The Odessa general economy continued its remarkable expansion through midyear 2018 with the Odessa Economic Index posting another strong increase in June. The index logged its 20th straight monthly increase rising to 243.6 in June up from a revised 240.6 in May (the May employment data was revised upward, resulting in the upward revision to the May index), and up 21.3% from the June 2017 OEI of 200.9.
Not surprisingly, the second quarter increase was strong as well with the Odessa Economic Index expanding at a 21.6% annualized rate over the quarter.
Year-over-year growth rates remain sky high in the spending indicators along with new housing construction and existing home sales and prices. Employment growth rates softened a bit in the second quarter but remain strong, and the unemployment rate has reached historic lows, posting the lowest June rate on record and falling below 3% on average in the second quarter for the first time. Building permit activity dropped off in the second quarter, posting year-over-year declines for the month of June, the second quarter, and the first six months of the year. These are the only negatives on the chart, however, and most other components are at record levels midway through 2018.
Employment remains the exception to that trend, though jobs continue to be added at an impressive pace. The June payroll employment estimate of 75,800 (not seasonally adjusted) is down by some 2,600 jobs compared to the June 2014 peak employment level of 78,400. The June seasonally adjusted employment estimate remains down by about 5,100 jobs compared to the all-time peak in December 2014. Continued economic expansion will close that gap, though that will not likely happen in 2018.
General spending by households and businesses continues to reflect eye-popping growth rates through the first half of the year with real (inflation-adjusted) spending per June, second quarter, and first half sales tax receipts each up by over 46% compared to year-ago levels. Incredibly, in just two years general real spending since troughing in the depths of the contraction is up by 65% through June 2018 compared to the first six months of 2016. Real auto spending has increased by 70% over that same period of time, with about 46% of that coming in 2018 alone compared to the January-June 2017 total. Second quarter real auto spending is up by nearly 50% year-over-year.
These rates of growth will ultimately begin to soften at some point even if the economy remains strong and growing, simply because 45%-plus growth rates in general spending and auto spending are not sustainable indefinitely. But thus far they have characterized a recovery and expansion that borders on the unbelievable.
Housing construction in 2018 has simply shattered previous records with 414 new single-family residence building permits issued through June. The previous record for the first six months of the year was set in 2013 with 292 permits issued. The second quarter SFR permit total was up by 74% compared to the second quarter of a year ago and exceeded 200 for a quarter for only the second time on record – the first was the first quarter 2018 with 209 permits issued.
Existing home sales activity is also leaving all prior records in the dust with June monthly, second quarter, and first half 2018 sales at their highest levels ever. The second quarter home sales total exceeded 400 for the first time ever (for any quarter, not just the second quarter), and the total through June surpassed 800 sales for the first time, outpacing the midyear 2017 total by 33%. The average price of those sales, routinely above $200,000 now, is up sharply as well posting a nearly 16% year-over-year increase in the second quarter and 12.6% for the first six months of the year.
The real (inflation-adjusted) total dollar volume of residential real estate sales was up by a whopping 50% in the second quarter compared to year-ago levels, and is up by over 45% through June compared to the midyear 2017 total.
The Permian Basin regional oil and gas economy remains the driver behind the sharp growth and record levels in the Odessa metro area general economy. The Texas Permian Basin Petroleum Index improved for the 21st straight month in June, rising to 322.5 for the month up from 317.4 in May, and up 27.0% from the June 2017 TPBPI of 254.0. Again, however, the index remains well below its peak level of 382.4 established in November 2014.
A small crack began to appear in the armor in June with the regional rig count (and RRC District 8 in particular) peaking and beginning to decline slightly, a trend that continued in July. That decline is almost certainly tied to growing production relative to takeaway capacity and the resulting discounts for Permian-produced crude oil and natural gas. Crude oil price discounts remain at $15 or higher in some locations, and natural gas prices are off by as much as 1/3 (over a dollar) compared to other pricing locations. As the Permian Basin producing community awaits additional pipeline capacity the markets are signaling producers to reign in production growth in the meantime. There has been little evidence thus far that activity levels have been affected and production growth remains vigorous; however, lower prices were almost certain to bring about some observable softening in activity and it appears as though June may be the time in which that becomes noticeable.
National and global supply and demand conditions continue to suggest relatively strong crude oil pricing, but the localized discounts represent something of an immediate threat to the extraordinary growth rates. At present, however, there is little reason to believe the takeaway capacity issues depressing oil and gas prices in the Permian will knock the general economy of the Odessa metro area off its growth track. And thankfully, help is on the way with projects underway to expand pipeline capacity dramatically in 2019.