Mon, Feb 09, 2015 - Page 15 News List

Oil crash to hit Texas economy

‘MAJOR-LEAGUE CONTRACTION’:Economist Karr Ingham said that the oil and gas industry ‘is going to shed jobs on a regular basis’ over the coming months

AFP, NEW YORK

For the past five years, the economy of Texas has outperformed the rest of the US.

However, the collapse in oil prices has left the Lone Star State facing its toughest test since the financial crisis.

A 50 percent tumble in oil prices since June last year has prompted companies such as Royal Dutch Shell Group and Chevron Corp to slash billions of US dollars in worldwide investment. Oil services companies like Schlumberger Ltd and Halliburton Co have announced thousands of job cuts.

So far, only a handful of petroleum companies have filed layoff notices in Texas this year, and the Texas Workforce Commission actually reported an increase in mining jobs in December last year.

Yet few doubt what lies ahead for the second-biggest US state, by economic output and population, after California.

There is likely to be “a major-league contraction in oil and gas activity in Texas,” Ingham Economic Reporting owner Karr Ingham said. “Over the coming months, the industry is going to shed jobs on a regular basis. We’re very early in that process.”

BBVA Research senior economist Boyd Nash-Stacey predicted the downturn would cost about 60,000 to 80,000 mining jobs in Texas, with an additional ripple effect on other sectors, such as retail and hospitality.

The oil slump has already begun to cool the real-estate market in Houston, the fourth-biggest US city and an economic powerhouse for most of the 2000s due, in large part, to the surging energy industry.

“It’s a question of how bad it’s going to get and for how long,” CBRE Group Inc vice chairman Charles Gordon said. “The shock is how fast energy prices fell.”

Texas has been outpacing US growth for some time.

In 2013, the Texas economy grew at an annual clip of 3.7 percent compared with 2.2 percent for the whole economy, and in the prior year its pace was more than double the national rate, according to US Department of Commerce data.

The throng of activity into older oil centers, such as the Permian Basin in west Texas and the newer Eagle Ford shale in southern Texas has been a driver.

Economists agree that matching that flaming growth level will be impossible this year, but there is debate about just how bad things will get.

JPMorgan Chase & Co chief US economist Michael Feroli said in a report in December last year that the outlook for Texas was comparable to 1986, when a steep drop in oil prices was followed by deep layoffs, big declines in the real-estate market and a banking crisis.

“Texas, will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession,” the report said, adding that given its huge size, “the prospect of a recession in Texas could have some broader reverberations.”

However, BBVA’s Nash-Stacey said many parts of Texas, including big cities Dallas and San Antonio, have limited exposure to oil and should benefit from the relief of lower gasoline prices.

Moreover, since the 1980s, the state has added a major technology center in the Austin area, home to Dell Inc, and built out the giant Texas Medical Center in Houston, which has significant research programs for cancer and other diseases.

“It’s not a death blow,” Nash-Stacey said. “Texas isn’t what it was in the 1980s.”

The US Federal Reserve Bank of Dallas also expects positive economic growth this year in Texas.

“The bottom line is it’s going to cause growth to slow, but job growth will remain positive,” said Keith Phillips, a senior economist with the central bank division in San Antonio.

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