Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business recently delivered his quarterly Forecast of the Nation. In his report, Dhawan said the recent drop in the price of oil– more than 50 percent in the last six months– will have some interesting effects on the American economy. “We remain a major energy importer and will benefit from lower oil prices but in a somewhat non-traditional way,” Dhawan writes.
Dhawan doesn’t expect the oil prices to stay as low as they are forever. Later this year, the prices will rise again as supply is cut back. In the meantime, consumers are treating it like a temporary tax cut. “People are rational economic agents,” he said. “They will splurge some on discretionary spending (eating out, for example), but otherwise will hoard and channel the savings towards a down payment on a home or other big-ticket items, like cars.”
Of course, not all of the news is good. While the drop in oil prices has been a boon in some ways, it has damaged domestic investments, which grew by a weak 1.9 percent in the fourth quarter of 2014. “The drop was concentrated in the industrial equipment category that serves shale gas and other energy producers. They now are doing outright layoffs and cutting back on capital expenditures,” Dhawan said.