Why lower gas prices are both good and bad for the US economy
"If we continue on the path we have seen in crude oil, we will see many job losses," said Tom Kloza, global energy consumer head at Oil Price Information Service.
Gas prices are down sharply
Cheap oil prices and petrol prices are no longer a slam dunk positive for the US economy. This is because the US is both the largest consumer and producer of oil.
"When the president calls lower oil prices, he ignores the new reality," wrote Ian Shepherdson, chief economist at the Pantheon Macroeconomics, to clients in a November report.
But Trump tweeted twice in an hour on New Year's Day celebrating the benefits of cheap gas.
"Do you think it's just luck that gas prices are so low and falling? Low prices are like another Tax Cut!" Trump said on Twitter.
And analysts expect prices to fall further as the holiday driving speed fades and bad weather keeps people off the road. Kloza estimates that the average 2019 gas price will be about $ 2.55 per gallon, compared to $ 2.72 last year.
"Petrol prices are very much anchored to consumers," said Russell Price, senior economist at Ameriprise Financial.
This is especially true for lower income families, where sharp declines (or increases) in petrol prices play a negligible role on wallets.
Ameriprise estimates that every 10 percent change in average petrol prices over a year equals about $ 14 billion in consumer savings.
& # 39; Live and that & # 39; with oil
But there are also negative side effects. Thanks to the shale oil boom, the energy sector is now a larger part of the national economy than it used to. When prices crash, energy companies release expenses and cause a ripple effect on other sectors.
For example, investment spending in the oil industry increased by $ 149 billion over the last decline, according to Shepherdson. It matched the benefits to consumers. But the overall effect was not neutral. This is because expenses also fell in sectors that depend on the oil industry, including finance, transport and equipment workers.
All told, Shepherdson estimates that the oil price 2014-2016 dried 0.3 percentage points of US GDP growth in 2014 and a further 0.2 percentage points in 2015.
"We are living and dying of oil prices," said a head of a machine-manufacturing company in the Dallas Fed survey. "With the oil field down we see smaller orders."
Millions of jobs
The oil industry is a major employer in states such as Texas, Colorado and North Dakota.
While US oil production hit a hit during the 2014-2016 crash, it quickly recovered to record highs as prices arose and companies found out how to drill more effectively. That the restoration translated into meaningful work gains in energy says that Trump brought along in the 2016 election.
For example, Okkle's unemployment rate dropped from 4.1% in November 2016 to 3.3% in November, according to the Ministry of Labor. New Mexico, home to part of the Permian Basin, has experienced a decline in unemployment from 6% to 4.6% over that range. And Texas has added more than 365,000 jobs.
"If oil prices are in the range of $ 40 to $ 45, there will be some pressure on employment in the energy sector as well as business investments," Price said.
It is a new reminder that cheap gasoline cuts both share ways in today's economy.
