The Odessa Economic Index logged its 21st straight monthly increase in July improving to 245.1 for the month up from 243.5 in June, and up 19.9% from the July 2017 OEI of 204.5. Strong increases in the spending indicators, hotel/motel activity, housing, and employment continue to power the index upward, and once again building permit valuations remain the only negative through July compared to year-ago levels.
Other than the building permit numbers, only payroll employment remains below its prior peak level established in 2014, and year-over-year employment growth rates have narrowed noticeably over the last few months. Employment growth rates averaged over 7% in the third and fourth quarters of 2017 and in the first quarter of 2018 before falling to 4.5% in the second quarter 2018. The pace of employment growth in July fell below 3% in July at 2.7%.
The table of economic indicators lists the non-seasonally adjusted employment estimates, which can only be compared to the same time periods in prior years. The July 2018 estimate of 75,400 is still down by 3,500 jobs compared to July 2014. Seasonally adjusted monthly employment estimates can be compared to any previous month; the July 2018 seasonally adjusted employment estimate (not shown on the data table) is down by 5,500 jobs compared to the peak monthly employment level of 81,300.
It is certainly possible that current monthly employment estimates are understated and subject to future upward revision (and that happens often, especially during times of rapid cyclical transition), but this is what the current estimates indicate.
The Odessa unemployment rate is historically low and continues to come down. The July unemployment rate of 2.9% is the lowest on record for the month of July and is down from the 4.0% rate of unemployment in July of a year ago. The previous July unemployment rate low record was July 2007 at 3.7%.
General real (inflation-adjusted) spending shows little sign of slowing through July, with a 40% increase compared to July of a year ago which in turn was also up by some 40% compared to July of the previous year. For the year-to-date general taxable spending is up by nearly 46% compared to the first seven months of 2017. Inflation-adjusted spending on new and used motor vehicles in the metro areas was up by nearly 43% year-over-year in July, and the total for the year-to-date is up by 45% compared to the January-July 2017 total.
Hotel/motel taxes for the second quarter were collected in July and spending on lodging in the city of Odessa is derived from that total. And that number was huge – easily the highest quarterly total on record, and up by 90% compared to year-ago levels. Real hotel/motel activity thus far in 2018 is up by a whopping 97% compared to the same period from a year ago. While new rooms have no doubt been added, dramatically higher room rates are the primary driver of rising spending on hotel occupancy in Odessa.
Existing home sales activity remains sharply on the rise with continued increases in the number of sales and the price of those sales. The number of closed sales in July outpaced July of a year ago by 16%, and by the way the July 2017 sales total was up by over 80% year-over-year. Home sales through July are at 968, a record by far and a 30% increase compared to year-ago levels. The average price of those sales continues to skyrocket with the July monthly average up by 24% and the average through July up by over 14% compared to the January-July 2017 average price.
The real (inflation-adjusted) total dollar volume of home sales activity is soaring ever higher into record territory, up by 40% in July and 46% for the year-to-date.
The Texas Permian Basin Petroleum Index increased to 328.4 in July up from 322.5 in June, and up over 26% from the July 2017 TPBPI of 259.8. That marks the 22nd straight month of increase in the index over which time it has increased by 57%.
The regional rig count (the total for Railroad Commission districts 7C, 8, and 8A) retreated in July to 378 on average for the month down from 384 in June. The first inclination may have been to believe the deeply discounted regional prices for crude oil and natural gas are responsible for that pullback, and that would be a quite logical conclusion; however, the rig count has rebounded since then, throwing some cold water on that notion.
Still, it remains the case that rising production relative to the ability to move that production to the marketplace is pushing crude oil and natural gas prices in the Permian lower compared to benchmark pricing and pricing in other locations. A $15 decline in crude oil prices would typically lead to lower levels of activity in the Permian, and while that may ultimately be the case there is simply no sustained evidence of a slowdown of any sort. The rig count continues to climb along with drilling permits (which logged a 19% year-over-year increase in July) and crude oil well completions.
That may have a lot to do with operator sentiments about the future. Permian Basin oil and gas operators likely believe relief is soon to come in the form of sizable additions to pipeline takeaway capacity for both crude oil and natural gas. Also, there is a growing belief that something of a supply shock may push prices higher in the balance of 2018 moving into 2019 given dwindling Venezuelan production and the imminent prospect of Iranian production removed from the marketplace.
And production itself continues to increase, of course, with crude oil production in the region (also the total for RRC districts 7C, 8, and 8A) up by an estimated 25% thus far in 2018 compared to the first seven months of a year ago, and natural gas production up about 23% year-over-year.
