Source: Bloomberg

The chart below shows something of an inverse relationship between YOY changes in real personal consumption expenditures (PCE) and YOY changes in the oil price. When oil collapsed a couple of years ago the consensus stated that cheaper oil meant more consumption and that was good for growth; that ignored the fact that about 40% of corporate CapEx was related to energy. The lower oil price led to lower growth despite a shift towards consumption.

Now we have the opposite situation: Oil prices are up a bit year on year and consumption is a bit squishier, as we see from recent data on personal consumption expenditures, retail sales and auto sales. Just as the collapse in the oil price was a modest net negative for the economy, the recovery in the oil price should be a modest net positive, with better CapEx in the oil sector compensating for a modest bite to consumption.

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