This past week markets hit new highs on Wednesday, only to pull back a bit on OPEC’s decision to hold steady on production quotas.
OPEC is in crisis because two of the three biggest oil producers—Russia and the United States—don’t participate in its market rigging activities. With Russia buffeted by sanctions and desperate for revenues and the United States undergoing an oil and gas boom, Saudi Arabia has decided to test the resilience of non-OPEC oil suppliers by forcing prices down instead of up. Not exactly a friendly act by an ally whose security the United States guarantees, and whose economy and stability depend importantly on a vibrant U.S. economy.
Overall falling oil prices are a big plus for the U.S. economy. Crude prices would have to fall a lot more to impact near-term U.S. energy production, and the decline in benchmark oil prices since its peak in September 2013—about $35 a barrel—is equivalent to about a $70 billion tax cut for the U.S. economy. If those prices hold for three years, that should boost U.S. GDP by about $125 billion or 0.7 percent and create more than 1 million additional jobs.
If the Obama Administration were smart, it would respond to the Saudi led move to drive down prices with efforts to reduce regulatory and transportation costs for Northwest and Texas oil producers and give the Saudis a taste of their own medicine by further opening up drilling in the Gulf of Mexico. That would further boost the economy, pressure rogue states like Russia and Iran, and lessen dependence on more environmentally risky projects abroad.
This week we will tally Black Friday weekend sales. Initial soundings indicate American shopping tropism went into high gear—sales were up dramatically over last year. Caution though: it’s a short holiday shopping season and in past years, strong Black Friday sales have sometimes taken a bite out of subsequent weeks’ commerce. We have reason to be optimistic, though, household balance sheets are much stronger than in years past—meaning the capacity for credit card purchases quite considerable.
