Page 5 - UTILITIES, MAY 21, 2015
P. 5
U.S. NEWS A7
Thursday 21 May 2015
US Financial Front:
Why many experts missed this: Cheap oil can hurt US economy
C. S. RUGABER It turns out that the eco- Some economists are re- cast of 3.3 percent. (The ous quarter’s 4.4 percent.
AP Economics Writer nomic effects of lower en- considering assumptions downgrade is also due in Much of the cash saved
WASHINGTON (AP) — If ergy prices have evolved they use to forecast the part to a stronger U.S. dol- at the gas pump was put
there was one thing most since the Great Recession. economy. lar, which has depressed away: The U.S. savings rate
economists agreed on Corporate spending on drill “The benefit of lower oil exports.) reached its highest point
at the start of the year, it rigs, steel piping for wells in more than two years.
was this: Plunging oil prices and railcars to transport oil Gas station attendant Carlos Macar pumps gas in Andover, Wal-Mart and Target have
would boost the U.S. econ- has become an increasing- Mass. The economy is thought to have shrunk in the January- confirmed that their sales
omy. ly vital driver of economic March quarter and may barely grow for the first half of 2015 _ aren’t getting much lift
It hasn’t worked out that growth. So when oil prices thanks in part to sharp cuts in energy drilling. And despite their from cheaper gas.
way. fall and energy companies savings at the gas pump, consumers have slowed rather than For Vince Cimilluca, a
The economy is thought to retrench, the economy suf- increased their spending. 28-year-old video edi-
have shrunk in the January- fers. tor in Edison, New Jersey,
March quarter and may The drilling boom that (AP Photo/Elise Amendola) lower gas prices haven’t
barely grow for the first half erupted in 2008 has boost- changed his finances
of 2015 — thanks in part to ed U.S. oil production nearly prices is less pronounced For families, the drop in gas much. He’s struggling to
sharp cuts in energy drilling. 75 percent and natural gas than, say, 10 years ago,” prices was an unexpected pay $800 a month in stu-
And despite their savings at 30 percent and made the says Jim Burkhard, a re- gift. The government has dent debt while saving for
the gas pump, consumers United States the world’s searcher at IHS Energy. estimated that cheaper a home. He’s seen gas pric-
have slowed rather than in- largest combined produc- “You’re taking a big engine gas will save a typical es gyrate and doesn’t trust
creased their spending. er of oil and natural gas. of economic activity and household $675 this year. they’ll stay low.
At $2.71 a gallon, the av- Energy production contrib- cutting it sharply.” Yet still scarred by the re- “The extra money that I
erage price of gas nation- utes about 2 percent to Lafakis and many others cession, many remain re- have, I save,” Cimilluca
wide is nearly $1 lower than economic output, up from still expect consumers to luctant to spend freely. An- says. For the economy,
it was a year ago. In Janu- less than 1 percent in 2000. spend much of their sav- alysts also note that Ameri- the technological break-
ary, the average briefly Yet in recent months, in- ings from cheaper gas, cans are less likely to spend throughs that allowed the
reached $2.03, the lowest dustry activity has dropped powering faster growth in extra money if they think energy industry to power
in five years. more sharply than predict- the second half of the year. the gain is temporary. growth now help explain
Cheaper oil and gas had ed. Economists say it can take “Consumers have been the slowdown. As the
been expected to turbo- “So far, it is fair to say that up to six months for peo- very reluctant to spend 2008-09 recession ended,
charge spending and drive we have been hurt more ple to spend unexpected (savings from cheaper companies used hydrau-
growth, more than making than helped,” Lafakis ac- windfalls. But any gains gas), because they view lic fracturing, or fracking,
up for any economic dam- knowledges now. won’t likely be enough to that as fleeting,” says Greg to unlock underground re-
age caused by cutbacks in During their policy meet- counter the anemic start to McBride, chief financial an- serves. Oil, at $100 a barrel
the U.S. oil patch. ing last month, Fed officials the year. alyst at Bankrate.com. or more, made such efforts
Consider what Federal Re- grappled with the chang- Moody’s Analytics expects Consumer spending rose profitable.
serve Chair Janet Yellen ing impact of cheaper oil, the economy to expand at an annual rate of just 1.9 Jim Burkhard of IHS Energy
said in December: Low- according to minutes of the just 2.6 percent this year, percent in the first quarter, estimates that U.S. and Ca-
er gas prices, Yellen de- meeting released Wednes- down from an earlier fore- compared with the previ- nadian energy companies
clared, are “certainly good day. Several policymak- increased investment in
for families. ... It’s like a tax ers said the economic production from $98 billion
cut that boosts their spend- drag from drilling cutbacks in 2005 to $363 billion last
ing power.” could be “larger and lon- year. U.S. oil and gas jobs
Other experts were more ger-lasting than previously nearly doubled to 537,000.
direct: “Lower oil prices are anticipated.” In addition, jobs were add-
an unambiguous plus for They also worried that the ed at steel mills, at sand pits
the U.S. economy,” Chris weakness in consumer to process sand for frack-
Lafakis, an economist at spending, despite cheaper ing and at restaurants and
Moody’s Analytics, wrote in gas, suggested that Ameri- service companies in areas
January. cans might generally be with new-found oil and gas
So what did they get more reluctant to spend fields, like North Dakota
wrong? than assumed. and Pennsylvania.q
