4. Study: Oil trumps tax cut as biz spending jolt
Oil-sector spending driven by higher prices largely explains last year's rise in the overall growth rate of business investment, according to a Wharton School analysis.
Why it matters: Alexander Arnon's study shows the economic influence of the capital-intensive growth in production from shale formations — the stuff tapped with hydraulic fracturing — that has driven U.S. crude output to record levels.
The intrigue: As the school noted when circulating the study, the finding counters White House claims that the corporate tax overhaul signed into law in late 2017 caused last year's acceleration of business investment.
The big picture: "Prior to the shale boom, there was no consistent relationship: rising oil prices sometimes coincided with increases in investment, and other times with decreases. As the boom unfolded over the course of the 2000s, however, a substantial positive correlation emerged," it states.
Whey they did: The study tracks the relationship between the price of West Texas Intermediate and oil-sector investment, and then assesses how much of this accounts for wider changes in the rate of business spending.
- Oil prices were on a generally upward trajectory through the second half of 2017 until October of last year.
The bottom line: Arnon, a senior analyst with an initiative called the Penn Wharton Budget Model, estimates that the oil price rise added roughly 1.75 percentage points to business investment growth over the last 4 quarters. He writes...
- "Without it, investment would have grown 5 percent year-over-year in the third quarter, the same rate as in 2017."
- "The response to the rise in oil prices explains the entire increase in the growth rate of investment in 2018."