LONDON (Reuters) – Oil and gas production is fundamental to the US economy. The sharp downturn in prices will have a negative impact on business investment in the short term before the positive impact on consumer spending takes over further down the line.
Oil and gas producers accounted for almost $1 in every $8 of new business investment in the US economy in 2013, according to new data published by the Census Bureau.
Businesses engaged in oil and gas extraction invested $159 billion in wells, structures and equipment in 2013, according to the Annual Capital Expenditures Survey, the latest edition of which was published on Feb 5.
Companies engaged in oil and gas production support activities invested a further $20 billion, taking the oil and gas sector’s share of economy-wide new investment to almost 13.5 per cent.
Back in 2003, oil and gas extraction and support activities accounted for just 5.3 per cent of whole-economy business capital expenditures.
Capital investment in oil and gas in 2013 was almost as large as the next three biggest sectors combined: electricity ($86 billion), hospitals ($51 billion) and wired telecoms, broadband and cable suppliers ($49 billion).
The figures for 2014 are likely to have been similar, at least until oil prices plummeted in the second half of the year.
Investment in oil and gas is often under-rated by economists and policymakers because it is associated with climate change and pollution and has none of the favourable connotations of fashionable sectors like clean energy, computers and the film industry.
Oil and gas production is also concentrated in parts of the country like Texas and North Dakota that are a long way geographically and culturally from the universities in California, the Northeast and Chicago where most prominent macroeconomists are employed.
But the oil and gas industry, and its associated supply chain, support an unusually large number of well-paid jobs and the sudden slowdown in spending as a result of the collapse in prices will have a measurable negative effect on the economy.
Oil and gas producing industries directly employ fewer than 500,000 individuals out of a total nonfarm workforce of 140 million, less than half of one per cent, according to the Bureau of Labor Statistics.
Yet direct investment by the oil and gas industry dwarfed capital expenditures by the more iconic industries beloved by economists and policymakers such as motor manufacturing ($27 billion), aerospace ($7 billion) and computer systems design ($10 billion).
Oil and gas jobs are, moreover, among the best-paid in the economy for highly skilled and semi-skilled workers as well as casual labour.
Average wages in the oil and gas extraction sector, at nearly $160,000 in 2013, were almost three-times the private sector average, according to the Bureau of Economic Analysis. Even in the support sector, average wages and salaries were more than 50 per cent higher than average.