WH economist: Oil price benefits near for U.S. economy

The U.S. economy may not be benefiting as much as anticipated from the collapse in oil prices over the past 10 months. In fact, for oil-producing states, the decline of some 50% is taking a toll.

But one thing seems clear: The nation as a whole is nowhere near as susceptible to sharp swings in oil prices — one way or the other — as it was for decades.

That was the message from Jason Furman, the chairman of the White House Council of Economic Advisers and President Obama's chief economist, at a New York forum held by the Columbia University Center on Global Energy Policy.

Furman spoke one day before the U.S. government reported an annual growth rate of just 0.2% for the nation's gross domestic production from January through March, down substantially from a 2.2% pace in the fourth quarter of 2014.

Among the factors was consumer spending, which rose by only 1.9% in the first quarter compared with a 4.4% increase in the previous quarter.

Consumers proved slow to spend their savings from lower gasoline prices, savings that economists estimate at $700 per household, as Furman pointed out. But that reluctance may change soon, to the benefit of the nation's economy, he added.

"I don't think we've seen the full economic benefits of the fall in the price of oil yet because they're still working their way through the system, and it's a process that could take up to a year from when prices started falling," he said.

In short, look for those changes in the second quarter of 2015, now through June, the month when oil prices began their tumble last year.

Of course, there's the other side of the story regarding falling oil prices and their implications for the U.S. economy, and that's the impact on the domestic oil industry. The U.S. drilling rig count has fallen to its lowest level since 2010, and oil companies have laid off thousands of workers, contributing to a 3.4% decline in overall business investment in the first quarter.

But while those cutbacks are particularly unsettling for states with oil-based economies, like Texas and North Dakota, they're not as significant elsewhere.

"We've seen this weigh on the total growth in investment in our economy as a whole," Furman said. "But all of that, I believe, is outweighed by the consumer side because, as important as the oil sector is to our economy, it's still less than 2% of our GDP, and less than 1% of our employment."

The bigger story, Furman continued, is the unanticipated swing in the U.S. energy equation, with the nation producing more oil now than it has since 1973, and consuming much less, the latter a development that he said is often overlooked.

"Stunningly, we're in a situation where in the year 2014, Americans consumed less petroleum than they did in the year 1997, despite the fact that the economy was 46% larger than it was in 1997," he said.

Stricter government fuel-efficiency standards have been a big reason for that decline in consumption, despite Americans' preference for SUVs and pickups, and those requirements are scheduled to increase to 54.5 miles per gallon by 2025.

"Whatever happens to oil, whether it goes up or down, or does some combination of both, it's not going to affect our economy as much as it would have otherwise," Furman said. "We're considerably less vulnerable to oil shocks than in the past."

Loveless – @bill_loveless on Twitter – is a veteran energy journalist and television commentator in Washington. He is a former host of the TV program Platts Energy Week.