Texas has been creating jobs. A lot of jobs. Still, Texas’s enviable economic performance is not without its detractors. There are two common critiques of the Texas economy. The first is that Texas is creating primarily low-paying jobs. The second critique is that all the new jobs are energy related. Hopefully this newsletter and this Dallas Federal Reserve paper will help dispel those doubters on Texas job growth.
• The common theme is that the majority of jobs are created in Texas are energy related. Incorrect! Education and health services contributed 42% of net new high wage jobs the last 13 years.
• Oil and gas activities jobs doubled between 2000-2013.
• Texas job growth since 2000 has been much more in proportion to the rest of the nation. Nationally, net new jobs have been concentrated at the bottom and top of the wage distribution, while the middle has shrunk.
• Average wages have traditionally been lower in Texas. However, cost of living is dramatically cheaper than the majority of the US.
• Texas created more high wage than low wage jobs over the last 13 years.
• Texas experienced stronger job growth than the rest of the nation in all wage quartiles over the last 13 years.
• In Texas the top two income level quartiles grew at 28% and 36% over the last 13 years
o These two income level quartiles were responsible for 55% of net new jobs. The rest of the nation lost traction in these income levels over the same period
Historically (last 80+ years), any negative change in energy prices had a devastating effect on the Texas economy. For example in the late 80’s many things caused the crash, but the main one was when oil went from $80 to $10 a barrel in one year. There was an oversupply, lack of demand, and changes in tax law, and the failure of a whole portion of the financial market (Savings & Loans) that also contributed to the Texas region recession in the early 90’s. That has changed over the last 20 years with the urbanization of China, India and other countries. The amount of oil and energy supply is almost even with demand presently.
Secondly, Texas has a much broader based economy today. Medicine, technology, cloud computing farms, etc. are as much a portion of the regional economy as oil. Texas is not as dependent on energy as they once were.
Remember, it’s always about supply and demand, and the fears of future disruptions and/or gains to the supply plus expectations of future increases or lack thereof in the demand, particularly in the energy field.
After OPEC enforced a rise in oil prices in the 1970s, oil prices hit a then all-time high of $110.53 a barrel in 1980 (adjusted for inflation – this remained the peak until July of 2008, when oil hit $138.73). This caused for the first time improved conservation measures in the U.S., including a mandated increase in CAFE, the average gas mileage in U.S. car production. The U.S. was still driving worldwide demand for oil in those days, and importing to meet needs, so any measures we took had a disproportionate effect on demand. Companies also tried to increase supplies by new drilling and new resources.
With lowered demand and increased supply, oil prices eventually dropped. The reverse conditions hold today. U.S. demand has steadily risen. The growth of low gas mileage SUVs – which don’t count in CAFE ratings because they are treated as trucks – along with the growth of light trucks themselves mean that the vehicle fleet requires far more gas than future expectations once thought, especially since small and efficient cars sell even more poorly than anticipated.
Refining capacity has not increased because the tougher EPA standards and the potential of low oil prices of the 1980s-90s era I am referring to meant that oil companies then did not have the huge profits of today to sink into expansion.
And the energy appetites of China, along with India, have changed the worldwide demand equation. Japan was once supposed to do this, but the implosion of the Japanese economy – which took down much of the rest of Southeast Asia with it – meant that the demand increase never materialized. This fooled the shortsighted and the extremely large and quick Chinese ramp-up caught them by surprise.
Today oil demand is running at nearly the same level as oil supply, as least for reasonable expectations of what can be pumped and refined. That means that oil futures – which are the price per barrel numbers that are featured on the evening news – are driven by fears of any possible disruption. Many of the major sources of oil – Iran, Iraq, Nigeria, and Venezuela – are iffy in near future terms. Almost anything could disrupt supply from them. Katrina put a hurt on domestic refinery and pipeline infrastructure that we are still recovering from. SUV sales are down, true, but the vehicle fleet is still biased heavily toward gas guzzlers and will require years to change in any appreciable fashion. Commuting times continue to increase nationwide, causing more gas consumption with stop and go traffic. Experts can probably name a hundred more problems with supply and demand.
As good as the job market is in Texas, it could really benefit if oil restrictions that were put in place in the 80’s were lifted. The United States can export coal, gasoline, and (sometimes) natural gas. But, for the most part, U.S. companies aren’t really allowed to export crude oil. That’s the law. The relevant laws here date back to the 1975 Energy Policy and Conservation Act, which directed the president to ban crude oil exports except in select circumstances. The export ban was put in place back in the 1970s to “protect U.S. consumers from volatility and price spikes.” The discussion of lifting this ban would have huge positive economic news for Texas.
The point of this long answer is that economically the Texas oil regions are in a much better place now. They have the benefit of being resource rich, in addition to a low tax burden (46th in the country), cheap land and development costs, and a talented workforce.