U.S. Consumer Confidence Rises with Economic Growth

The economies of the world’s nations are on a slow stroll while America has quickened its pace to a leading role as one of the only bright Northern lights for others to follow. Improvement is so significant that GNP has been revised upward from 3.5% to 3.9% (As cited in CNN Money). Other nations are increasingly concerned about lower inflation and the potential for deflation. The U.S. is doing so well it may start to raise interest rates in alignment with growth.

Americans are becoming increasingly positive about their future prospects within the economy. According to a recent gallop poll consumer confidence rose to -7 which is the highest it has been in 17 months (Gallop, 2014).  The poll is a combination of how people view the economy. According to the poll 24% said the economy is excellent while 30% said it is poor leaving the total balance at -7. 

The U.S. economy is also moving forward with some of that growth coming from lower energy and oil costs. Morgan Stanley’s global economist stated, “Lower energy costs boost broad economic activity in the near term and fiscal policy becomes a bit more supportive of growth in 2015” (as cited in Market Watch). Oil is a significant cost that impacts everything from shipping to production throughout the economic system.

The economy is a whole system that incorporates financial metrics as well as difficult to define human feelings, emotions, and neuro-economic choices. Improvements in oil and economic conditions are one benefit while improvements in consumer and investor mood are another. Getting investors and employees on the same page is terms of investment and skill is beneficial. 

Those not feeling positive are likely suffering from job displacement related to economic transitions in the market. Using economic hubs as a method to bit size policy to match investment in business with new learning in job skills to create new products is beneficial. Fiscal policy should focus on hedging the power of the new found economic growth to foster competitive clusters that can compete on the international market.

The Winners and Losers of Low Oil Prices-The Sweet Spot

There are advantages and disadvantages to oil. Some nations will capitalize on lower oil prices while others may see significant economic decline. Those dependent on exports are going to feel the most pain while those important oil are going to find the most benefits. Below is a video on the negative factors of low oil that appears to cover the issue from a shale industry perspective. Oil price has more of a sweet spot that is adjusted as technology, consumption, and production change.

The break even point of shale oil is somewhere between $60 and $80 per barrel (As cited in Bloomberg).  At present prices are between $74 and $80 per barrel; dangerously close to the break even point for shale companies. This of course means less hiring and expansion for this relatively new industry. When oil dips under $80 it puts pressure on international producers.

Despite the potential short-term damage to this new industry the general economy grows when oil is in the zone. Where the benefits of low oil push the economy forward through cheaper transactions costs, as well as put greater pressure on the shale industry to further develop. Cheaper alternatives are explored when oil prices are high and existing industries adapt when oil prices are low.

Some countries will be winners and losers in low oil prices. Those nations that rely heavily on oil to prop up their economies and maintain high oil production costs are likely to be the losers (i.e. Russia). Seventy percent (70%) the Russian Economy is dependent on oil prices and recent fiasco with bills highlight how important that oil is (As cited in The Week). This year Russia is likely to be the loser.

Nations that win from lower oil prices are already established or budding manufacturing centers where any reduction to the cost of doing business is a benefit for growth. Lower oil prices may help the U.S., China, Europe, and a few fast growing sectors in India and Asia. As with any change in prices there will be winners who are in a position to capitalize on cheaper costs and losers who will scramble to balance budgets.

Low Oil Prices are Good for the U.S. Economy

Lately the idea that low gas prices raise economic activity has been in the headlines. At $80 a barrel oil is at bargain basement prices that lower the cost on everything from holiday travel to manufacturing costs. Oil is just one more factor in the total cost versus rewards businesses use to project future expansion and production. Can oil continue to spur the economy?

The reason oil has declined is based on four primary factors that include 1.) lower demand during a global slow down, 2.) production by Saudi Arabia, 3.) improvements in American shale oil and alternative fuel developments, and 4) higher levels of efficiency in transportation and equipment. Oil is presently on the market with enough supply as to not demand higher prices.

Oil prices impact the global economy but could have a more profound effect on the U.S. which is not only a heavy user of oil but also a reemerging manufacturing center. According to Tom Helbling of the IMF a 10% change in oil prices has a .2% impact on global GNP (as cited in the Economist). Low oil prices encourage economic growth both nationally and internationally.

Oil prices impact the entire supply chain. It is one of those commodities that influences the cost of resources, manufacturing, transportation, and consumer disposable income in one foul swoop. This is one of the reasons why nations fight wars, create national policies, and develop alternative fuel systems over oil. Their is a good reason why oil is considered the blood of the economy.

Companies that are considering investing or expanding operations will need to take into account the oil and gas prices to determine the cost of business. Any time you can reduce fuel and energy costs it lowers the total cost of doing business. When such lower prices are localized to the U.S. then it creates significant export advantages as products become cheaper to produce.

A strong economy relies on many different factors that range from transactional costs to global demand for products. Oil, and energy in general, is one of those inputs that has a wide impact. Oil will not be a savior for the economy but is is a significant contributor. There will be winners and losers with lower oil prices but for now it appears the U.S. is using it as an advantage.