The Odessa Economic Index declined for the eighth straight month in December to finish out the year, falling to 225.0 down from 226.4 in November, and down 2.9% from the December 2014 OEI of 231.6. The Odessa Economic Index, based at 100.0 in January 1996, peaked at 234.6 in April 2015 and is now down by 4.1% compared to that pinnacle.
Virtually every component of the Odessa Economic Index registered year-over-year deterioration in 2015 compared to 2014, with the exception of single-family housing construction permits which were up compared to a sharply down year in 2014. And, as has been noted multiple times, payroll employment, while continuing to indicate modest improvement in 2015 will be revised downward to reflect deep employment losses over the year after a probable peak in December 2014.
The Texas Permian Basin Petroleum Index continued its sharp decline through year-end 2015 falling to 241.3 in December, a drop of about 36% compared to December 2014, and of 37% compared to the index peak in November 2014. The regional rig count dropped by over 60% from December 2014 to December 2015, and the posted WTI crude oil price lost another 40% over the year on the heels of a 60% decline in the second half of 2014. The number of drilling permits issued in Railroad Commission Districts 7C, 8, and 8A, dropped by close to 60%, and an estimated 8,900 oil & gas jobs were lost in the combined Midland-Odessa metro area in 2015. The regional oil & gas stock index (Clayton Williams Energy, Dawson Geophysical, Patterson-UTI, and Concho Resources) lost over 30% of its value last year.
Through the third quarter of 2015, quarterly employment and wage data for the Odessa metro area indicates overall job loss of about 7,500 compared to peak employment levels established in December 2014. It is a virtual certainty that additional jobs were lost in the fourth quarter as well, and it is likely that payroll employment declined by some 8,500 jobs over the course of the entire year. And again, when revised monthly data is released by the Texas Workforce Commission the Odessa Economic Index will be revised for 2015 (and probably 2014) to reflect the updated employment information.
Real (inflation-adjusted) taxable spending per monthly sales tax receipts in Odessa actually continued to improve through most of the first half of 2015 and was down by only about 2% for the year as a whole. However, general real spending peaked and began to decline in the second half of the year, accelerating in the final quarter with real spending per fourth quarter sales tax receipts down by over 14% compared to the fourth quarter of 2014. Real spending per the December sales tax rebate was down by 17.5% compared to the December 2014 total.
Real auto spending was down by 16% in 2015 compared to 2014, and declined by a sharp 22% in the fourth quarter of the year (and the December total was down by over 20% year-over-year as well).
Hotel/motel activity slowed at an increasingly faster pace in 2015 with October collections (for third quarter occupancy) indicating real lodging spending down by over 31%. For the year as a whole, hotel/motel activity declined by close to 12% compared to peak levels in 2014.
Building permit activity actually improved in December with the total monthly valuation up by over 18% compared to December of the prior year; however, real building permit activity in the fourth quarter declined by 40% compared to the fourth quarter of 2014, and total for the year was down by 45% compared to the 2014 annual total. Permits for new single-family housing construction actually improved in 2015 after a sharply lower year in 2014. The number of new single-family residence permits issued was up by 18% compared to the 2014 annual total, which in turn was down by 34% compared to the previous year. Still, the number of permits issued in 2015 was down significantly compared to the record home building years of 2012 and 2013 in which, respectively, 542 and 600 permits were taken.
Home sales activity dropped off considerably in 2015 after a record year in 2014 (the second-highest number of closed sales and the highest total dollar volume of activity), with sales declining by about 13% for the year. The number of closed sales in the fourth quarter was down by a sharp 23% with the December total down by 17% compared to December 2014. The average price remained generally elevated, however, increasing by 1.4% in 2015 on the heels of a 5% increase in 2014, and an increase of about 38% since 2010. The fourth quarter 2015 average price was down by 3.6% compared to a year ago; however, the fourth quarter 2014 average was up by over 11% compared to the previous year.
The total real dollar volume of residential real estate sales in Odessa established new records – by a lot – in 2013 and 2014, and retreated from those lofty levels in 2015, again due almost entirely to a decline in the number of sales, not the price of those sales. This aggregate measure of residential real estate activity (adjusted for inflation) was down by about 14% for the year, and over 27% for the quarter.
The Business Cycle Dating Committee of the National Bureau of Economic Research defines a recession as “a significant decline in economic activity, spread across the economy, that can last from a few months to more than a year.” While that is what is plainly occurring in the Odessa general economy in 2015 moving into 2016, the current decline in the Odessa economy can only properly be considered against the backdrop of the extraordinary expansion in the five years preceding the downturn in the regional oil and gas industry and the resulting contraction in the general economy of the city and region. Over that period of time, economic growth rates, employment growth rates, and unemployment rates in Midland and Odessa topped the charts routinely in comparisons with virtually every other metro area in the US. And that was true not only during the most recent expansion, but in the growth period from 2002-2008 as well.
While there is an end to the oil market carnage out there somewhere, it is not yet evident as conditions have only worsened moving into 2016. Generally elevated production levels along with record amounts of crude oil in storage are weighing heavily on the price of crude oil, along with global overproduction and Iranian oil beginning to hit the marketplace. A change in US and Texas market conditions will help to point to at least some stabilization and perhaps modest recovery in crude oil prices. Simply, an accelerated pace of production decline along with falling levels of crude oil in storage should begin to provide some upside support to oil prices, and these are the numbers to watch in 2016. Meanwhile, the rig count continues to decline and the industry continues to lose jobs in the region and metro area. That points to continued contraction in the Odessa general economy for the foreseeable future.
Home sales activity is faltering with the number of closed sales down some 39% in November compared to November 2014 (which in turn was up by 45% compared to November of the prior year). Through November the number of homes sold in Odessa is down by over 12%. The monthly average price declined by about 14% year-over-year; however, the November 2014 monthly average sale price was a whopping 28% higher compared to November of the previous year. The mathematical combination of sales and prices – the total dollar volume of residential sales activity (adjusted for inflation) – posted a record for the month of November in 2014 with a total that was over 80% higher than November of the previous year. The November 2015 total is down by about 49% compared to that record.