The Odessa Economic Index increased for the second straight month to finish out the year at 194.5 in December, up from 194.2 in November (and the current cyclical low point of 193.6 in October), but down 8.9% from the December 2015 OEI of 213.4. It seems increasingly likely that the Odessa general economy has now transitioned from contraction to recovery given the two consecutive months of index increase, the likelihood that the OEI will post another increase next month, and continued improvement in the regional oil & gas economy.
While the trend in the Odessa Economic Index may hold, the index values are certain to be revised in the coming month or two as data is revised, the employment data in particular. As we have pointed out over the last two months, the monthly payroll employment estimates for Odessa have been vastly overstated for most of 2016. It is quite possible the Odessa economy has begun to add a few jobs back at this point, but the trough in Odessa employment is going to prove to be considerably lower than the current set of data would indicate. The coming downward revision in 2016 (and perhaps 2015) employment data will alter the Odessa Economic Index values for the affected months, though again, October may still turn out to be the cyclical trough.
The table of economic indicators is still peppered with year-over-year negatives, though the rates of decline are narrowing, particularly in the spending data (general taxable spending and auto sales). Fourth quarter building permit valuations were actually higher compared to the fourth quarter 2015, and housing construction permits and existing home sales each posted double-digit percentage increases in December and the fourth quarter. Home sale prices declined in 2016, however, an expected and perhaps appropriate response to the general economic conditions over most of the last two years.
The Texas Permian Basin Petroleum Index posted a sharp increase in December, rising to 217.9 for the month up from 210.9 in November (revised upward due to updated regional oil & gas production data), but is still down by about 10% compared to the December 2015 TPBPI of 242.0. That marks the third straight monthly increase in this measure of regional oil & gas activity.
Prices for crude oil and natural gas, the regional rig count, drilling permits, and Permian oil company stocks are all higher compared to year-ago levels, and the value of regional oil & gas production is sharply higher compared to year-end 2015 and the low point in February 2016.
At this point the Permian Basin rig count is well more than double its May 2016 low point and crude oil production is once again increasing and in fact never did fall into negative year-over-year territory. The coming employment data revisions will also help to clarify the regional oil & gas employment picture, but again it is likely that the industry is adding jobs now as well.
General real (inflation-adjusted) taxable spending was down by 19% in 2016 compared to the 2015 annual total. However, the rates of year-over-year decline began to narrow in the second half of the year, and the fourth quarter in particular. Fourth quarter taxable spending was off by 11.6%; however, quarterly rates of decline peaked at 23% in the second quarter 2016. Spending per the December sales tax total was down by 10.6% compared to December 2015, which in turn was down by nearly 18% compared to the prior year.
Real auto spending declined by double-digit percentage points for the second straight year, falling by over 21% compared to the 2015 annual total, which in turn was down by 16% compared to the previous year. Auto spending remained in negative year-over-year territory in the fourth quarter, down by about 13%, but that compares to a decline of over 30% in the first quarter 2016.
After rapid expansion from 2010-2014, building permit activity slowed in 2016 for the second straight year with real permit valuations down by 14% compared to 2015, which in turn was down by 45% for the year. Fourth quarter building permit valuations were actually slightly higher compared to the fourth quarter 2015 but the December monthly total registered a 20% year-over-year decline.
The housing components of the Odessa Economic Index improved in the fourth quarter; the number of new single-family residence construction permits issued for the quarter was up by 28% compared to the fourth quarter of 2015, and the 46 permits issued in December is the highest monthly December total since 2012.
Existing home sales also began to show signs of recovery with December (preliminary) sales up by 23%, and fourth quarter sales up by 16% year-over-year. The annual sales total was down only slightly compared to 2015, and in fact future revisions to these numbers could add a few more sales to the ledger in 2016. Prices declined, however, with the December and fourth quarter averages down by some 7% year-over-year, and the 2016 annual average down by just over 5% compared to 2015. The monthly median price declined by only about 3.5% on average in 2016, however.
The higher sales numbers pulled the total dollar volume of residential real estate sales into positive territory in December and the fourth quarter, up by nearly 12% and 5.6%, respectively compared to the previous year. For the year, however, real housing sales activity was down by 8% compared to 2015, which in turn was down by 14% year-over-year.
And just to reiterate, the monthly employment data estimates as provided by the Texas Workforce Commission have been significantly overstated for virtually of 2016. While the year-end numbers may be closer to correct than those earlier in the year, the March 2017 employment data revisions, which will revisit monthly employment data estimates for 2016 and perhaps 2015 as well, will result in monthly employment estimates that are markedly lower than those presently indicated.
The year 2016 was obviously a year of overall general decline in the Odessa general economy, as was 2015. But hopefully 2016 will also be characterized as the end of the cyclical contraction in the economy with the low point coming in October.
The January Odessa Economic Index report will be based on the old employment data benchmarks and the January employment data will be estimated as we await the early March revisions. Once revised employment estimates for 2016 have been issued and new benchmarks established for the coming year, we will close the books on 2016 and look ahead to 2017.
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