From Professor Jim Hamilton at Econbrowser: Why no economic boost from lower oil prices?
Many analysts had anticipated that a dramatic drop in oil prices such as we’ve seen since the summer of 2014 could provide a big stimulus to the economy of a net oil importer like the United States. That doesn’t seem to be what we’ve observed in the data.
There is no question that lower oil prices have been a big windfall for consumers. Americans today are spending $180 B less each year on energy goods and services than we were in July of 2014, which corresponds to about 1% of GDP. A year and a half ago, energy expenses constituted 5.4% of total consumer spending. Today that share is down to 3.7%.
But we’re not seeing much evidence that consumers are spending those gains on other goods or services. …
For a net oil importer like the United States, the direct dollar gains to consumers exceed the dollar losses to domestic producers. Even so, multiplier effects from displaced workers and capital in the oil sector could end up eating away at some of those net gains. When oil prices collapsed in 1986 we saw no boom in the national U.S. economy, and in fact Texas and other oil-producing states experienced their own recession.
On the other hand, when oil prices spike up rapidly the result is unemployed labor and capital in sectors like autos and their suppliers. Furthermore, in the days before fracking there was a much longer lead time between an increase in oil prices and an increase in spending by oil producers. The result was an unambiguous net negative shock to GDP from a big upward spike in oil prices. The oil price shocks of 1973, 1979, 1980, 1990, and 2007 were all followed by economic recessions. In a recent paper I surveyed a number of academic studies that concluded that while a sharp increase in oil prices can reduce U.S. GDP growth, it’s harder to see evidence of significant net gains for U.S. GDP from a sharp decline in oil prices.
It looks like we’ve just added some more data to support that conclusion.
• Schedule for Week of April 10, 2016
• No economic releases scheduled.
Oil prices were up over the last week with WTI futures at $40.08 per barrel and Brent at $41.94 per barrel. A year ago, WTI was at $52, and Brent was at $56 – so prices are down about 25% year-over-year.
Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.04 per gallon (down about $0.35 per gallon from a year ago).