The Biggest "Hamilton Oil Shock" In History
Slowly but surely, the narrative that plummeting oil prices is "unambiguously good" for the economy is fading into obscurity, as reality is starting to emerge. For the latest capitulation we go to the Bank of America chart of the day which shows that the current Hamilton Oil Shock is now the biggest in history, surpassing even the Lehman collapse.
From BofA Chart of the Day:
Hamilton oil shocks: Although historical comparisons are often imperfect, it is useful to look back at prior episodes of oil price shocks. In order for a move in the price of oil to qualify as an episode, there has to be a significant deviation from trend. We use the approach developed by Jim Hamilton, which defines oil price shocks as the difference from the three-year moving average. The most cautionary episode to today was the 62% drop in oil prices from November 1985 to July 1986, although the Hamilton measure is much smaller. Similar to today, most believed this would prove to be a boost to GDP growth. Indeed, the consensus was forecasting average 2.3% GDP growth to increase 0.3pp, but it actually fell 0.9pp (based on the as reported GDP data, third release). This downward surprise continued for three quarters.
This time won't be different, but like then, we will need to wait until the revised-revised-revised GDP data before it is finally apparent.
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