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Cheap oil is no longer a big plus for the US economy

Abrupt oil price declines would result in significant savings for consumers and businesses alike. It was like a massive tax cut – and that did not blow up the federal deficit.
But the shale oil boom has changed that equation. Today, the United States is not only the biggest stealer of oil, but also at the top of the production ranking. US production surpassed Saudi Arabia and Russia for the first time since 1973 for the first time.

"The US is now responding to lower oil prices like an OPEC member," wrote Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, to clients last week. "If the president calls for lower oil prices, he ignores the new reality."

Crude oil fell 22% in November, marking the worst month since October 2008. Despite this collapse, Trump has repeatedly pressured OPEC and Saudi Arabia not to choose back production to offset the market. Nevertheless, it is expected that OPEC and Russia are seriously anticipating the dramatic outcome of the much anticipated Thursday meeting in Vienna, Austria.

Of course, the recent slump in oil prices is not nearly at the level of the last downturn. And millions of Americans experience a windfall caused by the burglary. And that's a big advantage because the United States is still a consumer driven economy.

A gallon of gasoline hit $ 2.49 on Friday after $ 2.80 a month ago, according to AAA. Consumers could use this extra money to sell on Amazon (AMZN) this holiday season.

But many residents of Texas, North Dakota, Alaska, and other oil-producing states are not celebrating. An oil price crash can endanger their livelihood.

"The decline in oil prices is not a clear commodity," said PNC chief economist Gus Faucher. "The benefits are scattered, but the hits are geographically concentrated."

Faucher believes that the effects of cheap oil are now neutral on the entire US economy.

  The shale revolution has triggered an employment boom in the Permian basin of West Texas. Some jobs could be jeopardized if oil prices remain cheap.

Shale is a gamekeeper

Consider what happened during the 2014-2016 oil crash. Gasoline prices fell from $ 3.70 a gallon to just $ 1.72, according to the federal government. This helped to boost consumer spending.

Nonetheless, US GDP growth slowed dramatically from over 3% in early 2015 to below 2% in the next year. According to Shepherdson, mining investment, which is mainly oil, fell $ 149 billion, or 61% from peak to trough. He found that the increase in consumer spending over this period was consistent.

One big shift is that shale oil now accounts for at least half of American oil production. And unlike their larger competitors, shale oil companies are bouncing up and down quickly due to price volatility. And when that happens, other parts of the economy feel the effects. The pain of cheap oil can be transferred to steel, production, real estate, transportation, logistics and banking.

All in all, Shepherdson estimates that the oil crash wiped US GDP growth by 0.3 percentage points in 2014 and another 0.2 percentage points in 2015.

"In the new world of shale, lower oil prices mean slower US growth," said Shepherdson.

2. Armistice: Chairman Donald Trump and President Xi Jinping, leaders of the world's two largest economies, agreed to a temporary ceasefire in the trade war between the United States and China.

After a half-hour discussion at the G20 summit in Argentina, Trump agreed to keep the 10 percent tariff on Chinese goods worth $ 200 billion and not "at that time" to 25% before a deadline of January 1 raising a White House statement by press secretary Sarah Sanders. In return, China agreed that it was prepared to buy "very substantial" quantities of agriculture, energy and other goods from the United States to reduce trade imbalances.

"Kind and sincere," Chinese State Councilor and Foreign Minister Wang Yi said the two leaders agreed to open one another and intensify negotiations to eliminate all additional tariffs.

Some analysts warn that the truce could be short-lived. "In short, this was not a substantial breakthrough, but a framework for continuing discussions, and we have long warned against the risk that such a general agreement could collapse," the Eurasia Group said.

3. Employment figures: Will November be another strong month for adding jobs? We'll hear on Friday when the Bureau of Labor Statistics releases new numbers for the past month.

In October, the US economy created 250,000 new jobs in October, far exceeding expectations. The unemployment rate remained low at 3.7% to 49 years. Hispanic unemployment reached its lowest rate at 4.4%.
. 5 Retail Revenues: Some stores report earnings this week, including Dollar General (DG), Restoration Hardware (RH), and Ulta (ULTA).
It was a strong year for Dollar General, with the stock up almost 19% this year. CEO Todd Vasos said on his recent earnings that despite strong economic growth, weak wage growth is attracting more buyers living from paycheck to paycheck.

6. Next week:

Monday – Car Sales in the US

Tuesday – Bank of Montreal (BMO), Merit of the Dollar General (DG ) and Restoration Hardware (RH) [19659030] Wednesday – OPEC Meeting; The US financial markets were over because of the National Day of mourning in honor of former President George H.W. closed. Bush
Thursday – Revenues of Kroger (KR), Ulta (ULTA) and Broadcom (AVGO); Trial due to the government's appeal against AT & T-Time Warner begins

Friday – Employment figures

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