US, lower oil prices...

Oil prices have declined sharply over the past few months, falling roughly 25% from their average level during the first half of 2014. Our commodities team expects the drop to be sustained. While lower oil prices would historically have been seen as a clear positive for the economy, the growth role of US energy production suggests at least a partial offset.

For the consumer, we see the recent drop in gasoline prices as equivalent to a roughly USD 75 bil. tax cut. Based on a simple back-of-the-envelop calculation, corroborated with a VAR analysis, we think the impact of lower energy prices through this channel should be a benefit of about 0.3pp on GDP growth over the coming year. The total positive "tax cut" effect for the whole economy may be as much as +0.4pp.

However, the energy sector is more important to the US economy than it once was due to the shale boom. Based on the recent drop in prices, our analysts anticipate slowing, but still positive growth in production during 2015. Energy related capex should also slow a bit. The GDP growth headwind from this shift should be around 0.1pp over the next year, mainly seen in a slightly wider petroleum trade deficit that would otherwise occur.

The net effect of lower energy prices on employment should be positive. We do not anticipate job losses in the energy sector to move the needle significantly on aggregate employment outcomes. While energy sector jobs have grown at a rapid rate, they remain a small share of total US employment. Any energy industry job losses due to lower oil prices would probably be more than made up for with diffuse growth-induced job gains elsewhere.

Out bottom-up analysis suggests a net positive impact of lower oil prices on GDP growth of around 0.2 to 0.3pp over the coming year. A cross-check with the Fed's FRB/US model suggests a slightly smaller, but still positive, effect. While modest in size, we think this tailwind should offset much but not all of the growth drag from the stronger dollar and a slightly dimmer global growth outlook.