6.4 percent early next year.

Energy-price spikes and rising interest rates -- along with a housing slowdown -- have played roles in past recessions. Forecasters have taken note.

"The U.S. economy has been remarkably resilient in recent years, but consumers may start to postpone discretionary spending to build some cushion to pay their higher heating bills on top of paying more to fill up their gasoline tanks," Ed Yardeni, a veteran Wall Street analyst, wrote in a note to investors.

"In other words, I am not sure that the economy is resilient enough [to withstand the new pressures]."

He said he worries that the economy could soon face a six-month bout of stagflation -- in which prices rise but wages and hiring stagnate. That was last seen during the 1970s energy crisis.

If the economic expansion stalls, the slowdown will be felt acutely in states such as Rhode Island and Massachusetts, which are experiencing only modest increases in job creation. Rhode Island's job growth this year is 4,700 jobs, or a meager 1 percent. Massachusetts' growth rate is only 0.7 percent and the state has yet to recover the jobs it lost in the last recesssion.

Greenspan argues that the economy has "weathered reasonably well the steep rise" in energy prices thanks to market-driven incentives and "flexibility.

"The impressive performance of the U.S. economy over the last couple of decades, despite shocks that in the past would have surely produced marked economic contraction, offers the clearest evidence of the benefits of increased market flexibility," Greenspan said last week in a speech to the National Italian American Foundation in Washington, D.C.

Some economists agree, pointing to the solid U.S. jobs numbers. Only 35,000 jobs were lost in the month after the hurricanes -- far less than the 150,000 that had been forecast. On average, the country has created 195,000 jobs a month during the last year.

The hurricanes and energy-price spikes have shaved the estimate for the Gross Domestic Product in the fourth quarter to between 3.2 percent and 2.8 percent, down from 3.5 percent in the third quarter. But that's still healthy, and economists forecast the GDP, boosted by the huge rebuilding effort in New Orleans and Mississippi, will rebound to 3.4 percent next year, according to the National Association of Business Economists.

Housing experts say even though interest rates are rising, mortgages are still historically very affordable and home sales this year in New England and in the United States as a whole will have another record year.

Still, all economic expansions eventually come to an end.

There was already some concern in the summer when energy prices were rising -- before the hurricanes pushed the cost of gasoline, natural gas, electricity and oil up even higher.

If there were worries then, there should be anxiety now.