Friday, May 15, 2015

Oil prices rise, consumer confidence drops



As the chart above shows, the price of regular gasoline at the pump has rebounded about 30% in the past 3 ½ months, after dropping by almost half since last summer.


As the chart above shows, this has dampened consumers' enthusiasm a bit. Nevertheless, consumer confidence is still fairly close to its post-recession highs.


As the chart above shows, active oil and gas drilling rigs in the U.S. have plunged in response to the collapse in oil prices. But the decline in the rig count is slowing down, and this means that supply and demand are coming back into balance. The bounce in oil and gas prices may be a bit overdone (markets have a way of over-reacting), but nevertheless it's quite likely that gasoline prices will be substantially lower going forward than they have been in the recent past, and that augurs well for things in general. Energy is what makes the world go 'round, so cheaper energy should eventually translate into healthier economic growth.

8 comments:

Andrew Ross said...

Natural Gas rig counts have indeed dropped. However, that has been the most pronounced among vertical rigs. Horizontal rigs, which have proven to be far more efficient, have become the predominate natural gas rig.

http://www.eia.gov/naturalgas/weekly/

Also, shale gas production, which is predominately in the East shows no sign of slowing down. The national natural gas market has shifted towards the Northeast, where consumers are located.

Benjamin Cole said...

Now Morgan Stanley is talking about a growth-less 1H.

Some people are saying that is the problem with weak growth near ZLB. The slightest recessionary breeze and you are back into no-growth.

The Fed needs to think about some rollicking good times in Fat City, blow-the-roof-off type of recovery. This little sissy-stuff of rate hikes and Janet Yellen giving prim speeches ain't hacking it. You know, she never ran a business in her life.

Some academic pinheads and ideologues sermonize about inflation, but business dudes want lots of business, the more, the better.

BTW, The Economist magazine had an interesting article about debt in their last issue. They said the corporate income tax rate could be cut to 15% if debt patents were no longer deductible. Of course, you have the home mortgage interest tax deduction also.

The USA needs to start thinking big. Cut the corporate income tax to 15%, eliminate interest payments deductibility, stop taxing dividends, and go to $100 billion a month of QE.

We have been waiting for this recovery to gain steam for seven years and it has not. It will not. In fact, bad weather pushes it back into recession. Every winter had bad weather, btw.

Side note to Andrew Ross: I just read somewhere that some outfit drilled a horizontal well for miles and miles. I am sorry I cannot recall more than that.

I think you are right: We have oodles of natural gas for long, long time.

Probably more than can be sold--why? The Fed is suffocating the economy.






William said...

OECD Composite Leading Indicators May 2015

Composite leading indicators, designed to anticipate turning points in economic activity relative to trend, point to stable growth momentum in the OECD area as a whole as well as in Japan, Germany and the United Kingdom. The outlook is also for stable growth momentum in India.

In the euro area, growth momentum continues to strengthen, particularly in France and Italy.

Signs of easing growth momentum are emerging in the United States, although these may reflect transitory factors. The CLIs continue to point to easing growth in Canada and China and to a loss in growth momentum in Brazil and Russia.

*** If you look at the chart in the link below, momentum has been drifting downward for the OECD since early 2014 and is now on the border line.

http://www.oecd.org/std/leading-indicators/composite-leading-indicators-cli-oecd-may-2015.htm

William said...

OECD pdf with individual charts for China, USA and Eurozone:

http://www.oecd.org/std/leading-indicators/CLI-May15.pdf

Joseph Constable said...

If you take Scott's chart "Total Bank Credit" and do it year over year, you see credit growth of 10% over several years sets up a down cycle. We are not even close to that at 7% and so may have many years to go before credit contracts again.

Genentech which is located in South San Francisco is moving their entire accounting and finance to Budapest. Yes, you read that right. Labor cost is the one area corporations can still reduce. Wait til you see what Obamatrade has to offer the U.S.

Benjamin Cole said...

Joseph Constable: at the risk of sounding cynical, I have long contended that macroeconomics is really just politics in drag.
If corporate America begins to move white collar jobs offshore, or if Americans find out they can hire cheaper money managers in Budapest than in New York, I wonder how long we will hear about the virtues of free trade.

If we could offshore lawyers, I assure you there would be strict trade laws, and lots of sophisticated theories as to why we should have such laws.

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