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Soft Business Investment Despite Low Oil Prices - 12/21/15

When oil and gasoline prices began to decline in mid-two thousand and fourteen, many experts predicted that this would boost spending by both U.S. consumers and businesses.  It hasn’t turned out that way.  Instead, the pace of business investment has softened significantly due to a combination of reduced energy-related investment, a strong U.S. dollar, falling exports and growing concern regarding global economic prospects. 

While consumer spending remains among the stronger aspects of the economy, spending has been erratic, with auto and home sales rising, but spending at many retailers remaining sluggish.  As indicated by the Wall Street Journal, the good news is that falling commodity prices and a weak global economy are helping to render imported goods cheaper for Americans, which in turn helps put a lid on inflation. 

A recent measure of import prices released by the Labor Department indicates that import prices were down nearly ten percent in November from a year earlier.  The price of imported petroleum was down nearly forty five percent. 

Oil has been one of many commodities associated with declining prices.  Natural gas, copper, aluminum, wheat and other staples are also cheaper, due in part to sluggish growth in China and other emerging markets.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.