If there is a silver lining in the oil price collapse for Canada, it is that our neighbour and closest trading partner should be a winner.
The United States is a net oil importer and a huge guzzler. Lower gasoline prices are putting roughly $100-billion (U.S.) a year back into the pockets of consumers, who represent more than 70 per cent of the world's largest economy.
Conventional wisdom suggests they'll spend this windfall. That, in turn, will lift the fortunes of Canadian exporters.
Or so the theory goes.
But what if cheap oil is actually a bad thing for the U.S. economy?
Investors, at least, seem to be embracing the oil-is-bad storyline. U.S. stocks have been moving in sync with the price of crude recently, or the reverse of what you might expect. They may be on to something. Vipin Arora, an economist at the U.S. Energy Information Administration, challenges the conventional wisdom that cheap oil is unequivocally good for the U.S. economy. In a new research paper, he argues that the reason is twofold: Oil production is more important than it's ever been to U.S. jobs and growth, and high debt levels are keeping consumers from fully spending their gas bonus.
Standard economic models suggest that a 10-per-cent drop in the price of oil boosts inflation-adjusted U.S. gross domestic product by 0.15 to 0.25 per cent in the first year – all else being equal.
Most forecasters have been using a version of this model to predict U.S. growth, and they've been serially disappointed.
"The old rule-of-thumb … is too large," Mr. Arora said in a research paper, posted on EconStor, an open-access server run by the German National Library of Economics. "The impact on economic activity should be closer to zero, and may even be negative if consumption grows slowly."
This, he suggests, may partly explain why U.S. growth has consistently underwhelmed since the oil price slide began in 2014.
A big part of the problem is that many economists are overestimating the impact of cheap oil on consumer behaviour. The collapse of the housing bubble is continuing to weigh heavily on U.S. households. Americans are saving more and paying down debt.
The reluctance to spend, even when they have more cash, may be related to the still-shaky job market, where stagnant wages, precarious work and relatively low levels of overall employment are now the norm.
If Americans aren't confident about their job prospects, they're less likely to spend and more inclined to save.
This effect is felt most acutely by poor Americans.
"The ability of low-income individuals to consume additional goods and services over debt payments has not increased in five years," Mr. Arora explains. "Lower gasoline prices may add a bit of income, but seem unlikely to spur consumption substantially given the circumstances."
Then there is the direct impact of fewer people working in the oil and gas sector. Roughly 100,000 American jobs, often highly paid, were lost in oil, gas and related industries last year. Based on expected lower industry output, Mr. Arora figures the job loss total could reach 300,000.
The boom in hydraulic fracturing, called fracking, has changed the makeup of the U.S. economy. Oil, gas and mining now accounts for slightly more than 2 per cent of the U.S. economy, more than double what these sectors did in the early 2000s.
That's still small compared to Canada, where resources make up nearly 20 per cent of the economy.
But just as in Canada, the resource sector has contributed an outsized share of U.S. growth and business investment when the price of oil was rising.
Doing what he calls a "back-of-the-envelope calculation," Mr. Arora estimates that the consumer savings from lower oil prices will add $92-billion to $139-billion a year to GDP, but that will be more than erased by the roughly $148-billion in lost output in the oil and gas industry.
Of course, there are other things holding down the U.S. recovery, including a slowing global economy and a hangover from years of ultralow interest rates.
But Canadian exporters can't count on consumers spending those savings.
Chalk up one more possible reason for Canada's long-delayed recovery.