Oil Prices and the US Economy

There’s been a lot of press lately regarding rising oil prices’ potential impact on the US economy. And there’s certainly some impact—but while recently rising oil prices could be marginally negative for US consumers, the US economy is better prepared to deal with high energy prices than many believe. Here are three charts to help put higher oil prices into perspective.

1. US consumers’ energy spending accounts for only 5.2% of disposable income, below 6.3% in 2008 and a 6.5% average during the 1980s—a decade in which real US GDP grew at a 3.0% compound annual rate. (We use 2008 because oil hit its nominal all-time high that year. But even so, neither oil prices nor flagging consumer spending were significant drivers of 2008’s financial panic.)

Energy Spending as a Percent of Disposable Income

Source: US Department of Energy, US Bureau of Economic Analysis, Thomson Reuters

2. The US economy is more oil efficient than ever: It now takes just half a barrel of oil to produce $1000 of GDP, roughly a 50% reduction since the 1980s.

Oil Consumption Per Dollar of GDP

Source: US Department of Energy, US Bureau of Economic Analysis, Thomson Reuters

3. Even since 2008, the US has significantly reduced oil consumption without negatively impacting economic growth. While real GDP is at all-time highs, oil consumption is nearly 2 million barrels per day below pre-recession levels.

US Oil Consumption and GDP

Source: US Department of Energy, US Bureau of Economic Analysis, Thomson Reuters

So while it’s true oil prices have risen lately, it’s important to assess more than just the nominal price movement of a barrel of oil to determine any probable impact. At present, rising energy costs do not pose a likely threat to continued economic expansion.