The collapse of oil drilling in recent months will have repercussions in a broader swath of the economy. For example, steel shipments have yet to reflect the new reality. Look for other regions and sectors to feel some collateral damage in the months to come. That said, the effect on the overall economy of cheap oil is still positive, but not without some real losers amongst the winners.
I was struck by how much the steel industry correlates with oil rigs. Steel production goes to other sectors, but oil looks pretty significant. Some of what we see in the chart may be false correlation, as when conditions which cause high oil drilling activity - a strong economy - also lead to steel usage in construction and appliance manufacturing. Nonetheless, oil drilling is a big factor in steel demand, albeit not the only factor.
The chart on the left shows a long-term picture, with steel data through February and rig count through March. To focus in on the last few years, the chart on the right starts in 2011. It's clear that steel shipments have not reacted to the oil drilling fall - yet. Look for that to happen in the coming months.
We've already seen stories of laid-off drilling rig workers, with service employment in the oil patch starting to drop. Economic damage will spread outward. The offsetting benefits from consumer spending will be stronger, but more diffused. There will be few specific sectors that will show dramatic improvement, but all parts of discretionary consumer spending will benefit a little. Once again, the gains will be stronger than the losses, but the losses will continue and be highly visible.