This year’s crude-oil price drop will help US economic growth, but there are limits to how much it can do.  It can boost gross domestic product slightly if prices stay lower, and it can help industries that are heavily dependent on transportation costs. But considering crude oil prices are volatile and are unlikely to stay at this low level, the overall positive impact may only have a short- to medium-term impact, economists say.  Jeff Rosen, chief economist at Briefing.com, said based on the Federal Reserve’s economic model, a $20-a-barrel drop in crude oil prices translates to a quarter percentage-point increase in GDP.  “That’s why a lot of people say: ‘This is good, this is great, it makes everything hunky dory,’” Rosen said.  Maury Harris, economist at UBS, said they raised their 2015 calendar average GDP growth forecast to 3.1% from 2.9% because overall the lower oil prices benefit economic growth.  “However, there are strong cross-currents underlying this conclusion, and we believe many economists may be overstating the net-positive impact on US growth,” he said in a research report.  The most visible economic impact is in gasoline prices, with regular pump prices down about 70 cents a gallon from year ago levels, according to AAA. Consumers across the board benefit from this by having a little more disposable income, but Harris said the impact on households is uneven.  Rich people win, again. About 56% of the expense savings goes to households in the top two-fifths of the income distribution versus only 24% to families in the bottom two-fifths, Harris said.  “This is a critical distinction, since lower-income families are more likely to spend all of their gasoline expense savings than comparatively higher-income families,” Harris said, and spend it immediately.  He said a lot of the benefits from higher consumer spending are front-loaded.  “Unless those [energy] prices continue declining, there is only a one-time positive impact on the annualized growth of real incomes and real consumption,” he said.  There’s some scuttlebutt that lower oil prices can even increase jobs, but economists and oil-market watchers give those discussions the side-eye.  “That’s a bit far-fetched”, said Steven Schork, editor of energy newsletter the Schork Report.  Rosen said to try and claim lower oil prices create jobs “is really difficult because you’re basically saying you’re moving spending from gas stations to clothing stores, so you may have more retailers working. But to give an exact number is impossible.”  Schork dismissed the impact on retail, noting that retail sales around Black Friday, usually the busiest weekend for retailers, were soft this year.  “Oil and gas prices were significantly lower already. What does that tell us? This is not a panacea. This is indicative. This is sending us a signal globally the economy is not right. Eventually it will catch up to us if these other economies [Asia, Europe] cannot pull out of their weakness,” he said, adding that so far the US is “the one shining light from a global macroeconomic standpoint”.  There are some back-of-the-envelope estimates economists can do to calculate the impact on jobs, but those are just forecasts.  Harris said the Federal Reserve Bank of Dallas estimated in 2013 the effects of a 25% increase in crude oil prices on employment in the US and in all 50 states. Citing the Dallas Fed authors, Harris said if oil prices instead fell 25%, the Dallas Fed authors said their estimates would only change slightly. Thus, Harris said, their research helps to form a basis to forecast the impact on US employment.  Using a 2015 average price of $65 a barrel for West Texas Intermediate crude oil, which would be a 31.5% drop in prices, Harris said it could result in an overall rise in payrolls by 0.54%. But the effects vary a lot when looking at it by state. Extrapolating the Dallas Fed estimates for Texas, a 31.5% drop in crude oil prices would suggest Texas payrolls would be 0.76% less, Harris said. He added that for the year ended October, Texas payrolls rose 3.7%.  Rosen said the negatives of lower oil prices are easier to see the impact on the energy sector.  Using 2009 as a guide, when oil prices fell 40% year-over-year because of the credit crisis, the aggregate weekly hours of mining workers fell 15% because of reduced jobs and reduced work hours, Rosen said. The income of these workers dropped by 10%, he added.  Harris said the US Department of Energy’s Energy Information Administration reported in 2012 the oil and gas producing sector had 569,000 employees, a 40% rise from 2007, which is prior to the shale-energy boom.  “If all of those added jobs were lost in a one-year time frame, the average monthly change in nonfarm payrolls would be 13,500 less than otherwise,” he said.  Schork said with West Texas Intermediate prices around $55 a barrel, research suggests that upward of three-quarters of North American oil production is uneconomical.  The immediate impact for the industry means investment will falter, Rosen said, and hiring will slow because more people aren’t needed. The reduced investment will result in lower production and that impact will be felt a year or so from now.  “In 2016 we will have less oil being produced, which will crimp the supply and boost prices again,” he said.  The winners in the swift fall in energy prices are companies with high fuel costs, Schork said – if they act to lock in prices.  “For anyone who has half a brain cell, this is great”, he said. “This is giving them a fantastic opportunity. Fleet fuelers, any transport-heavy companies like railroads, the petrochemical industry – this is a gift. If they are smart they should be locking in as much as this downturn as possible. That is a huge benefit on this pullback. Hopefully this pullback is not indicative of a major economic storm coming our way. That’s something we have to concern ourselves with.”
While the White House has said that lower oil prices help the US economy, closer look shows few jobs are likely to result and richest households will benefit most