The importance of oil prices

In several recent posts—most recently here—I've noted that the collapse of oil prices which began in mid-2014, and their subsequent rebound which began about a year ago, have had a significant impact on corporate profits, industrial production, and the economy in general. I offer here a chart that puts some meat on that argument:

Note that changes in crude prices tend to lead factory orders (ex- the volatile transportation sector) by about one month. Crude prices bottomed about a year ago, and since then factory orders have risen almost 8%. In the six months ending February, factory orders are up at an annualized rate of almost 11%. That's significant. The positive effects of cheaper oil prices on demand (if you spend less on energy you can spend more on everything else) are now far outweighing the negative effects of lower oil prices on drilling and manufacturing activity. The problems of the oil patch have faded away and the economy is now enjoying a new spurt of growth thanks to cheaper energy.