Tags: texas | economy | oil | gas | prices | recession | 1980s

Texas Fears Oil Price Drop Could Lead to '80s-era Recession

By    |   Monday, 05 January 2015 10:35 AM

Consumers and drivers will happily welcome continued low oil prices, but concerns are being raised about the capacity of oil-producing states to weather the economic impact if prices continue to plunge.

With oil prices now having declined by nearly 51 percent — to $52.69 a barrel — since they peaked in June, some economists fear oil state economies could experience a recession not unlike that seen during the 1980s, reports The Wall Street Journal.

“Texas is, if oil prices stay where they are, going to face a more difficult economic reality,” says J.P. Morgan Chase economist Michael Feroli.

There is no doubt that the Texas economy has been booming. Between 2010 and 2013, the Lone Star state's economy grew at twice the pace of the U.S. as a whole, but much of which was built on the benefits of an oil boom.

Texas was responsible for 67 percent of the nation’s increase in crude production and its share of total U.S. output has surged to more than 40 percent, The Fiscal Times reports.

The impact of declining oil prices already is being felt. Oil companies have started to scale back their production and preliminary data reported by the Bureau of Labor Statistics finds that Texas has lost 2,300 oil and gas jobs in October and November, The New York Times reports.

Economists are not alone in fearing a repeat of the recession of the 1980s.

“I wish I could paint a rosy picture, but I’m a realist. This is my fourth downturn. Everything’s going to get pretty ugly. It’ll take a couple of years for this to work itself out and get back on track," Larry Oldham, who owns a Midland, Texas, oil company, tells the Houston Chronicle.

There are some parallels to the 1980s.

For example, in the first half of 1986, as in the second half of 2014, oil prices dropped by about half, although the decline seen in the 1980s was a steeper and faster drop, the Chronicle notes.

“We think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession,” Feroli said in the recent J.P. Morgan report, according to Fuelfix.com.

“There are some reasons to think that it may not be as bad this time around, but there are even better reasons not to be complacent about the risk of a regional recession in Texas,” he added.

However, the Texas economy added 44,200 jobs in October and jobs grew at an annualized rate of 3.7 percent in 2014, according figures released in November by the Federal Reserve Bank of Dallas.

Jobs in the state grew at a rate of 2.7 percent in 2013.

Those figures have Reserve Bank President Richard Fisher slightly more optimistic about Texas' economy than others, like Feroli.

During a speech delivered in December, Fisher noted that Texas had $1.53 trillion in economic output in 2013 before asserting that "the state of Texas is big and bright," reports the Dallas Business Journal.

The reason for Fisher's optimism is that he sees today's economy as more diversified than it was in the 1980s.

"This year is on track for the income per capita to outpace the nation's," said Fisher, who did acknowledge that the state could make improvements in some areas of its economy, such as declining housing affordability and labor shortages.

"In sum, labor market tightness may restrain growth next year, the energy sector may cool a bit, and regional price pressures may cool," Fisher said.

But, he added, "opportunities abound for Texas' continued success; none of them have much to do with monetary policy."

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Consumers and drivers will happily welcome continued low oil prices, but concerns are being raised about the capacity of oil-producing states like Texas to weather the economic impact if prices continue to plunge.
texas, economy, oil, gas, prices, recession, 1980s
Monday, 05 January 2015 10:35 AM
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