Tourism-Driven Industries Should Reap Benefits of Low Oil Prices

EDITOR’S NOTE: Contributing columnist, Steve Nicklas, expresses his views and insight on various topics in Marketplace column.

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The sharp decline in oil prices should lubricate consumer spending in the U.S. and propel tourism-driven industries such as airlines, hotels and restaurants.

Since North Florida emphasizes tourism, things should be looking up here as oil prices have dropped. So have gas prices, which are a by-product of oil prices.

In addition, lower oil and gas prices could fuel hiring in the U.S., suppress inflation and invigorate consumers in the form of a substantial tax cut. After all, consumer spending makes up two-thirds of the U.S. economy.

As oil prices plummeted to less than $50 a barrel last week, the financial markets shook at the ferocity of the decline. Some fear that the drop in oil prices forecasts a slowing global economy.

However, there are benefits for many parts of the U.S. economy — aside from oil companies. Consumers will save money at the gas pumps and spend it instead at retailers, auto dealers and restaurants.

Travel could logically increase. Lower air fares should emerge, as airlines pass on savings to spur demand (fuel makes up one-third of the operating costs for airlines). Automobile travel will become less costly, helping popular drive-in destinations such as Amelia Island, the Jacksonville Beaches and St. Augustine.

Visitors will stay at hotels in these locations and spend money at shops and eat at restaurants. This newfound demand could create jobs.

One financial firm estimated that 300,000 additional jobs could be added to the U.S. economy through lower oil prices. Obviously, the oil industry will be negatively impacted, however.

U.S. oil and gas drillers could endure layoffs if energy prices do not recover soon. Over the last five years, booming oil and gas production from shale deposits has benefited states like Oklahoma, Texas and North Dakota.

Inevitably, these areas will suffer with the price decline. One company that provides steel to the oil and gas industry has already announced 750 layoffs. And some oil companies have delayed projects.

Even so, the energy sector employs only a fraction of workers in the country. The estimated number is about 1.4 percent of the U.S. workforce.

On the plus side, homeowners will save money on heating oil, and even on electricity. When oil prices skyrocketed in recent years, utility companies commonly pushed through rate increases.

Also, service companies would tack on “fuel surcharges” to their bills for work they did. These charges will likely be erased as oil prices have been cut in half.

Housing may also benefit indirectly from lower energy costs. Energy is a volatile component of consumers prices, so lower prices will suppress inflation and hold back interest rates.

In fact, the average rate on a 30-year fixed mortgage sank to 3.73 percent recently, its lowest level since May 2013. And this also should mean lower financing costs for automobiles.

New-car sales are expected to exceed 17 million this year, a level not seen since 2005. Some auto dealers are reporting a surge in purchases of larger, less-economic cars due to the lower gas prices. Additional sales boost manufacturing, and not only in the automotive sector.

Lower gas prices provide a bonanza to shipping and trucking companies. Some truckers are even hiking pay to attract new drivers.

As for the individual consumer, the savings could be significant (especially for those at lower-income levels). U.S. consumers purchase 140 billion gallons of gas each year. So a $1.00 decline in price would mean a savings of $140 billion.

The total energy-related savings for the average American is estimated to be $1,000 per year. For many, this is like getting a pay raise. Now, that could buy a lot of lubricant.