Thu, Jan 22, 2015 - Page 9 News List

Lower oil prices offer bonanza to US workers

For working-class families that use gas or oil to heat their homes, the drop in prices has a far-reaching impact — for individual households and for the broader economy

By Diane Cardwell and Nelson Schwartz  /  NY Times News Service, LEWISTON, Maine

Illustration: Mountain People

Wall Street may be growing anxious about the negative impact of falling oil prices on energy producers, but the steep declines of recent weeks are delivering substantial benefits to US working-class families and retirees who have largely missed out on the fruits of the five-and-a-half year economic recovery.

Just recently, the US Energy Information Administration estimated that the typical US household would save US$750 because of lower gasoline prices this year — US$200 more than government experts predicted a month ago. People who depend on home-heating oil and propane to warm their homes, as millions do in the northeast and midwest, should enjoy an additional savings of about US$750 this winter.

“It may not have a huge effect on the top 10 percent of households, but if you’re earning US$30,000 or US$40,000 a year and drive to work, this is a big deal,” RBS US economist Guy Berger said. “Conceptually, this is the opposite of the stock market boom, which was concentrated at the top.”

In recent years, most of the other positive economic trends — things like efficiency gains driven by new technologies, higher corporate profits, rising home prices, lower borrowing rates and stronger demand for white-collar workers with advanced degrees — have also mostly benefited businesses and wealthier Americans.

However, the latest drop in energy prices — regular gas in New England now averages US$2.35 a gallon (3.7 liters), compared with US$2.94 early last month, and it is even cheaper in the midwest at US$1.95 — is disproportionately helping lower-income groups, since fuel costs eat up a larger share of their more limited earnings.

For many residents of the bone-chilling state of Maine, the plunge in energy prices adds up to more than just a few extra dollars in their pockets and purses at the end of the month.

Take April Smith, a home health aide, and her husband, Eddie, who works in the auto services department of the Wal-Mart in Brunswick. Together they bring in about US$42,000 a year. For them, the decline in energy prices means being able to put meatloaf on the table instead of serving their four children hot dogs, ramen noodles and macaroni and cheese.

“Oil prices, gas prices, food prices — luckily it’s going down, which is great,” Smith said, explaining that when prices were higher, she had to scale back on groceries to save money for heating oil. “I hope it keeps going.”

For the overall economy, the tailwind generated by falling crude prices is expected to be particularly welcome as growth appears to be slackening overseas. Oil finished on Friday last week at just under US$49 a barrel, down from US$65 early last month.

What might be called an energy shock in reverse is creating losers as well as winners.

States like Texas and North Dakota, which boomed as oil prices mostly stayed above US$90 a barrel from 2011 to mid last year, are now feeling a chill. So are industries that supply pipes and other material to energy drillers and frackers, including steel makers and sand producers.

Nevertheless, economists say the benefits of lower energy prices will be felt much more broadly than the expected drag on some industries and regions.

Household consumer spending contributes roughly 65 percent of GDP, compared with about 1 percent from oil and gas industry investment, Barclays head US economist Michael Gapen said.

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