The U.S. economy has expanded 7.6 percent since the recession ended in 2009. That’s better than Britain, Japan, the euro zone and many other advanced nations around the world. So why is that?
One popular theory is that the United States has benefited from a huge domestic energy boom. Thanks to new advances in drilling technology — particularly in hydraulic fracturing — U.S. companies have managed to exploit new sources of oil and shale gas in places like North Dakota, Texas, Ohio and Pennsylvania.
But not everyone is convinced that this drilling frenzy has carried the U.S. economy. In a new research note for Capital Economics, Paul Dales argues that the oil and gas boom has so far provided only a modest economic boost since 2009:
Since June 2009 the volume of oil and gas extraction has risen by 24%. Over the same period the production of mining machinery has risen by 47% and the output of mining support services, which includes oil and gas drilling, has leapt by 58%. The only disappointment is that output of petroleum refining has risen by just 3%.
But that rise explains only a small part of the economic recovery. Admittedly, it is responsible for a fifth of the 18.3% increase in overall industrial production. Given that the oil- and gas-related sectors account for only 2.5% of GDP, they have contributed just 0.6 percentage points (ppts) to the 7.6% rise in GDP.
Dales gets a similar result — about 0.7 percentage points of growth since 2009 — when he measures the value of the oil and gas boom in a different way, by looking at investments and the reduction of imports. That’s still significant (the reduction in imports alone have contributed 0.4 percentage points to growth), but it’s also relatively limited.
On the latter point, it’s worth noting that while the United States has managed to reduce the sheer volume of crude it imports, the price of oil has stayed high. So our total oil import bill hasn’t fallen as quickly:
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