The Odessa Economic Index declined again in June but did so at a slower rate, falling to 200.3 for the month down from 200.7 in May, and down 11.7% from the June 2015 OEI of 226.9. The index has declined by an average of two full points each month since entering the current contraction in February 2015 (and 2.5 points per month on average in the first five months of 2016 alone), but declined by only 3/10 of a point in June. Year-over-year increases were posted in construction (building permits), new housing construction permits, and existing home sales in June; the rate of employment loss continued to slow as well, though the spending indicators continue to register sharp declines compared to year-ago levels.
The annualized rate of index decline in the second quarter 2016 was 7%, compared to nearly 18% in the first quarter, and 11.7% over the last 12 months.
The rate of decline in the Texas Permian Basin Petroleum Index has also slowed in recent months; the index, a monthly measure of aggregate oil & gas activity levels across the region, declined for the 19th straight month in June falling to 212.0 down from 214.2 in May (revised slightly upward due to upward revisions in regional crude oil production), and down 32.5% from the June 2015 TPBPI of 313.9. Through February of this year, the average monthly decline over the course of the industry contraction was over 10 full points per month. In May and June 2016 the index declined by 2.7 and 2.2 points, respectively.
Improving crude oil prices have quite a lot to do with that, of course, having increased for the fourth straight month in June. That was sufficient to reverse the decline in the rig count, at least temporarily, which increased by a modest 4 rigs on average from May to June (in Texas Railroad Commission districts 7C, 8, and 8A). The number of drilling permits issued across the region was also higher in June (compared to June of a year ago), the second year-over-year increase in the last three months.
About 4,000 upstream (exploration and production) oil and gas jobs have been lost in Odessa alone over the course of the current industry downturn; across the region (the 17-county Permian Basin Workforce Development Area) an estimated 13,000 jobs have been shed by oil & gas companies since the fourth quarter of 2014.
Total payroll employment in the Odessa metro area was down by about 3.3% (2,500 jobs) in June compared to June of a year ago. That is down from a year-over-year employment loss rate of over 9% in the latter part of 2015 and an average 7% or so in the first quarter of 2016. The unemployment rate remains considerably elevated compared to year-ago levels at 6.7% in June compared to 5.0% in June of last year, and 3.8% in June 2014 in advance of the downturn.
The June building permit total was up by about 21% compared to June of a year ago; in part, though, that is because the June 2015 permit valuation total was particularly low – the lowest since the recession year of 2009 and down by nearly 75% compared to June of the previous year. The second quarter total was off by about 10% compared to a year ago, and the year-to-date total is down by just under 10% compared to the first six months of 2015.
New housing construction is on the rise in 2016, however, with the highest number of permits issued through June since the record year of 2013. The second quarter permit total was up by 14% compared to the second quarter of a year ago, and the June monthly total logged a 67% increase compared to June of a year ago (an additional 23 permits).
Lower housing prices may be stimulating some additional housing demand in Odessa; the number of homes sold was up by about 6% in June, and about 2.5% for the quarter compared to the same time periods in 2015 (which in turn were down by 19% and 11%, respectively, compared to the previous year). The monthly average sale price was down by 1.2% in June, and over 6% for the quarter. Through the first six months of 2016 the average home sale price is down by about 2.6% compared to the January-June 2015 average.
The spending indicators remain in deep negative year-over-year territory as households and business continue to retrench in response to oil & gas industry contraction and general economic downturn. General real (inflation-adjusted) spending per second quarter sales tax receipts was down by a sharp 23% compared to the second quarter of a year ago, and 22.5% for the year-to-date. Real auto spending is down by 25% through the first six months of the year, and by some 25% in the month of June.
Higher oil prices in the second quarter of 2016 should be viewed with some cautious optimism, of course. At least one significant ‘false positive’ has been observed over the course of this cycle as prices rose substantially in the second quarter of 2015 before reversing course and falling to the cycle low point in February of this year. And indeed prices have now retreated by well over $10/bbl compared to the daily high point in June 2016. Production in Texas, the US, and North America is indeed declining, but the rate of decline has been relatively modest thus far. Permian Basin production is falling as well; however, in the first six months of 2016 an estimated 9% more crude oil was produced compared to the first half of 2015. Markets continue to suffer under the weight of large amounts of crude oil in storage, and elevated levels of production from non-US producers, OPEC and non-OPEC alike.
In other words, while the recovery is underway, it may well be a frustratingly slow process – it certainly has been thus far.
"We make a living by what we get, but we make a life by what we give."