The recovery and expansion in the post-downturn Odessa general economy is rapidly headed for the 2-year mark through August with the 22nd straight monthly increase in the Odessa Economic Index. The OEI improved to 248.8 in August up from a revised (upward) 245.6 in July, and up 19.7% from the August 2017 index of 207.9. The numbers remain spectacular for the most part in terms of year-over-year growth in the various components of the index, though auto sales narrowed in August (temporarily, perhaps) and again, employment growth rates have slowed markedly over the last few months. Otherwise, general spending, hotel/motel activity, and existing home sales remain sharply on the increase for the month and year-to-date.
The slowdown in the pace of employment growth is a bit puzzling; the continued rapid expansion in other components of the Odessa Economic Index along with strong growth in the regional oil and gas economy would suggest employment growth rates considerably higher than the 2.2% reported in August. The year-over-year employment growth rate was as high as 8.3% in October 2017 and averaged 7% in the first quarter of 2018 but has narrowed steadily since then. It is important to remember that unlike most other measurement sectors of the Odessa metro area economy, employment levels are merely estimated and subject to future revision – and sometimes broad revision at that. And that may well be in store for Odessa employment estimates, though no major revisions will occur until March 2019.
The Odessa metro area unemployment rate is more realistic, remaining below 3% at 2.9% for the month, the lowest on record for the month of August and down by a full point compared to the 3.9% unemployment rate in August of a year ago.
General real (inflation-adjusted) spending continues to increase at an incredible rate with spending per August sales tax receipts up by some 32% compared to August of a year ago, and up by nearly 44% for the year-to-date. Real auto spending growth dipped to under 3% in August (and that could easily be a random temporary decline) but remains higher for the year by some 39%.
Building permits have bounced around a bit in 2018, but after two months of sharp decline the August monthly building permit valuation posted a 73% year-over-year increase, pulling the total for the year-to-date back into positive territory, up by about 4% compared to the first eight months of 2017. While total building permit activity is nowhere close to its prior record level (that occurred in 2014), single-family housing construction continues to push ever higher into record territory with 527 permits issued through August, an increase of over 36% compared to the total through August of a year ago.
The residential real estate market simply remains on fire with record numbers all the way around. The number of existing home sales surpassed 1,000 (and then some) through August for the first time ever and is up by over 30% compared to year-ago levels. The monthly sales total in August exceeded 150 for only the fifth time on record – and all of those have been in 2018. The price of those sales remains sharply higher, up by 15% on average through the first eight months of the year, and up by 18% in the month of August. The real (inflation-adjusted) total dollar volume of home sales activity is up by a whopping 50% in August compared to August of a year ago and is up by nearly 47% for the year-to-date.
The Texas Permian Basin Petroleum Index, long a part of the metro and regional economic analysis system, has a new underwriting partner and that is the Texas Alliance of Energy Producers, a statewide trade association representing the upstream (exploration and production) oil and gas industry, with a focus on smaller independent producers which remain core to the industry statewide and in the Permian Basin. The index was revised and updated a bit for its rollout as an Alliance product, but the overall trend remains the same – strong industry growth as represented by the index, and that continues to drive general economic growth in the Odessa general economy and throughout the region.
The Alliance TPBPI as revised logged its 23rd straight month of growth on the heels of a nasty downturn, improving to 333.9 in August up from 330.6 in July, and up 25.1% from the August 2017 index of 266.9.
Posted crude oil prices remained steady through August in the mid-$60/bbl range, but again much of the crude oil produced in the Permian remains heavily discounted by more than $15/bbl as a result of the pipeline bottleneck to get that crude out of the region. The regional rig count actually declined slightly from June to July but rebounded in August and September. The number of drilling permits issued in August in the Texas Permian (RRC districts 7C, 8, and 8A) was down by about 12% compared to the total from August 2017 (which in turn was up by 74% compared to August of the previous year) but remains about 12% higher for the year-to-date compared to the first eight months of a year ago.
Production growth continues at a staggering pace, especially given the temporary market conditions resulting from the takeaway capacity issues. Estimated August crude oil production was up by over 21% compared to August of a year ago and is up by about 25% through August compared to the January-August 2017 total (and these numbers will probably be revised upward in the coming months). According to these monthly production numbers, daily production just in the Texas Permian alone is approaching 2.5 million barrels, accounting for about 57% of Texas statewide production and 23% of US total crude oil production.
Estimated direct oil and gas employment in the Midland-Odessa metro area is up by well over 25% year-over-year, surpassing 40,000 in August for the first time ever. The previous industry employment high point was about 36,200 in December 2014. Oil and gas employment declined by an estimated 10,400 jobs during the downturn but has since added some 15,000 jobs. Direct industry employment in Midland-Odessa comprises about 22% of total payroll employment in the combined metro area.
The pipeline takeaway issues will be corrected in the relative near term and again, thus far there seems to be little noticeable impact, though the rig count might well be higher in the absence of that problem. Otherwise, global crude oil markets remain somewhat nervous and uncertain, but the general sense is that the next move in crude oil prices will be upward, not downward, and that central fact alone is reason enough for optimism about continued growth in the Odessa general economy.
