WASHINGTON (MarketWatch) — Cheaper gasoline was supposed to turbocharge the U.S. economy, but it appeared to do more harm than good in the first three months of 2015.
The nation’s rate of economic growth came to a standstill in the first quarter, rising a measly 0.2% after gains of 2.2%, 5% and 4.6% in the prior three quarters.
A big culprit was the 50%-plus plunge in petroleum prices from last July through January. Staring at the collapse in oil prices, U.S. energy producers have pulled the plug on investment and cut thousands of jobs, government data show.
In the first quarter, energy companies slashed investment on mining exploration, shafts and wells by almost 49% to mark the biggest decline in six years, the Commerce Department reported Wednesday. The industry has also cut at least 30,000 jobs since the beginning of the year.
The plunge in energy-related spending early in the year was a big drag on the economy, shaving 0.6% percentage points off U.S. growth. Put another way, first-quarter GDP would have risen 0.8% instead of 0.2% if energy investment simply held steady.
What makes it worse is that the energy sector has been one of the few star performers in what’s been a historically lackluster recovery. Some states such as North Dakota have unusually low unemployment because of surging oil production linked to new extract techniques such as fracking.
Until the first-quarter reversal, the explosion in U.S. oil production had generated an extended boom in energy-related investment. Energy investment, for example, represented 30% of all U.S. investment in structures in 2014 — twice as much compared to 15 years ago.
Yet despite soaring production the U.S. is still a much bigger consumer of oil than a producer. Sooner or later the cheaper price of gasoline that benefits consumers (and most U.S. businesses) should filter through the rest of the economy and give it a nice boost.
“Energy-related investment and jobs are falling rapidly. However, these cuts will soon begin to fade, and the benefit to consumers from the lower oil prices will grow,” said Scott Hoyt, director of consumer economics at Moody’s Analytics.