Oil Price Drop Hurts Spending on Business Investments

Other industries eventually could compensate for the energy cutbacks

Prospects for an uptick in business investment this year are facing a major drag: The collapse in oil prices is spurring significant cutbacks by the energy-production industry, which had been a standout in an otherwise lackluster U.S. economic expansion, according to The Wall Street Journal.

Business capital spending rose 6% last year due to gains from a broad base of U.S. industries. The drag from energy this year could cut that growth rate in half in 2015, according to economists at Goldman Sachs, the Journal said.

Moreover, equity analysts at the bank estimate capital spending globally by energy companies in the S&P 500 will fall 25%, leading to the first annual decline in overall capital investment by big businesses in many sectors since 2009. Already, energy companies in the S&P 500 have announced about $8.3 billion in spending cuts.

The energy cutbacks come when exporters and manufacturers more broadly face headwinds from a strengthening dollar, which makes U.S. goods more costly abroad.

The U.S. economy still comes out a big winner with cheaper oil. Consumers who spend less on gasoline generally spend more at retailers and restaurants. Companies also benefit from lower materials costs.

Read more: The Wall Street Journal


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