As 2014 wraps up, Europe and most of the world outside the United States struggles with weak economies. U.S. growth, while a relative bright spot, has been stuck at around 2 percent.
Against this backdrop, the price of oil has tumbled to multi-year lows. Crude oil has recently fallen below $60 a barrel, down roughly 40 percent in the past six months. Energy experts, governments and Wall Street didn’t see it coming.
Falling oil price a pleasant surprise.
Consumers have seen the national average price of gasoline fall from $3.70 a gallon in June to around $2.60, as reported by AAA. Sounds like good news, right? True to form, much of the media has emphasized the sinister effects of falling oil prices: declining oil company stocks, and economic pressures on aggressive oil-producing countries such as Russia and Iran, for example.
In the larger scheme, however, consumers having more disposable income is simply a good thing.
International Monetary Fund (IMF) head Christine Lagarde claims falling oil prices will boost global gross domestic product (GDP). The IMF estimates, as reported by Business Insider, the recent 40 percent drop in oil prices could translate to nearly 1 percent in increased global output.
“Lower oil prices are unambiguously positive,” CNBC’s Larry Kudlow wrote in the Wall Street Journal. Kudlow is a vocal proponent of the view that falling oil prices act like a “huge tax cut that will primarily help the middle class.”
With less after-tax income being pumped into their gas tanks and ultimately into the pockets of oil sheiks, consumers have more to spend on trips to Costco and Wal-Mart.
Despite the naysayers, if recent numbers on things like retail sales and consumer confidence hold up, the U.S. economy could experience a much healthier growth rate going forward.