[WSJ] Texas, Once a Star, Becomes a Drag on the U.S. Economy

Air Langhi · Oct 13, 2016

HOUSTON—Texas helped lead the U.S. out of recession, thanks in part to the shale drilling revolution. But after more than two years of slumping oil prices, the state is now a sore spot for the national economy.

Petroleum prosperity helped usher in an economic boom in Texas, which added one out of every seven new American jobs between 2010 and 2014. But since the end of 2014, the state has lost more than 91,000 jobs in oil-and-gas extraction and mining-support activities, nearly half of the total national job losses in those categories. Texas payrolls were up 1.6% in August from a year earlier, trailing the national pace of job growth for the 11th consecutive month.

The collapse in oil prices—from more than $100 a barrel in June 2014 to roughly $50 today—has been felt nationwide. But the largest economic impacts are in Texas, the nation’s second most populous state, which accounts for roughly 9% of U.S. economic output.

The Texas economy grew 3.9% a year on average from 2010 to 2015, nearly twice the U.S. pace, according to data from the U.S. Commerce Department. But the state’s output barely grew in this year’s first quarter, weighed down by losses in the mining sector, which includes the oil and gas industry.

The hiring slowdown in Texas accounts for some of the national deceleration in job creation since last year. And the Texas-centered energy bust has helped drive a national pullback in business spending on structures and equipment, a drag on overall economic growth.

While the pain in the oil patch hasn’t driven the state into recession, Houston, the nation’s energy capital and fourth-largest city, is on the brink.

The Houston metro area saw healthy growth in economic output during 2015, according to the Commerce Department. But the Federal Reserve Bank of Dallas has said its index of Houston-area economic conditions signaled a “modest contraction” in the first half of 2016 and that while the worst of the oil bust may be in the past, “Houston is not yet recovering.” Bill Gilmer, an economist at the Institute for Regional Forecasting at the University of Houston, estimates that 70,000 energy-related jobs have disappeared in the area since late 2014. He believes more losses are on the way.

“We may very well be in a modest recession right now,” he said.

Houston has a thriving medical center complex and a bustling trade port, the second largest in the U.S. by total tonnage. But the fall in oil prices is wearing on the metro area, home to nearly 6.7 million people.

The region’s unemployment rate in August was 5.8%, up from 4.9% a year earlier—one of the largest year-over-year jumps among big U.S. metro areas. The vacancy rate in Houston skyscrapers has risen to nearly 16% from 11% when oil prices began falling in summer 2014, according to NAI Partners, a commercial real estate firm.

Some laid off energy workers are jumping ship to other industries and cities, and questioning whether they will return.

Mohan Batlanki recently moved to Atlanta from Houston after he lost his job doing contract IT work for an oilfield services company. He had to take a 10% pay cut and walk away from a home with a pool that he was set to buy.

Still, he’s happy he is no longer dependent on the boom-and-bust oil industry, even if he is currently living with his wife and five-year-old daughter in an apartment.

“I don’t need to worry,” Mr. Batlanki said, adding that there is plenty of work in Atlanta.

Consumer spending, which accounts for most U.S. economic output, has weakened in Houston. Data from the state comptroller’s office shows city sales tax revenue down about 4.5% this year.

Chef Robert Del Grande says he has noticed the pullback at his restaurant, Cafe Annie, a venerable gathering spot for the city’s elite.

Instead of corporate dinners, he said, oil and gas companies are arranging less expensive cocktail hours—and putting a cap on the once free-flowing bar service.

“We joke that they turned our happy hour into gloomy hour,” said Mr. Del Grande, who has stopped replacing departing staff.

Since 2015, 85 oil and gas producers and 87 oilfield services companies have filed for bankruptcy protection in the U.S.—with more than half of those filings made in Texas courts, according to the law firm Haynes and Boone LLP.

Several publicly traded restaurant chains have said the oil bust is squeezing venues in Texas oil patch communities, including Darden Restaurants Inc., which said sales have suffered at its Eddie V’s Prime Seafood locations.

United Continental Holdings Inc., parent of United Airlines, has even reduced its flying schedule in Houston.

The bust has cut into the state’s coffers. Republican Gov. Greg Abbott, along with the state’s lieutenant governor and speaker of the house, in June called on all state agencies to cut 4% from their 2018-2019 biennial budgets.

Houston City Controller Chris Brown said officials recently bridged a $160 million budget gap by deferring pension payments, refinancing debts and other measures.

“What makes me nervous is the potential for a long-term cycle of low oil,” Mr. Brown said, adding there is “economic activity in Houston that can offset that.”

Although the state has pockets of robust growth, notably Dallas-Fort Worth and Austin, the Dallas Fed in September projected the state will add 138,200 jobs this year—only about one-third of its 2014 gain.

Many of the recently added jobs have been in lower-paying industries, according to the Texas Workforce Commission. Sectors that added jobs include health services, where the typical salary is $870 a week, and hospitality, where wages average under $400 a week.

Michael Feroli, an economist with J.P. Morgan Chase, predicted in late 2014 that Texas could see a recession during this downturn. He maintains his dim view.

“It is more diversified than the mid-80s,” he said. “But it isn’t night and day.”

—Lynn Cook contributed to this article.
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http://www.wsj.com/articles/texas-once-a-star-becomes-a-drag-on-the-u-s-economy-1476264601

Haymitch · Oct 13, 2016

Is that the entire article? Felt like it stopped halfway.

JuanValdez · Oct 13, 2016

It feels like a fundamental lack of understanding of the volatility of the energy business. Oil is boom and bust. It makes no sense to look at 2013 and say Texas is a star! and then 2015, Texas is a loser. We go up and down all the damn time. And average out to something that's pretty solid.

ipaman · Oct 13, 2016

JuanValdez said: ↑

It feels like a fundamental lack of understanding of the volatility of the energy business. Oil is boom and bust. It makes no sense to look at 2013 and say Texas is a star! and then 2015, Texas is a loser. We go up and down all the damn time. And average out to something that's pretty solid.
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This man uses logic

Air Langhi · Oct 13, 2016

Haymitch said: ↑

Is that the entire article? Felt like it stopped halfway.
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I only copied part of the article. I will fix my post to post the whole thing.

I don't get sense things are getting better. It seems like the layoffs are over, but for the people who got laid off it really sucks to get a job right now.

Tenchi · Oct 13, 2016

Wait until that tech bubble bursts. Silicon Valley is going to go through some pain. Funding for those companies will dry up and they will have to start consolidating or making money to survive. California will be just as much a drag on the economy as Texas.

The economy in general doesn't seem like its making the rebound that everything thinks it should. Everything is still fragile. The global economy sucks.

I was waiting for the part where the writer would begin talking about what's happening with the Atlanta economy to figure out why its better but it only mentions the IT guy that says there are a lot of jobs there. I'm not sure if that's a great source.

REEKO_HTOWN · Oct 13, 2016

I hope all these transplants start going back home.

DonnyMost · Oct 13, 2016

Texas, and Houston specifically, seem to basically be the antithesis of the US economy.

Texas doing well means the US is probably sucking butt, and vice versa.

From 2009-2014 we saw nothing but "OMG Houston is the next super city!" articles... And of course those stopped the moment the oil market shat the bed.

Houston was only cool because having a job was cool.

StupidMoniker · Oct 13, 2016

Petro-economy dependent on petro prices? You don't say.

LonghornFan · Oct 13, 2016

Eddie V's is one of the top 5 most over rated restaurants in Houston. They shouldn't blame their business on the economy, it's the high priced and very bland food.

Uprising · Oct 13, 2016

JuanValdez said: ↑

It feels like a fundamental lack of understanding of the volatility of the energy business. Oil is boom and bust. It makes no sense to look at 2013 and say Texas is a star! and then 2015, Texas is a loser. We go up and down all the damn time. And average out to something that's pretty solid.
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Exactly! Obviously, with Texas being a petroleum fueled economy....it goes wit the flow of the price of oil....

Fyreball · Oct 13, 2016

JuanValdez said: ↑

It feels like a fundamental lack of understanding of the volatility of the energy business. Oil is boom and bust. It makes no sense to look at 2013 and say Texas is a star! and then 2015, Texas is a loser. We go up and down all the damn time. And average out to something that's pretty solid.
Click to expand...

Pretty disappointing that something so fundamentally short-sighted would come out of the WALL STREET JOURNAL. You'd think they would have a better understanding of basic principles like supple & demand, lower interest rates, and lack of production. It's doesn't take rocket surgery to understand why Houston, the state of Texas, and the world as a whole are in a stagnant holding pattern right now.

Dr of Dunk · Oct 13, 2016

About the only thing slowing down the DFW area is housing prices skyrocketing. I'm guessing this is more of a Houston thing for the moment.

ItsMyFault · Oct 14, 2016

We're doomed.

Jontro · Oct 14, 2016

glad i evacuated katy years ago

Buck Turgidson · Oct 14, 2016

JuanValdez said: ↑

It feels like a fundamental lack of understanding of the volatility of the energy business. Oil is boom and bust. It makes no sense to look at 2013 and say Texas is a star! and then 2015, Texas is a loser. We go up and down all the damn time. And average out to something that's pretty solid.
Click to expand...

Right? This is nothing new or shocking or really newsworthy.

Buck Turgidson · Oct 14, 2016

LonghornFan said: ↑

Eddie V's is one of the top 5 most over rated restaurants in Houston. They shouldn't blame their business on the economy, it's the high priced and very bland food.
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The one in downtown Austin has a badass happy hour though. 1/2 price appetizers (including oysters) at the bar.

SwoLy-D · Oct 14, 2016

JuanValdez said: ↑

It feels like a fundamental lack of understanding of the volatility of the energy business. Oil is boom and bust. It makes no sense to look at 2013 and say Texas is a star! and then 2015, Texas is a loser. We go up and down all the damn time. And average out to something that's pretty solid.
Click to expand...

TheresTheDagger · Oct 14, 2016

REEKO_HTOWN said: ↑

I hope all these transplants start going back home.
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Self deporting!!! Mitt Romney agrees with you...

RockFanFirst · Oct 14, 2016

My company does business with several O/G companies (mainly downstream service companies) and everyone of them is forecasting a rebound and growth in 2017. They've all tightened their belts with the downturn and expect to come back stronger in late-17 and early-18. I don't think it's as bleak as some may think it is.

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[WSJ] Texas, Once a Star, Becomes a Drag on the U.S. Economy

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