Permian Basin Economic Indicators - Federal Reserve Bank of Dallas

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Horizontal rigs are expected to lead any recovery ... NOTES: Data are for the Midland–Odessa metropolitan statistical
Permian Basin

Economic Indicators

DALLASFED

FEDERAL RESERVE BANK OF DALLAS • FIRST QUARTER 2016

Summary

The Permian Basin economy is slowing as the rig count continues to decline. Payrolls stagnated over the first quarter, and the unemployment rate edged up. Home sales and retail sales slowed while housing

affordability was mixed.

Labor Market Thousands of jobs

Percent, seasonally adjusted

190

9

Total employment

180

8

170

7

160

Unemployment

150

6

140

5

130

4

120

XX The unemployment rate continued to inch up over the first quarter and stood at 5.1 percent in March, compared with 4.3 percent in Texas and 5.0 percent in the U.S. Unemployment in the Permian Basin has not reached this high since 2011 and is 1.1 percentage points higher than year-ago levels.

3

110 100

XX After shedding 15,000 jobs in 2015, employment in the Permian Basin held steady near 164,000 in the first quarter.

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

2

'16

SOURCES: Bureau of Labor Statistics; Dallas Fed.

Energy Oil Production and Spot Price Barrels per day (millions)

Dollars

2.5

160

Total production

140

2.0

120

1.5

100

1.0

60

80 West Texas Intermediate

0.5 0

40 20

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

SOURCES: Energy Information Administration; World Bank.

Rig Count

Active rigs

400

Horizontal

350 300 250 200

Vertical

150 100 50 0

'11

SOURCE: Baker Hughes.

'12

'13

'14

'15

'16

0

XX West Texas Intermediate (WTI) crude oil continued to fall in January and February but rebounded in March to an average of $37.77 (see the Dallas Fed’s Energy Update for more information). Production in the Permian Basin remains resilient XX and continues to increase. In March, production rose to 2.03 million barrels per day. The decline in WTI has hit both the vertical and XX horizontal rig counts in the Permian Basin. The vertical rig count totaled 21 in March, continuing its downward trend in the first quarter. The horizontal rig count also continued to decline and in March totaled 130. Horizontal rigs are expected to lead any recovery in the rig counts due to their increased efficiency and production capability.

Retail Sales

Retail sales in Midland and Odessa have continued XX to slow as the regional labor market has continued to weaken. In third quarter 2015, the latest period for which data is available, Midland retail sales totaled approximately $854 million, down nearly 20 percent from the same quarter a year earlier. Odessa retail sales totaled $859 million, decreasing 16 percent over the same time frame.

Real dollars (millions), seasonally adjusted

1,200 Midland

1,000 800

Odessa

600 400 200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

SOURCE: Texas Comptroller of Public Accounts.

Housing Home Sales and Median Home Price Number of homes*

Thousands of dollars

310

260

Total home sales

290

240

270

220 200

250 Median price

230

180

210

160

190

140

170

2009

2010

2011

2012

2013

2014

2015

2016

120

*Six-month moving average for Midland and Odessa, seasonally adjusted. SOURCE: Texas A&M University Real Estate Center.

Home Affordability Percent

95 90 85 80 75 70 65 60 55 50 45 40 35

Odessa 2005

2006

2007

2008

2009

2010

Midland 2011

2012

National average 2013

2014

XXPermian Basin home sales remain on a downward trend. In March 2016, home sales totaled 245 based on a six-month moving average—down 1.5 percent from February sales and down more than 10 percent from year-ago sales. While home sales are falling, the median home price is holding steady. In March, the price stood at $216,579, down 0.7 percent from a year ago and up 3.4 percent from last month. As demand in existing-home sales has fallen, so has XX new-home construction. Midland and Odessa new housing permits totaled an annualized 889 in March, down 10 percent from February and down 24 percent from a year ago. Home affordability has diverged in the Permian BaXX sin. The National Association of Home Builders/Wells Fargo Housing Opportunity Index represents the share of homes sold that are considered affordable to a family earning the median income. In Odessa, the index has declined in every quarter since its peak of 87 in first quarter 2015. Meanwhile, affordability in Midland has fluctuated around 69 over the same time frame. Despite the sluggish labor market and variance between Midland and Odessa, both metros are considered more affordable than the U.S. average. In fourth quarter 2015, the index stood at 69.5 for Midland and 77.9 for Odessa. This indicates that seven to eight of every 10 homes sold in the two cities were considered affordable.

2015

SOURCE: National Association of Homebuilders/Wells Fargo.

NOTES: Data are for the Midland–Odessa metropolitan statistical area (Martin, Midland and Ector counties), except for energy data, which cover the 55 counties in West Texas and southern New Mexico that make up the Permian Basin region. Data may not match previously published numbers due to revisions. CONTACT: Questions regarding Permian Basin Economic Indicators can be addressed to Marycruz De León at [email protected].

More Dallas Fed economic updates: www.dallasfed.org/research/update/