why is decreasing gas price a bad sign for the economy?
In: Economics
In areas where much of the economy is based around oil production companies will begin laying workers off. When the price of oil is lower than what it costs to produce companies begin shutting down production. As production slows less crews are necessary and layoffs begin.
This has an impact upon the economy, when oil prices are high, oil companies hire and pay very well for very hard labor. The guys that work these jobs like nice big diesel trucks, and have nice homes, and kids. Or they drink really heavy and blow it all. Either way, that money goes back into the economy. This all stops with a layoff.
Now the government is paying money to that laid off employee to try to help cover expenses, so even though he is spending, it is still netting a negative, as the taxes being paid and money being used is simply the governments money circling.
This is a massive amount of people that are at risk. The U.S. oil industry employs roughly 9.8 million people, roughly. Kern County, with a city of half a million people in it has a massive oilfield, when people are laid off everything else falls with it, in many senses.
Gas prices going down means people are traveling and going to work less. That is a sign that the economy is slipping into recession.
Because the US is an oil producing nation. Whether you like to admit it or not everyone here as benefited from the fracking boom. Petroleum and natural gas producers will only be employed as long as the fuel they produce is profitable. It is not profitable for them to produce anymore and they will soon be unemployed. Secondly, it signifies a lowering in demand of oil which is usually correlated to production of goods.
It’s probably not just gas prices, I think it has to do with the ~~devaluation of money itself~~ rise of price levels on the whole.
Edit: because I made a stupid mistake
Lot of good answers another people haven’t mentioned and this is important for Canadians …
The value of your currency is largely based on the need for **foreigners** to buy it to acquire your goods. When Canada was exporting oil (before the crash) people had to buy Canadian dollars to purchase it (sorta…). Meaning our dollar would raise up. Now that we don’t sell oil there’s less need to buy Canadian dollars. Our value has gone from 1.3 USD : 1 CAD to over 1.4USD : 1 CAD within more or less weeks.
Worse is a lot of Canadian GDP is in the services/IP development industries (patentable software/inventions/hardware, etc). Typically, we book sales in USD meaning customers don’t have to buy CAD to pay us. It helps payroll because when the company buys CAD eventually to pay employees fewer USD make up more CAD.
But then we get hurt because things we import cost more CAD …
Answer: It is often the other way around. When the economy is doing bad, there is less transportation and travel needed and we need less gas. The result is that the gas price is lower.
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