Why Low Oil Prices Haven’t Helped The Economy

Oilprice.com ^ | 12-04-2016 | Jim

[bananaman22]

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 percent of GDP. A year and a half ago, energy expenses constituted 5.4 percent of total consumer spending. Today that share is down to 3.7 percent.

[Yo-Yo]

How about why the poor economy led to low oil prices?

[US_MilitaryRules]

Because all the money you saved from buying gas has gone to the healthcare industry. obunghole care.

[TexasFreeper2009]

The fact is ... the only thing that had been propping up the US economy was all the money being made in the states with oil. Now that oil has fallen so low.... those states are no longer doing so good, and thus the entire economy is being exposed for how bad it really is.

[Thorliveshere]

Any savings we make on gas we put back into savings, paying off debt, etc., but no splurging, that’s for sure.

[Opinionated Blowhard]

Uh, could it be because Obama’s Socialism has crippled the economy so badly that even low oil prices can’t revive it?

[ChessExpert]

“the macro evidence, which shows no evidence of a significant increase overall, is that there were other factors besides oil prices that were holding everybody’s consumption back, such as slower income growth and more precautionary saving.”

Milton Friedman advanced the idea that people consume out of their “permanent income.” That may apply here.

I think the Obama economy has been weak in terms of producing full-time private sector jobs. Fracking, which the Democrats oppose, has been the only bright spot that I know about. This may be a good time for precautionary saving.

A robust, growing private sector economy should lead to a lot of spending. Not just spending from income growth, but spending out of optimism for the future.

Today’s low gasoline prices is like getting a raise. But how long will it last?

Anyone know how the RV industry is doing? Some people might be tempted to buy an RV now due to lower gasoline prices. But they will be hammered if prices go back up.

Have lower oil prices led to lower priced air fair yet? Belief in a permanent reduction in fuel prices will lead to many changes including new aircraft purchases by the airlines.

Thanks to government (Obama, Fannie Mae, possibly the Fed), we had, and presumably still have, an oversupply of housing. How long will that last? Excess government debt may lead to higher taxes. An aging population spends differently.

I have little doubt that fracking and low oil/gasoline prices have helped keep us out of the grave that Obama is digging for America. But he is still digging, and Hillary or Bernie will do the same.

[ChessExpert]

“We actually were energy independent for a while there but at these low prices frackers lose money drilling so they shut down.”

That need not happen if we export oil. I expect gasoline prices are still high in Europe. Exports have only recently become legal. (They should never have been illegal, IMO). It may take a while to build the infrastructure for more exports.

[minnesota_bound]

This writer must have someone else paying their bills.
Gas prices goes down a dollar and you get to keep thousands of dollars in your pocket as a result. #23 summed it up. Just like the rich paying the most taxes in states. When they move that states economy takes a hit.

[ArcadeQuarters]

If you spend more than you need to, you’re wasting your own labor. It may help someone else but it’s not mutually beneficial. See the broken window parable. https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window Also, money saved can be invested to produce more wealth rather than simply consuming it.

[sparklite2]

net oil importer like the United States.

---

Hmmm. I knew that. It’s been that way like, forever. It might even be the biggest component of the trade deficit there is. But do the same people going all Cassandra on trade deficits raise an equal clamor over the US being an importer of energy? You’d think they want to keep us susceptible to oil crises while forcing consumers to pay more for not only fuel but hobbling trade with tariffs, knowing they will raise consumer prices. But maybe it only looks that way.

[ro_dreaming]

Very simple.

Everything else has gone up to suck up any “left over” from the drop in oil/gas prices. And now, with the switch back to the “summer blends”, gas prices are going back up anyway.

I am now celebrating over 10, almost 11 years at my current employer - and just now making as much as I did at a different job in 2003.

Of course, now I have 3 kids and my dad lives with me, plus my wife quit her teaching job, so my single income has to stretch a LOT further.

[Ozark Tom]

All the increases in prices due to higher energy costs are still priced into the goods on the shelf. The energy prices have fallen on the front end, but the savings are not passed along as lower prices to the end user, at least not yet. Diesel is in the $3 versus $5 dollar range; but, surcharges added for fuel adjustments have yet to be rescinded. This is where more competitors would spur movement.

Shale oil will provide a cap to upward movement, although crude may need to approach $70 rather than $50, for sufficient financing to spring forth in support.

[Svartalfiar]

Have lower oil prices led to lower priced air fair yet? Belief in a permanent reduction in fuel prices will lead to many changes including new aircraft purchases by the airlines.

Actually, that's not true at all. I work in AV, and we've done some shows for different aviation groups (just did a big mro convention), with many repair companies, airlines, and aircraft manufacturers giving presentations. Cheap oil helps them in terms of short term profit, but aircraft purchases don't correlate to oil prices at all. They are actually more in line with US gdp and similar factors. Aircraft purchases are generally planned 3-5 years in advance, and oil prices are a tiny fraction of the formula they use.

Airfare, however, is something that should more accurately follow oil prices. Prices may not come down much (people are used to certain prices, might as well increase profit margins a bit), but you generally tend to see more deals or short-term cheap flights.

[ChessExpert]

net oil importer like the United States.
________________________________________

“It’s been that way like, forever.”

True, but oil imports are down and oil exports are up.

https://ycharts.com/indicators/oil_imports

https://ycharts.com/indicators/us_oil_exports

Why do we export and import oil at the same time? For one thing, there are different grades of oil.

[ChessExpert]

Thanks for the comment.

“Airfare, however, is something that should more accurately follow oil prices. Prices may not come down much (people are used to certain prices, might as well increase profit margins a bit), but you generally tend to see more deals or short-term cheap flights.”

More deals and cheap flights, and lower fares later, will presumably lead to increased ridership and flights. Wouldn’t that eventually lead to more aircraft orders? You are right to mention lead times, so I imagine it might take a few years.

This argument is based on a permanent lowering of fuel prices. I’m sure a lot of people are taking a wait and see attitude on that.

[Svartalfiar]

More deals and cheap flights, and lower fares later, will presumably lead to increased ridership and flights. Wouldn’t that eventually lead to more aircraft orders? You are right to mention lead times, so I imagine it might take a few years.

In the long-term, yes. IF oil prices stay low, but who knows what they'll do?

I'll admit, I don't pay that much attention to the shows. Most of the content goes in on ear and out the other. I do all sorts of boring shows: dental, accountant, pharma, etc etc. Lots of technical stuff that doesn't interest me, aside from hearing the presenter say "Now let's watch this video." or some cue like that for me to do something. Some of the things I did take away from the Aviation MRO show was that most companies agree oil prices don't really show up in aircraft orders, whether low or high. I was a little surprised at that as well. Several of the newer aircraft are moving into longer times before major required maintenance, so mro companies aren't too happy about that!

[CommieCutter]

Ever since the laws were tweaked for oil speculation in late 99 or 2000 gas prices have been very volatile ever since. That may just be a coincidence but it’s something I’ve noticed.