With the price of oil at five year lows (-50% since July 2014), domestic oil/gas wells and mining investment dropped at a 68% annualized rate in Q2, according to the Commerce Department’s quarterly Gross Domestic Product (GDP) report on Thursday. The loss indicates the largest decline in the sector since 1986.
Despite the plunge in U.S. oil and gas exploration, production facility spending rose 65%, and factory-related structure investment jumped 95% (averaging an annualized increase of 64% over the last four quarters, the biggest increase in factory spending since the category was first tracked in 1958).
Specifically, private chemical plant construction has more than doubled in the first five months of 2015, compared to the same period of time last year ($15.9 billion vs. $7 billion).
According to Joe Carson, the director of global economic research at asset management firm Alliance Bernstein, “There’s a manufacturing boom underway tied to the chemical industry . . . The gift is long term. The energy renaissance triggers a manufacturing revival.”
Carson says that an oversupply of oil and natural gas is forcing the industry to build new plants which refine both resources into other products like plastic, lubricant, wax, and asphalt.
As a whole, GDP grew 2.3% in Q2, disappointing economists’ estimates of 2.6%. Q1 GDP expanded at a meager .6%, due mostly to harsh winter conditions throughout the country.
Consumer spending, which makes up an entire two-thirds of the U.S. economy, increased 2.9% annually in Q2, up from 1.8% in the first three months of 2015.
Similarly, the personal consumption expenditures price index (an indicator of the average increase in individual domestic goods and services costs), gained 2.2% in Q2. Personal expenditures actually decreased in the winter months of 2015 by 1.9%.