Goldman: Decline in Oil Prices boosted GDP by 0.2% in 2015

A few excerpts from a Goldman Sachs research piece by economist Daan Struyven: Shale, States and the Shrinking Oil Stimulus

Crude oil prices are down more than 50% from their level in mid-2014. As oil prices declined, many observers—ourselves included—expected substantial positive effects from cheaper oil on US growth. But 18 months later, the size of the stimulus—and how much might be left in the tank—remains a source of debate.

The energy profile of the US has changed substantially over the past decade. The US is now more self-reliant because of the fracking revolution, and energy investment plays an increasingly important role in the economy.

We revisit the impact of cheaper oil on GDP growth and payrolls using a disaggregated view in this week’s Analyst. Specifically, we exploit the fact that oil-producing states lose from price declines while oil-consuming states gain. The differential effects across states can therefore help uncover the economy-wide impact of oil shocks.

Our state-level analysis suggests that a 50% decline in oil prices is associated with an eventual rise in aggregate output of 0.4% and 400,000 to 500,000 extra jobs. These estimates are broadly consistent with our most recent research, but below the impact implied by many earlier studies. Taking together our new state-level estimates as well as our earlier work and a few back-of-the-envelope calculations, our best estimate would be that cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months.