The Case For An Oil Price Rebound

By Ben Dickey

First-quarter GDP growth seems to be following a familiar trend. The economy is having a hard time generating any momentum.

The weather, the strong dollar, the West Coast port strike and estimates of slower world growth have all contributed to this disappointing performance.

March's employment number came in at a paltry 126,000 hires. The Labor Department also reduced the hires initial estimate for January and February.

 

oil-prices

 

The closely watched reports of manufacturing output and capital spending also showed declines as well.

 

Energy Slump

The fall in oil prices has caused exploration and production companies to drastically reduce capital spending.

This filters down to the industries that support oil and gas drilling.

Over the last few years, the majority of capital spending for the total economy had been in drilling and industries that consume hydrocarbons such as chemicals and refining.

Over the last several years, we have experienced a very weak first quarter and an increase in growth in the second and third quarters.

For the first time in several quarters, we are seeing acceleration in real wage growth. The median income quartiles have not seen real wage growth since the recession ended.

 

Wage Growth

When wages rise, consumer spending has an increased ability to grow as well. The Commerce Department announced March consumer spending increased at a 0.4% rate.

This is the largest increase since last August and followed three months of below-average spending.

That, plus employment gains, may show we are back on track to increase economic growth in coming quarters, in my opinion.

 

US Leads

The United States was the primary engine driving world growth.

There are now signs that Europe is beginning to expand.

Several weeks ago, the International Monetary Fund revised upward its estimate for European growth to 1.5% for this year and 1.6% for 2016.

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