The Odessa economy embarked on its third consecutive year of growth in November, having reached the two-year mark in October, with the Odessa Economic Index posting another strong increase in November. The index improved to 254.6 for the month up from 252.1 in October, and up 16.5% from the November 2017 OEI of 218.5. General spending growth remains impressive along with auto sales activity and hotel/motel occupancy revenue. The housing market put up huge numbers again in November, and new housing construction continues at a record pace. Overall building permit activity was lower for the month compared to year-ago levels, and the published employment growth rate was the lowest of the year at 1.1%, though again, these estimates are almost certainly incorrect and due for a sharp upward revision in March 2019.
The regional oil and gas economy delivered some potentially ominous news in November. The Texas Permian Basin Petroleum Index, the de facto leading economic index for the Odessa general economy, declined in November from October after 25 straight months of growth. Historically, a decline in the regional oil and gas index has always signaled the onset of contraction of some duration and magnitude, followed by a contraction in the broader Odessa economy.
Crude oil prices dropped precipitously in November, losing nearly $14/barrel on average for the month (about 20%) compared to the October monthly average. The daily posted price fell from a high of $73/barrel in early October to below $47 in late November, a decline of over 35%, and that situation only worsened in December.
The rig count declined slightly in November after peaking in the current cycle at 390 in October (for RRC districts 7C, 8, and 8A), and the number of drilling permits issued in that same region was down by over 31% for month compared to November 2017. Production continued to climb but the value of that production plummeted because of the decline in price. These events were sufficient to knock the regional oil and gas economy off its more than two-year growth track, at least temporarily interrupting the current expansion.
Crude oil prices have stabilized and improved since then, so time will tell whether regional oil and gas activity levels will remain generally favorable and stimulative to continued general economic growth in Odessa in 2019. The numbers certainly remain strong in late 2018.
General real (inflation-adjusted) spending per November sales tax receipts in Odessa was up by over 21% compared to November 2018, which in turn was up by some 38% compared to November of the prior year. For the year-to-date general taxable spending is up by over 38% compared to the first eleven months of 2017.
Auto spending growth retreated to the single-digit percentage level in November, improving at a 7% pace compared to November 2017, but the total for the year-to-date is still up by over 30% compared to the January-November 2017 total.
Construction activity per building permit valuations declined in November, posting a 30% decline compared to November 2017, though the total through November remains over 10% improved compared to year-ago levels. New housing construction was slightly improved in November (one additional single-family residence construction permit), and home building in Odessa remains at a record level through November and will easily shatter the previous record in terms of the annual 2018 numbers.
The Odessa residential real estate market continues to reflect astounding growth on all fronts – sales, prices, and the dollar volume of existing home sales. The 1,429 closed sales through October surpassed all previous annual records in Odessa, and the numbers are only getting bigger. The 135 (preliminary, and subject to some minor revision going forward) is the highest ever for the month of November by far and is up by nearly 34% compared to November 2017. The year-to-date sales total is also up by over 30% compared to year-ago levels. The November monthly average price of those sales was up by nearly 19% year-over-year, a trend that has been in place for most of the year. And in fact, the average through the first eleven months of the year is up by over 15%.
The total dollar volume of residential real estate sales activity (adjusted for inflation) is up by an incredible 50% through November compared to the previous year, with the November total up by close to 60%.
The Odessa Economic Index – and thus the Odessa economy itself – is clearly going to finish out the year 2018 in strong fashion, even given the dramatically understated employment gains. And it appears as though crude oil markets are recovering from the events of the fourth quarter 2018, pointing to another year of strong activity in the Permian oil patch.