The Odessa Economic Index posted an unexpected but very welcome increase from October to November 2016, the first increase in 19 months, and only the second since the contraction officially began in February 2015 (the index peaked in January 2015). The Odessa Economic Index improved to 194.2 in November up from 193.6 in October, but still down 9.9% from the November 2015 OEI of 215.5.
It may or may not hold as the ultimate turning point from the cycle of contraction to a new round of expansion; the increase was fueled in part by sizable year-over-year increases in home building permits and existing home sales that may or may not repeat in future months, and the index remains supported by the overstated employment data as discussed in the October report. Even at that, a turnaround in the index is somewhat unexpected as the contraction, while easing, appeared to remain generally in place. Still, the November uptick in the Odessa Economic Index is a welcome outcome, and points to brighter days ahead for the Odessa metro area general economy.
The Texas Permian Basin Petroleum Index increased again in November, the third monthly increase in the last four months, as prices, rig counts, and drilling permits continue to improve. (And by the way, the oil & gas index was revised in November to reflect the more realistic industry employment picture.)
As it stands now, the low point in the regional oil & gas economy as reflected by the index was in September 2016; again, that may or may not hold up as the ultimate trough in activity as industry employment and oil & gas production data remains subject to future revision. Assuming it does, however, typically there would be more than two months between the trough the Texas Permian Basin Petroleum Index and the Odessa Economic Index, hence the unexpected nature of the November monthly increase in the OEI.
The regional rig count continued to improve in November, and the number of drilling permits issued for the month was up by over 20% compared to November of the previous year, the second straight month of double-digit percentage increase. Again, the employment data estimates are a bit of a moving target at present, but the various data sources suggest that oil & gas employment has perhaps bottomed out at this point and has begun to add a handful of jobs in October and November after what presently appears to be a September low point.
Both crude oil and natural gas prices have improved significantly since November, suggesting support for continued increases in the level of oil & gas exploration and production activity across the Permian Basin region. And that, in turn, points to continued economic improvement in the Odessa general economy.
The number of new single-family residence construction permits issued in November was the second-highest of the year thus far, was up by nearly 65% year-over-year, and exceeded 50 for the only the fourth time since 2013. Existing home sales were up by 28% for the month compared to November 2015; the average price of those sales was off by about 4% in November, but the real (inflation-adjusted) total dollar volume of residential sales activity was up by over 20% compared to a generally low number in November 2015.
General spending per sales tax receipts continues to exhibit predictable declines, though the rate of year-over-year decline is narrowing. Real spending per November sales tax receipts to the city was down by 11% compared to November 2015; however, year-over-year spending declines averaged 23% in the first half of the year and 18% in the third quarter 2016. The spending picture should continue to improve slowly but steadily as the economy shifts gears from contraction to growth, and as the regional oil & gas business gains momentum.
Texas Workforce Commission monthly estimates suggest an overall employment level of 73,500 jobs in November; again, however, that number is almost certainly overstated by several thousand jobs, and the rate of year-over-year job loss is higher than the .5% indicated by the current estimates, as explained in the October OEI report.
This means the Odessa Economic Index itself is overstated, of course. The adjustments to the OEI will be made as revised monthly employment data is issued in the coming two months or so. It is possible – perhaps even likely – that the turning point will hold, ultimately, and that October 2016 will indeed turn out to be the trough in the contraction in advance of a new round of expansion for which November will be the starting point.