US economic woes not due to lower oil prices
The drop in global oil price is not the catalyst for the recent abysmal US economic data. Contrary, the common view of financial media, government officials and academic attribute the oil price drop to the American economic woes. Economists strongly support the fact the oil price drop will eventually boost the economy.
The latest American economic data reveals that possible recession is lingering over the country. Shrugging out the oil price is impacting the US economy, economists say the oil price fall will be detrimental to oil producing nations, but it's a boon to the rest of the economy.
Zero Hedge reports that lower oil prices have reduced production costs and are leading to greater output. Several energy-dependent industry verticals are benefiting from lower oil prices. The cheaper gasoline prices have been benefiting the US consumers and other energy consuming industrial sectors. The lower utility bills and cheaper gasoline prices are helping consumers save a lot.
The US employment rate fell below five percent for the first time since February 2008. During the Barack Obama's tenure, the unemployment rate was more than halved. The latest jobs report released by the US Labor Department reels the huge number of jobs lost due to lower oil prices.
With oil price hovering below $30 per barrel, the energy industry has started slashing jobs. The energy industry comprising oil, gas and coal, has suffered employment fall of 6.6 percent for the last one year. The oil sector alone witnessed loss of 104,514 jobs in last one year as against the job loss of 4,137 in 2014, as reported by The Guardian.
This is further enhancing the purchasing power of the US consumers benefiting the remaining sections of the economy. The more disposable income is available for either savings or consumption. Economists rule out possibility of recession in the wake of surging disposable income of the US consumers. Decline in one sector can't drag the entire economy into recession.
Financial markets will react to the developments in the economic conditions in the wake of lower oil prices. But, the markets also embody other determinants including political stability in the Middle East, prospects of new oil discoveries or profitability of new oil extraction technologies. Financial market participants may also be prone to misjudging the facts or overreacting to the news, according to VOX, a CEPR's Policy Portal.
Only energy sector is suffering from lower oil prices, but other industries consuming cheaper oil will be able to expand further as their production costs ease. The US government's measures such as Federal Reserve's Quantitative easing (QE), zero interest rate policy (ZIRP) and operation twist (OT) have created a huge bubble in asset prices and these will burst any moment.
The US Government has formulated all these policies with an objective of protecting the banking system after the 2008 economic crisis. Since the Great Recession, none of the challenges were addressed properly. The Federal Reserve's measures led to an artificial stock market boom. As a result, return on money fell considerably.