The Odessa Economic Index is expanding by leaps and bounds at this point, improving to 194.5 for the month of May up from 192.8 in April, and down by only 1.6% compared to the May 2016 OEI of 197.6. The index has now increased for seven straight months, and is up by over 3% compared to its cyclical trough of 188.5 in October 2016. The table of economic indicators for the month and year-to-date contains very few year-over-year negatives (other than the desirable decline in the unemployment rate); total building permit valuations were down for the month and year-to-date, and employment remains down on average through May, though monthly employment estimates are now slightly positive compared to year-ago levels.
General spending and auto spending are sharply higher as well posting double-digit percentage growth, along with new housing construction and existing home sales.
The Texas Permian Basin Petroleum Index was also higher again in May expanding to 246.7 for the month up from 241.0 in April, driven by continued sharp year-over-year growth in natural gas wellhead prices (and the corresponding increase in the value of regional natural gas production), the rig count, and the number of drilling permits issued.
The monthly average rig count for Railroad Commission districts 7C, 8, and 8A surpassed 300 in May for the first time since February 2015 when the count was in decline, and is up by about 150% compared to May of 2016. The 686 drilling permits issued (also the 7C, 8, and 8A total) is the highest for the month of May in three years; however, it remains considerably lower than the permit total in advance of the downturn – the number of permits issued in May 2014, for example, was 1,098.
While the rig count, drilling permits, and other measures of activity continue their rapid growth, crude oil prices have effectively stalled. The May monthly average is slightly higher than May of a year ago, but is the lowest thus far in 2017, and in fact continued to decline in June. The average price (posted WTI) over the last 12 months is about $45/barrel – in short, prices have simply not increased and in some respects the outlook has become more bearish than bullish in recent weeks as efforts by non-US producers (OPEC, etc.) to reduce global production have failed to bring about sustained improvement in price. This is, in large part, caused by the US expansion in activity and the resulting expansion in crude oil production. The signals provided by prices to producers is simply to pull back on production growth, and US/Texas producers are the target of those signals. At some point they will succeed, meaning absent measurable price growth the rig count, drilling permits, etc. in the Permian and beyond will ultimately stall as well. Meanwhile, however, the Permian Basin region and the Odessa metro area can enjoy the economic recovery in process.
That recovery is gaining momentum. General real spending per monthly sales tax receipts logged its fourth straight month of double-digit percentage year-over-year growth at nearly 26% in May, and the total for the year-to-date is up by over 12%. After an unexpected decline in the month of April, auto sales surged ahead in May with real auto spending for the month up by 32% compared to May of a year ago. Through the first five months of the year real auto sales activity is up by 11% compared to the January-May 2016 total.
The building permit numbers continue to trend lower for the third straight year off the extraordinary highs of 2014. The May monthly total permit valuation was down by about 21% compared to May of a year ago, and the total for the year-to-date is now down by 4.5% compared to the January-May 2016 total, which in turn was down by about 13% compared to the first five months of the prior year. This particular component, especially the larger commercial and multi-family projects, tends to lag the cycle so it makes sense that it hit its high point late in the last expansion cycle and continues to trend downward early in the current recovery.
Not so with single-family housing construction, however, which is actually a component in the US national Index of Leading Economic Indicators (meaning it often increases at the front end of a new cycle of growth). The number of new single-family permits issued in Odessa thus far in 2017 is up by close to 40% over the total through May of last year, and by a sharp 60% in the month of May.
Residential real estate activity is on the rise as well with existing home sales up by 12% in May, and 8% through the first five months of the year compared to year-ago levels. The average price of those sales spiked upward in May, posting an 11% increase over the May 2016 monthly average. The inflation-adjusted total dollar volume of home sales activity is up by a solid 7% thus far in 2017, aided by a sharp 22% year-over-year increase in May.
The return to job growth is slow, with only about 1,000 jobs added thus far in the current recovery (seasonally adjusted Odessa payroll employment data from the Texas Workforce Commission indicate the employment low point of 68,900 in June, September, and November 2016, and the estimates for April and May 2017, respectively, are 70,000 and 69,800). However, with the slight upward revision to the April non-seasonally adjusted data total employment in Odessa posted its first year-over-year increases in April and May since early 2015 when employment was falling rapidly. The unemployment rate is significantly lower in May (compared to May of a year ago), but that is partly because the labor force has continued to shrink over the past year. The May labor force estimate is down by about 1,250 compared to May of a year ago; the number of unemployed members of that labor force has fallen significantly as well, but the number of employed has increased only very slightly. The overall employment situation should continue to improve in the coming months as the recovery continues, but again, over 12,000 jobs were shed from the Odessa general economy during the contraction and the return of those jobs is slow going thus far.
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