Budget headaches ahead for 8 oil- and gas-dependent states

Source: Nathanial Gronewold, E&E reporter • Posted: Tuesday, August 11, 2015

HOUSTON — Eight oil- and gas-producing states are in for some serious economic and budgetary pain this year and next, economists at the Federal Reserve Bank of Dallas are warning.

Texas may feel the lightest hit to its economy and should narrowly avoid recession, Dallas Federal Reserve Director of Research Mine Yücel predicted. Alaska, Oklahoma, Louisiana, Wyoming, West Virginia, New Mexico and North Dakota may not be as lucky, as sharp job losses and steeply lower government revenues are presumed.

“Alaska is in big trouble,” Yücel warned.

Last week, the Dallas Fed invited an audience to its branch offices here for a first-of-its-kind economic outlook conference, to share forecasts for growth in Texas and around the globe. Topic No. 1 was the crash in oil prices and what it means for the larger economic picture.

Historically, lower energy prices have proved to be a boon to the U.S. economy, and Fed economists think the drop in gasoline and diesel costs could lift gross domestic product by 0.3 percent to 1 percent. Total 2015 GDP growth may come in at 2.3 percent.

“It’s good. It’s not 4 to 5 percent growth, but it’s not bad, either,” said Dallas Fed economist Anthony Murphy.

North Dakota is seen taking the steepest hit from job losses, while Alaska’s government likely will be pinched by its dependence on the oil industry for revenues. Yücel fears that states suffering from smaller severance tax receipts will be pushed into cutting spending deeply, given the current anti-tax hike political climate.

North Dakota’s oil production has expanded nearly fivefold during the shale oil boom, as rigs opened up the Bakken Shale earlier than at other fields. The Fed is forecasting negative job growth for the state this year.

Last year, North Dakota led the nation in job growth; this year, it will come in dead last, Yücel predicted.

Texas’ oil output has soared higher and more quickly than most observers expected, particularly taking off in 2014. Last year, Texas was third in the nation for job growth. In 2015, the state is predicted to rank 31st in job growth. Dallas Fed economists think net employment growth will fall somewhere between 0.5 and 1.5 percent in Texas for 2015. A net loss of 140,000 jobs in direct and indirect employment may be in store for the Lone Star State this year, a measure of net jobs that would have been generated in Texas had oil prices not dropped by half in a year.

But economists do not see a return to the tough economic times of the late 1980s. Texas’ economy is much more diverse and continues to attract an influx of new residents and business. The Austin metro area’s economy is growing the fastest, and that growth is not tied to the success of the oil and gas industry, as is the case in Houston.

Tough times for Houston ahead

As for the self-styled “energy capital of the world,” Houston is in for a fairly rough time as the pain being experienced in the oil patch eventually works its way to the city.

Business economist Jesse Thompson of the Dallas Fed’s Houston branch thinks job growth in Houston will clock in at zero to 1 percent. This city’s manufacturing sector has been dealt a blow as orders for fabricated metal have dropped by nearly 17 percent.

More layoffs are expected in 2017; a major expansion of refining and petrochemical manufacturing capacity underway now will come to an end that year, Thompson pointed out, but there will be no need for those construction crews for similar projects. Some of this work may even be scaled back or postponed as the companies building the projects seek ways of saving money.

He has no idea what job growth in Houston will look like in 2016.

But still, thanks to expansions in other cities and industries, there will be “no Texas recession,” Yücel said.

“Famous last words,” she said, jokingly, immediately afterward.