The Odessa general economy continued its impressive expansion through the third quarter 2018 with the 23rd consecutive monthly increase in the Odessa Economic Index. The OEI improved to 249.4 in September up from a revised 247.9 in August, and up 17.9% from the September 2017 index of 211.6. The pace of growth clearly slowed a bit in the third quarter, however, with the Odessa Economic Index increasing at an annualized rate of 8.7% over the quarter. The margin of month-to-month increase also narrowed in the third quarter; the 1.5-point increase from June to July and from August to September were the smallest since the first quarter 2017 when the recovery was still in its infancy.
The significantly lower rates of year-over-year employment growth are clearly slowing overall growth rates, along with the decline in new housing construction permits compared to year-ago levels and flat total construction activity. Auto sales growth has slowed to single-digit percentages as well. However, general spending growth remains fantastic, existing home sales and prices continue to soar, and the unemployment rate posted another sharp year-over-year decline to an all-time low in September.
The recovery and expansion in the regional oil and gas economy is now fully two years in the making with the 24th straight monthly increase in the Texas Permian Basin Petroleum Index. The TPBPI, a product of the Texas Alliance of Energy Producers, improved to 338.4 in September compared to 334.0 in August, and up nearly 25% from the September 2017 index of 271.1. Since the September 2016 trough, the Texas Permian Basin Petroleum Index has increased by 61% though it remains down by some 12% compared to its all-time peak of 384.9 achieved in November 2014.
Crude oil posted prices held in the mid-$60/bbl range in September before declining in recent weeks, though the Permian discounts were still slicing $12-15/bbl off that price. Waha hub natural gas pricing continued to worsen through September; incredibly, the $1.52 Waha monthly average price was the lowest since 1995, and was about 50% of the Houston Ship Channel, Henry Hub, and other pricing points.
Realized producer prices for both crude oil and natural gas in the Permian have been declining relative to the benchmarks for most of the year, and the effects on regional production revenue could conceivably be affecting the rig count at this point. However, the rig count improved in September, adding about four rigs on average compared to the August rig count (for RRC districts 7C, 8, and 8A), and has not declined at all since then.
The well-documented (and discussed) pipeline constraints for both crude oil and natural gas could also be affecting marketed production in the Texas Permian, but that doesn’t seem to be the case, either. Monthly production through September remains some 20-25% higher compared to year-ago levels (about 20% for the month of September, and about 23% and 26% for crude oil and natural gas, respectively, through September compared to the first nine months of a year ago.
If indeed the pace of growth is slowing a bit in the Odessa general economy, the general spending data would seem to belie that notion. Real (inflation-adjusted) taxable spending per September sales tax receipts was up by nearly 32% compared to the September 2017 spending total, which in turn was up by nearly 44% compared to the prior year. Third quarter general real spending was up by over 34% compared to the third quarter 2017, and the total for the year-to-date is an incredible 42.3% higher compared to the first nine months of a year ago.
Auto sales remain on the rise through September as well, though the pace of year-over-year growth dipped below 10% in August and September. Inflation-adjusted spending on new and used motor vehicles was up by 8.7% in September compared to September of a year ago, while third quarter real auto spending was up by nearly 17% year-over-year. For the year-to-date auto sales activity remains over 35% higher through September compared to the first nine months of a year ago.
The construction sector has improved a bit in 2018 compared to year-ago permit numbers but remains well behind the huge numbers put up in the years 2012-2014. Third quarter building permit activity was up by a respectable 5.8% compared to the third quarter 2017 total, while the September monthly total was up by just over 3% year-over-year. For the year-to-date, the inflation-adjusted value of all building permits issued was up by 4.3% compared to the January-September 2017 total.
On the other hand, the 573 new single-family residence construction permits is the highest total on record for the first nine months of the year, and was up by nearly 32% compared to the permit total through September of a year ago. The September monthly total was off by 3 permits compared to September 2017, and the third quarter total was essentially flat at 161 permits issued compared to 162 in the third quarter of a year ago. The third quarter record of 167 permits was achieved in 2015.
Existing home sales are at record levels through September 2018 as well with some 1,275 closed sales through September, an increase of 30% compared to the January-September 2017 sales total. The September monthly and third quarter sales numbers are both sharply higher compared to year-ago levels, posting 19% and 21% year-over-year increases, respectively. These are not records, however; in 2006, the sales totals for September and the third quarter are the highest on record, just slightly exceeding the numbers in 2018.
The price of those sales continues to increase at double-digit percentages with average prices easily setting records, and thus pushing the total dollar volume of housing sales deep into record territory. The September monthly average sale price was up by over 11% compared to September of a year ago, while the third quarter average posted a 17% year-over-year increase. Through the first nine months of the year the average home sale price in Odessa is up by 14% compared to the January-September 2017 average sale price.
The real (inflation-adjusted) total dollar volume of residential real estate sales in Odessa continues to put up stratospheric numbers with the September total up by nearly 30%, and the third quarter total up by 38% year-over-year. For the year-to-date, the total real housing sales dollar volume is up by over 44%, and in fact the total through the third quarter 2018 is higher than the annual total for every prior year except 2017.
The employment numbers continue to disappoint, and in fact the margin of year-over-year employment growth narrowed yet further in September to 1.6% down from 2.3% in August, and as high as 8.3% in October 2017. Again, however, these numbers are quite suspect, and the logical expectation is that 2018 monthly employment estimates (and growth rates) will be revised upward at the next opportunity (probably March 2019). The unemployment rate dipped to 2.7% in September compared to 3.4% in September 2017, the first time any monthly unemployment rate has fallen below 2.8%, so the Odessa metro area labor market is extremely tight, more so than has ever been the case in the past.
