Interesting take from Francisco Blanch at Bank of America Merrill Lynch:
“will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history.”
The fall in oil prices has been estimated to give about 1.2 in consumer spending back for every $.01 the price falls. The average price for the last few years across the U.S. has been ~$3.50 a gallon. If oil prices stay at $1.80, we are looking at shift of over $200bn from oil spending to consumers pocket books.
This ends up to be about $660 per person in the United States. It is easy to imagine many families spending $50 less per week on gasoline directly, and then the imbedded.
The logical question to ask is “Is why is there GDP weakness given this huge shift?”
A few parts of the answer:
- It takes time for the economy to figure out what is happening when shifts of this size occur.
- There is additional uncertainty in all economic outcomes when shift of this size occur, so smart business owners react cautiously
Even something which appears to be an unambiguous good – every consumer on the planet faces cheaper prices – still can inject uncertainty into business decisions. Uncertainty reduces investment, as we have seen over and over again.