The expansion in the Odessa general economy reached the two-year mark in October with the Odessa Economic Index posting its 24th straight monthly increase. The index improved to 251.7 in October up from 249.5 in September (revised slightly upward due to an upward revision in September employment data), and up 17.0% from the October 2017 OEI of 215.1.
This impressive period of recovery and growth comes on the heels of a 21-month, 18.5% decline in the index. Since troughing in October 2016, the Odessa Economic Index has expanded by over 33%, and moved into record territory in April of this year having recovered the ground that was lost during the contraction.
With the exception of payroll employment, every single component of the Odessa Economic Index for the month of October and the year-to-date through October is improved by at least double-digit percentage points compared to year-ago levels.
The spending indicators continue to post 25%-plus year-over-year gains through October, and hotel/motel revenues per taxes collected in October for the third quarter 2018 were once again sharply improved compared to year-ago levels. Building activity was well more than double the low monthly total from October 2017, and the number of new single-family housing construction permits was nearly double the total from a year ago. The housing numbers are all records for the month and year-to-date – number of sales, the price of those sales, and the real (inflation-adjusted) total dollar volume of housing sales in the Odessa market.
The unemployment rates (both the seasonally adjusted and non-seasonally adjusted) are the lowest in the history of unemployment rates in Odessa and are sharply lower compared to year-ago levels. The labor market is simply the tightest it has ever been. Payroll employment (the number of jobs estimated to exist in the Odessa metro area) growth remains baffling, and that will continue to be the case until the annual employment data revision process in early 2019. The current low rates of employment growth are simply not believable, and indeed some other data suggest that in fact that the current estimates may be wildly incorrect.
The Permian regional oil and gas economy is now in its third year of recovery and expansion with the Texas Alliance of Energy Producers Texas Permian Basin Petroleum Index improving for the 25th straight month in October to 348.3 up from 342.6 in September, and up 26.1% from the October 2017 TPBPI of 276.3. The index is still down by about 10% from its all-time peak of 384.9 in November 2014. While that gap continues to narrow with each passing month, time will tell whether the index reaches that level in the near term, especially given the price developments of the last two months.
Posted prices for West Texas Intermediate crude oil began to decline in October but still averaged over $67 per barrel for the month. The Permian discount was about $6.18 in October pushing actual posted Permian prices to about $61/bbl for the month. The gas price discount was some 50% in October; gas pricing at the Houston Ship Channel and other pricing points was about $3.50, and the Waha price averaged $1.74 for the month.
The rig count continued to increase in October, however, averaging 533 for the month in RRC districts 7C, 8, and 8A. In fact, only Permian natural gas prices and the resulting estimated value of regional gas production are lower compared to year-ago levels in terms of the components of the index. Oil production continues to be revised upward, and the estimated volume of crude oil production in October was up by about 24% compared to October of a year ago.
Estimated daily production in the Texas Permian (in this case, total daily production in RRC districts 7C, 8, and 8A) exceeded 2.7 million barrels in October – and that number could still be revised upward in the future.
Total employment in Odessa according to the headline statistics published by the Texas Workforce Commission suggest year-over-year employment growth of only 1.3% (1,000 jobs added over the last 12 months). Again, these numbers are almost certainly not correct. The only possible explanation would be that the labor force is just not expanding at a sufficient pace to allow for greater job growth, but even that explanation does not withstand scrutiny. The much more likely explanation is that the number of jobs is simply being undercounted in the current sampling structure. And there is data to support that conclusion. The Quarterly Census of Employment and Wages (QCEW) counts jobs by category and then totals them. The data is only available through the second quarter, but June total employment by that measure is up by an incredible 11% compared to June 2017; that is considerably higher than the June published numbers in the Current Employment Statistics (the standard monthly data set, which indicates 3% year-over-year employment growth), and it is not likely that employment growth went from 11% in June to 1% in October.
In other words, Odessa monthly employment estimates as currently published for 2018 are likely in for a sizable upward revision come March 2019.
Otherwise, the general economic data remains impressive. General real spending per October sales tax receipts in Odessa was up by 26% compared to October 2017, which in turn was up by over 50% compared to October of the prior year. For the year-to-date general real spending through October was up by over 40% compared to the first ten months of a year ago.
Auto sales appeared to be slowing a bit, at least in terms of year-over-year growth which had dipped below 10% in August and September; however, real auto spending surged upward in October, posting a 26.5% increase compared to October of a year ago. That increase is even more extraordinary given the fact that the October 2017 auto spending total was up by over 62% compared to October of the previous year. For the year-to-date real auto spending is up by 34% compared to the January-October 2017 total.
Hotel/motel spending totals were updated in October with hotel/motel tax receipts reflecting third quarter lodging activity in Odessa. Real (inflation-adjusted) hotel/motel activity in the third quarter was up by about 62% compared to the third quarter 2017, which in turn was up by 77% compared to the year before. The four quarterly collections in 2018 outpaced the 2017 total by a whopping 85% -- largely a function of rising occupancy rates.
Building permit activity was sharply higher in October, though that is mostly because the total from October 2017 was generally low. While nowhere close to the records established in 2014, real building permit valuations are up by some 10% through October compared to the first ten months of a year ago.
The 621 new single-family housing construction permits issued through October is a record by far. In fact, not only was it higher compared to the January-October total from a year ago (and all previous years), it is higher than the annual total for all prior years.
The same is true of existing home sales – the total through October 2018 is higher than the annual total of all prior years (and is up by nearly 29% compared to the total through October 2017). The 142 (preliminary) closed sales in the month of October is an October monthly record as well. The average price of those sales continues to increase at a rapid pace, posting a nearly 14% year-over-year increase in October. The total real (inflation-adjusted) dollar volume of housing sales in Odessa was up by 32% in October, and a whopping 43% for the year-to-date compared to the first ten months of a year ago.
The Odessa general economy is moving into its third year of expansion and growth following the achievement of the two-year mark in October. The Odessa economy is operating at record levels in the aggregate as reflected by the Odessa Economic Index, and even though crude oil prices have declined by more than $20/bbl over the last couple of months, the end of this growth cycle is not yet in sight.
