Working Paper

Response of Consumer Debt to Income Shocks: The Case of Energy Booms and Busts

Abstract: This paper investigates how consumers respond to local income shocks as a result of booms and busts in oil and gas development. Oil and gas development generates potentially large streams of income via wages and salaries to workers and royalty income to mineral rights owners. Changes in development may lead consumers to increase their spending depending on their exposure to income shocks. Using quarterly information on consumer debt and oil and gas activity, I ?nd that consumer debt increased at a peak of $840 per capita in counties with shale endowment and increased drilling. Each well drilled was associated with $6,750 in consumer debt for an implied total of $2.7 billion or 0.5 percent of consumer debt in areas where drilling occurred from 2007 to 2015. {{p}} Consumers in previously developed areas tend to view new increases in activity as transitory relative to areas with little previous development that experience a shock.

Keywords: Oil; Gas; income shocks; Consumer debt;

JEL Classification: D23; Q32; Q33; R11;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2017-05-01

Number: RWP 17-5

Pages: 46 pages