News Column

Economist: High oil means more growth

July 5, 2014

By Corey Paul, Odessa American, Texas

July 05--Higher-than expected crude prices mean a boost for Odessa's economy in coming months that may delay the long-expected relief on the housing and labor markets, according to the recently released May economic index commissioned by the Odessa Development Corporation.

Signs of that growth lie in sharp year-over-year increases in general spending and a growth in auto sales after a months-long cool down, reported Amarillo economist Karr Ingham, who prepared the Odessa Economic Index last month using data he collects for another study that he produces for the Midland Development Corporation.

Ingham looks at a number of factors for the metro area, including building permits, hotel and motel tax receipts and a rig count. Overall, May saw a 3.5 percent growth in the Odessa economy compared to the same month of last year. It also represented the 51st consecutive month of growth since the recession, reaching an economy 55 percent larger than in 2009 and adding about 16,000 jobs.

"If the desire in 2014 was not necessarily an economic slowdown but let's say a flattening of the growth rate -- if that were your hope, $105 crude oil is not going to make that happen," Ingham said.

Ingham was one of those who predicted this year would see oil prices soften, resulting in an Odessa economy still expanding but not as fast. That would allow the city -- with high costs of living and a tight labor market -- to start catching up after intense boom years. But the report for May suggests that won't come true through the next few months, Ingham said.

West Texas Intermediate crude prices were at about $104 per barrel ahead of the Fourth of July holiday.

"There's still so much going on with Ukraine and Russia, even before the Syria-Iraq stuff," said Kirk Edwards, president of Las Colinas Energy Partners. "There's so much turmoil in this world it's really hard for that oil price to settle down."

The Permian Basin rig count hovers above a record 550 rigs. The West Texas share of that Ingham reported for May was 460, which is more than during the boom of the early 1980s.

"The revenue from oil and gas production on the rise is put to work in a significant fashion locally, because after payrolls it goes into investments in future drilling, it goes to service companies, it goes to make purchases, and those things trickle down in the economy," Ingham said.

He attributed growth in general spending and auto sales to that.

Ingham considers inflation-adjusted taxable spending a primary local economic indicator. May sales tax receipts were 14.7 percent more than the May 2013 spending total. The first five months of the 2014 saw spending 9.5 percent higher than the same months of last year.

Auto sales in May grew 8 percent from the same period of 2013. But February, March and April figures all showed year-over-year declines. Two years ago, growth in auto spending was "stratospheric," Ingham said, but has flattened since then even though sales volumes remain "extraordinarily high."

Construction numbers so far in 2014 trend lower than the high numbers of 2013, with a building permit in May about 30 percent lesser than the same month last year. Through the first five months of this year, construction was down about 36 percent.

Arleene Loyd, director of business retention and expansion for the Odessa Chamber of Commerce, said the reason is that the frenzied building last year developed "the low-hanging fruit," so now developers often face delays like having to build roads and extend utility lines. But permitting is backlogged right now.

"To me, the only thing that's slower is the ability to build fast," she said.

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Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.


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Source: Odessa American (TX)

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