The international price of oil is heading for $40 USD per barrel after sitting near $110 last summer. This will adversely affect the revenue of energy-sector explorers and drillers.
The largest integrated oil companies are so diverse, they'll survive long-term. Some intermediates and quite a few smaller firms may be forced into bankruptcy. In North America's free enterprise economy, their assets will be bought up and their debts assumed by healthier companies.
There may be a bigger problem that lies ahead, however. In several sovereign nations, the energy sector is owned and managed by the government. Iran, Russia, Libya, Nigeria and Venezuela all have whole economic and social structures that are dependent on a steady and abundant stream of petro money. Saudi Arabia, for all its bluster, doesn't fall far short of this failing either.
With the passage of time, some of these nations may no longer be able to pay their bills. Worse yet, they may not be able to meet their international debt repayment obligations. Similar to the 2008-09 credit crisis, the resulting damage to the banking sector will threaten to spill across borders. With that scary exception, lower oil prices leading to bargains at the gas pump are a huge stimulus for consumers and business enterprises. They're like a big tax cut or large pay hike. In this context, let's look at some of the other major statistical announcements recently.
(1) The World Bank has just released its latest country-by-country gross domestic product (GDP) growth projections. "Real" (i.e., inflation-adjusted) global output is expected to rise by 3.0% in 2015 after an estimated 2.6% increase in 2014. Many emerging nations are being hurt by weaker commodity prices. The U.S. 2015 forecast has been revised higher to +3.2% from +3.0%, after an estimated +2.6% was achieved in 2014. Last year estimates and this year forecasts for several other regions and countries are as follows: the Euro-zone, +0.8% and +1.1%; Japan, +0.2% and +1.2%; the United Kingdom, +2.6% and +2.9%; and Russia, +0.7%, then a bleak -2.9%.
(2) U.S. total employment in December climbed by 252,000 jobs versus November. The annual increase was 3.0 million jobs, accounting for a year-over-year percentage change of +2.1%. The most recent unemployment rate fell to 5.6%, the lowest in more than a half dozen years. The construction sector added 48,000 jobs in the latest month, for an annual increase of 290,000.
(3) There are six bellwether employment categories at a more micro level that I like to keep an eye on. In December, the number of jobs in 'accounting and bookkeeping' was up a stunning 5.9% versus December of the year before. 'Motor vehicle and parts manufacturers' were in hot pursuit, providing a year-over-year employment increase of 5.4%. Next in line were 'computer systems and design services', +4.2%, and 'architectural and engineering services', +4.1%. The latter is good news for construction, since preparatory work by the design professions leads activity levels at job sites. The employment increase in 'gambling and recreation' was a more modest +1.6%, but that was vastly better than for 'legal services', -0.1% year over year.
(4) The U.S. Census Bureau has reported that total U.S. 'current dollar' (i.e., not adjusted for inflation) retail sales tanked in December, -0.9% month to month. That's not as bad as it sounds. It's due to a 6.5% decline at gasoline station cash registers. The year-over-year total retail sales change was a respectable +3.2%. Among major sub-categories, motor vehicle sales were a glittering +8.2%. Sales by non-store retailers (e.g., sellers over the Internet) were +5.1%.
(5) Canada's housing starts in December pulled back to their second lowest level in the 12 months of 2014, 181,000 units annualized. For the year as a whole, they averaged 189,000 units, or almost exactly the same as they realized, on average, throughout 2013. After housing, the second most difficult purchase decision facing most householders relates to means of transportation. Canadian motor vehicle sales in 2014 reached a new all-time high, 1.9 million units. Vans, light trucks and SUVs moved off dealers' lots much faster than passenger cars.
(6) There's ongoing and understandable curiosity as to how the marijuana industry will fare now that sales for recreational use (i.e., as opposed to medical usage) have been made legal in several states. In Colorado, there are some surprising findings after one year's experience. Tax revenue for the public sector from over-the-counter sales has been less than expected. Incidents of illegal activity resulting from a greater proliferation of drugs have been fewer than anticipated. The most notable change has been a marked increase in the dollar-per-square-foot selling price of light industrial and warehouse space, as grow-ops become a larger part of the landscape.
(7) Everyone knows the 'feeling-their-oats' Republicans in Congress will be taking on the Democratic White House big time between now and November, 2016. One battleground will feature the Keystone XL pipeline expansion. There's still a chance that enough sweeteners – appealing to more than a dozen Democrats − can be added to enabling legislation that the 67 positive votes needed to circumvent a Presidential veto will be cast. To curb Obamacare, the GOP is proposing that the definition of a full-time work week, according to which employers must provide their staff with health care, be revised from 30 hours to 40. Bipartisan progress may, however, be made in securing free trade agreements with Pacific Coast nations and Europe.
(8) The owner of the St. Louis Rams in the NFL recently announced his intention to build a new stadium in Los Angeles. This helps highlight the degree to which this type of structure is currently in demand. In football and baseball, new homes are being proposed, or substantial renovations planned, for the Atlanta Falcons, Atlanta Braves, Buffalo Bills, Chicago Cubs, Minnesota Vikings and San Diego Chargers. In college football, a $400 million upgrade, including new academic space, is proceeding at Notre Dame University's stadium site.
(9) The foregoing doesn't even include new NBA and possibly NHL arenas that are under study or under development. Teams that are planning new or spruced up homes include the Sacramento Kings, Golden State Warriors and the Milwaukee Bucs. Las Vegas is building a new arena 'on spec', in the hopes the city will be able to 'score' a major league franchise.
(10) Are you wondering where the next best jobs are to be found? Consider the following. Paris Hilton recently went looking for a breeder to provide her mother with two new pets, micro Pomeranians weighing less than a pound each. She found what she was looking for in Calgary. The cost was a reported $25,000. Maybe it wasn't really so much, if it was in Canadian dollars.