Oil Price Dive a Boon to State, Bank Says

Lower oil prices will benefit California by boosting economic growth, reducing inflation and creating as many as 150,000 new jobs, according to a new study from Security Pacific National Bank.

In a revised forecast, bank economists predict that the total value of all goods and services produced in the state will grow by 9% this year. A forecast issued by the bank in November, before the sharp decline in world oil prices, set 1986 state economic growth at 8%, about the same as in 1985.

The projected inflation rate was revised downward to 4% from 5% because of falling oil prices. Consumers should benefit from cheaper gasoline as well as smaller price increases than had been expected for all items reflecting the cost of fuel or transportation, such as air travel and farm produce.

Although some sectors of the state economy will be hurt--notably oil production and refining--overall growth and employment will improve. The report said a total of 450,000 new jobs will be created in California in 1986, with 50,000 to 150,000 of them the result of lower oil prices and the increased spending power of consumers. Expected to benefit are wholesale and retail trade, services and residential construction.

“A reduction in oil prices amounts, in effect, to a tax cut,” said the study, written by Security Pacific economists Tom Graves and Adrian Sanchez. “That is because a reduction in oil prices translates into a portion of consumers’ incomes being freed up from gasoline and other oil-based purchases, which can now be spent on other goods and services.”

This oil-related “tax cut” amounts to $30 billion to $50 billion nationally, the Los Angeles bank’s study said. Consumer spending in California is expected to increase by nearly 10% over last year, they said, while disposable income will grow by 8.3%.

The optimistic forecast carried some warnings, however. Consumers are likely to follow recent patterns and save little of the windfall, preferring to add to their already heavy debt burdens, the study said. And the economies of oil-producing regions of the state will suffer from layoffs and reduced spending by oil companies.