We had a really interesting discussion at the office today regarding the low oil prices and whether it was a good or a bad thing for the United States. When I heard the same conversation hotly debated on CNBC on the drive back from a meeting, I knew it was time to write about it.
So what do you think? Is it a good thing or a bad thing?
Personally, I believe it is an answer of “It depends.”
In the short term, I believe it is a good thing, a good thing for consumers. Time and time again we have evidence that lower oil prices, and thus lower gas prices, leave more money in the wallets of families to spend. The United States is not a nation of savers, but rather spenders, especially around the holidays. Only in the states will you be gently jostled by your friends and coworkers because you have the iPhone 5 and not the iPhone 6 plus. Lower energy prices will no doubt increase sales and the bottom line of retailers.
Lower oil prices are also good news for airlines, cruise ship operators, industrial producers and other manufacturers. Their input costs will go down, and thus raise the profits for the shareholders. Once again, there are little doubts that this will be a positive catalyst in the short term.
What about the long term?
Do we honestly believe that lower input costs for airlines and cruise ships will reduce ticket prices?
We know that it would be silly for manufacturers to lower their prices as it would signal deflation, and God forbid we have deflation (leads to lower wages and no one wants the economy to slow).
Will this lead to more jobs? Or companies that are scared to death of uncertainty will just choose to stuff their coffers or pass the money back to shareholders via dividends and stock buybacks?
So who loses when oil prices drop?
How about the only state in the United States that created the majority of all new jobs in the country over the last 5 years?
The energy sector no doubt, will be the loser.
To understand why, we must look at the energy situation in the United States. The United States was forced to innovate in oil and gas production due to the high prices of oil. With energy prices rising, American firms were able to profitably innovate and produce energy right here in our country. This has in large part cut our depen