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Wednesday, April 08, 2015

Goldman: "The Effect of Slowing Energy Sector Activity on Non-Energy Payrolls"

by Calculated Risk on 4/08/2015 04:32:00 PM

An excerpt from a research piece by Goldman Sachs economist Alec Phillips: The Effect of Slowing Energy Sector Activity on Non-Energy Payrolls

Oil & gas-related employment has declined each of the last three months. We find that in previous oil-sector downturns, job growth in non-energy sectors that are closely related to the oil & gas industry--particularly certain segments of manufacturing and construction--has declined by three to four times as much as the decline in oil & gas employment itself. This means that in addition to the 10k or so monthly declines in energy-related jobs we expect over the next several months, we should begin to see more of an effect in these other areas as well.
Taking a broader view, we continue to expect that lower energy prices should prove a net benefit for growth and we would expect the negative direct and indirect effects of slowing energy activity on the labor market to be offset by the positive effects on employment in industries that are more closely tied to consumption. Overall, we expect monthly payroll growth over the next several months to be roughly in line with the current 3-month average of 197k. If we are correct that weakness in oil-related employment will spill over into slower job growth in closely-related non-energy sectors, the burden will be on consumer-related sectors to produce a greater share of payroll growth than they have on average over the last several months. While this seems likely over the longer run, it does raise the possibility that the negative effects on job growth from slowing oil production, where the adjustment has been more immediate than expected, could be a bit more front-loaded than the employment boost from consumer spending.
The overall impact of lower oil prices will be a positive on the US economy, however, as Professor Tim Duy noted early this year:
I tend agree that the net impact [from the decline in oil prices] will be positive, but note that the negative impacts will be fairly concentrated and easy for the media to sensationalize, while the positive impacts will be fairly dispersed. We all know what is going to happen to rig counts, high-yield energy debt, and the economies of North Dakota and at least parts of Texas. "Kablooey," I think, is the technical term. Easy media fodder. Much more difficult to see the positive impact spread across the real incomes of millions of households, with particularly solid gains at the lower ends of the income distribution. This will be most likely revealed in the aggregate data and be much less newsworthy.
emphasis added
To add to Duy, the negative impacts will happen quicker than the positive impacts, but lower oil prices are still a positive for 2015.