Quantifying the Oil Stimulus

Last week on Suntrust’s conference call, the bank’s CEO noted that the decline in oil prices should give the US consumer an income benefit roughly equivalent to the size of a tax refund.  That comment got me thinking about another stimulus of days past: the Bush administration’s 2008 stimulus checks.

Back in February of 2008, as the recession was just getting started, congress passed the Economic Stimulus Act of 2008 which gave a $300 check to almost every man, woman and child in America.  The total cost of that stimulus was projected to be $152 Billion.  Despite much fanfare, it’s not clear that the program ever made much of a difference to the magnitude of the ensuing recession.

By comparison, today’s oil stimulus could be in the range of $250-$300 B depending on what numbers you use.  According to EIA estimates, the US will spend $259 B less on oil in 2015 vs. 2014.  According to retail sales data, Americans spent $533 B at gas stations last year, which means a 50% decline in spend would be $266 B.

Unlike the 2008 checks though, 2015’s oil decline isn’t pure stimulus.  The money comes out of the pockets of the oil and gas industry.  The US is a net importer of oil, so it’s true that net-net, falling oil prices should be a benefit.  However, if oil and gas company capex spend falls by 25-30% this year (as many oil services companies were talking about last week), that would be an $80-$100 B headwind to the US economy.

If you net those two numbers out, you get an oil stimulus that is roughly equivalent in size to the Bush stimulus checks.

Bush vs. Oil Stimulus

 

Source: CBO, EIA, Oil and Gas Journal