Happy times are here again at the gas pump. The price of oil keeps falling, and Americans are filling their tanks for less than $2 a gallon. The government says cheaper gasoline put an extra $100 billion into drivers' wallets last year alone.
That seems like it would be good for the economy. Turns out, it might not be.
"Is it possible that lower oil prices could actually hurt the U.S. economy?" asks Vipin Arora, an economist with the U.S. Energy Information Administration. "I think the answer could be yes."
Arora's findings are based on his own research, so this isn't the government's official word on the matter. But his research suggests that cheap gas might be bad for America.
Of course drivers like cheap gas. But people "sitting on the oil rig in Texas" don't like cheap gas — nor do the truck drivers and businesses supplying the oilfields and hotels and restaurants that have set up shop to serve oil workers.
Arora analyzed government data, and found that what's changed is that the oil and gas industry as a share of GDP has about doubled in the past decade. Now it has grown so large that it's changed the basic equation of whether cheap gas is a good thing overall.
"The benefits to consumers could be around $140 billion from gasoline savings," Arora says. "But the losses on the other side due to lower production, less investment, less build-out of infrastructure could be around that amount. So we're kind of at a wash."
This might help to explain why the economy still isn't exactly charging forward even with the stimulus of cheap energy. But Arora himself notes that the question needs more study.
Meanwhile, analysis by the research firm Moody's Analytics finds that cheap oil and gas are still a net positive. And plenty of experts remain in that camp.
"The bottom line is the United States economy is much better off with low-price energy than it would be with high-price energy," says Philip Verleger, an economist and consultant who tracks energy markets.
The government says the average household saved $700 last year on cheaper gas. But the Commerce Department also says 2015 had the weakest retail sales growth in six years.
So why hasn't there been more of a boost from that extra spending money?
"I think the mistake everybody makes when they say that there's been no impact from the low price of energy is to fail to understand that the economy would be much worse off right now had we not had this decline in the price of oil," Verleger says.
And then there's the question of what caused the drop in oil prices.
Jim Bianco, president of Bianco Research in Chicago, evokes an old adage: "The day that the price of oil falls, you might not like the reason."
He says a slowdown in China and elsewhere around the world is driving down the price of oil along with other commodities such as copper, aluminum and zinc.
So at least part of the reason oil prices have crashed, Bianco says, goes beyond the oil market itself and the boom in production of oil in the U.S. It's part of a larger global slowdown. And some investors are worried that slowdown will hurt the U.S., too.
"The fear is it's part of a larger whole," Bianco says. "You cannot look at it in a vacuum."
So far, there isn't a lot of evidence that the U.S. is getting dragged down by all the trouble abroad. Job growth remains pretty solid. The economic recovery is continuing. And some analysts think we might see a bigger boost from cheaper energy later this year.
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Transcript
AUDIE CORNISH, HOST:
One of those new agreements is about oil. The French company Total says it will buy crude from the National Iranian Oil Company. There's already a glut of oil on the market. Many Americans are filling their gas tanks for less than $2 a gallon these days. The government says overall, drivers saved $100 billion on gas last year. You might think that would be good for the U.S. economy. Actually, it might not be, as NPR's Chris Arnold reports.
CHRIS ARNOLD, BYLINE: Can you fill it up with regular, please?
OK. I just pulled in to fill up my car with gas, and it's a-buck-75 a gallon, which is super awesome. Wait to minute. Or is it?
VIPIN ARORA: What I've been asking for the last couple years is, is it possible that lower oil prices could actually hurt the U.S. economy?
ARNOLD: That's Vipin Arora. He's an economist with the U.S. Energy Information Administration, and he's about to rain on our cheap gas parade. He says this is his research. It's not the government's official word on the matter. But he's finding that cheap gas might be bad for America. Now, just asking that question is...
ARORA: Completely the opposite of the way most of us have been trained to think about this and have thought about it for years. And I think the answer could be yes, that lower oil prices could actually hurt the U.S. economy.
ARNOLD: That's because drivers, of course, like cheap gas, but...
ARORA: The guy sitting on the oil rig in Texas doesn't really like cheap gas. That's really the problem. And then all the folks that are supplying them with materials and the hotels that have set up shop and the restaurants that have gone there...
ARNOLD: Arora analyzed government data, and he says what's changed is that the oil and gas industry as a share of GDP has about doubled in the past decade. And now that it's gotten so big, it's changed this basic equation about whether cheap gas overall is a good thing.
ARORA: The benefits to consumers could be around 140 billion from gasoline savings. But the losses on the other side due to lower production, less investment, less buildout of infrastructure could be around that amount. So we're kind of at a wash.
ARNOLD: This might help to explain why the economy still isn't exactly charging forward even with the stimulus of cheap energy. But Arora himself stresses that this question needs more study. The research firm Moody's Analytics says its analysis finds that cheap oil and gas are still a net positive, and plenty of experts remain in that camp. Philip Verleger is an economist and consultant who tracks energy markets.
PHILIP VERLEGER: The bottom line is the United States economy is much better off with low-price energy than it would be with high-price energy.
ARNOLD: But then why isn't the economy getting more of a boost? The government says the average household saved $700 last year on cheaper gas. But the Commerce Department also says 2015 had the weakest retail sales growth in six years. So why not more growth from that extra spending money? Philip Verleger...
VERLEGER: I think the mistake everybody makes when they say that there's been no impact from the low price of energy is to fail to sort of understand that the economy would be much worse off right now had we not had this decline in the price of oil.
ARNOLD: And then there's this question. Oil prices are down, but why?
JIM BIANCO: There's an old adage I've heard that the day that the price of oil falls, you might not like the reason.
ARNOLD: Jim Bianco is president of Bianco Research. He says a slowdown in China and elsewhere around the world is driving down the price of not just oil but other commodities, too - copper, aluminum. And some investors are worried that the global slowdown will hurt the U.S., too.
ARNOLD: The fear is it's part of a larger whole. You cannot look at it in a vacuum.
ARNOLD: But so far, there's not a lot of evidence that the U.S. is getting sucked into all that trouble abroad. Job growth in the U.S. remains pretty solid. The economic recovery here is continuing. And some analysts think we might actually see a bigger boost from cheaper energy later this year. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.
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