The Odessa Economic Index predictably continued its decline in October, falling to 193.6 for the month down from 194.1 in September, and down 11.3% from the October 2015 OEI of 218.1. The index peaked at 231.9 in January 2015 prior to the onset of the current contraction, and has now declined by 16.5% compared to that pinnacle. The Odessa Economic Index is based at 100.0 in January 1996.
The Texas Permian Basin Petroleum Index increased in October, however, the second monthly increase in the last three months. This measure of regional oil & gas activity improved in October to 209.4, up from 208.1 in September (which is thus far its low point in the current contraction). The Texas Permian Basin Petroleum Index, also based at 100.0 in January 1996, peaked at 381.3 in November 2014.
Higher crude oil prices in October helped to push the oil & gas index higher; the monthly average posted West Texas Intermediate price improved to $46.31/bbl, nearly $5/bbl higher than the average in July, August, and September. The regional rig count posted a modest improvement in October, adding four rigs compared to the September monthly average. The 559 drilling permits issued in Railroad Commission Districts 7C, 8, and 8A in October is the highest monthly total for the region since December 2014 (when the number was just beginning to fall), and was up by over 30% compared to October of a year ago.
A turnaround in the Texas Permian Basin Petroleum Index signaling the return to expansion in regional oil & gas activity will ultimately yield the same outcome in the Odessa general economy. That’s not the case through October, however, as most components of the Odessa Economic Index continue to register significant year-over-year decline and the index itself continues to fall.
General real (inflation-adjusted) spending per October sales tax receipts in Odessa was down by close to 14% compared to October of a year ago, and remains down by over 20% for the year-to-date compared to the first ten months of 2015. Real auto spending fell by nearly 28% in October compared to October of a year ago, which in turn was down by over 20% compared to October of the prior year. Auto spending through October is now off by nearly 24% compared to the January-October 2015 total. Hotel/motel activity is down a sharp 40% through October, and third quarter 2016 real spending on lodging in Odessa was down by over 31% year-over-year.
Construction activity posted a strong increase for the month, however, with the real value of all building permits issued up by over 60% in October compared to October of last year. New single-family housing construction continues to slide, however, with the number of new permits down by about 12% year-over-year in October.
The residential real estate market continues to weaken for the second straight year with the number of closed sales down by about 5% through October, though the number of sales was slightly higher for the month compared to October of a year ago. The monthly average price posted a 7% year-over-year decline, and the average for the year-to-date through October is down by some 4.5% compared to the first ten months of a year ago.
A word about employment in Odessa. As was the case in 2015, during times of dramatic movements in economic activity (periods of very strong economic growth or sharp economic decline) monthly payroll employment estimates tend to diverge from actual employment trends, and this appears to be the case again in 2016. According to current estimates, payroll employment in Odessa – simply the number of jobs estimated to exist in the Odessa metro area – is down by less than a percent in October compared to October of a year ago. The numbers further suggest that the rate of job loss has been slowing throughout 2016 and is on the verge of stabilizing and beginning to reflect the addition of some jobs. Other recently released employment information suggests these numbers are not accurate, however, and that Odessa continues to experience deep job loss in 2016.
The Quarterly Census of Employment and Wages paints a more realistic picture of the Odessa employment situation, and offers a window into the likely employment data revisions for Odessa in early 2017. The QCEW estimates are only available through the second quarter of 2016; however, those estimates suggest that employment loss in Odessa in the second quarter occurred at the rate of 9-10%, as opposed to the 3-4% indicated by the monthly estimates. This would imply that year-over-year employment loss in the third quarter 2016 (and moving into the fourth quarter) is probably occurring at a rate of 7-8% rather than the 1-2% (and now less than 1% in October) indicated by the current monthly estimates.
When the annual revisions roll around in early 2017, the number of estimated jobs in Odessa will almost certainly be revised significantly downward and brought into line with the quarterly data (which are based on actual employer filings as opposed to the sampling process that generates the monthly estimates). The Odessa Economic Index presently includes the current monthly estimates, but will be adjusted accordingly when revised monthly employment numbers are released.
The quarterly data presently shows that nearly 13,200 jobs were lost in Odessa between the employment peak in December 2014 and June 2016, a decline of nearly 17%. Over 5,000 of those were direct oil & gas jobs that were shed between the peak in January 2015 and June 2016. And in fact the same phenomenon is evident in metro area oil & gas employment – overly optimistic current employment numbers compared to the likely actual trends. Overall employment loss has almost certainly continued to occur in the months since, though it is possible that oil & gas industry employment has begun to stabilize based on the improvements in other measures of regional oil & gas activity.