Mella McEwen | Midland Reporter-Telegram | August 19, 2018
Midland and Odessa’s economies continue to rocket into record territory as the region rebounds from the downturn caused by falling oil prices in 2014-2015.
Karr Ingham, the Amarillo economist who prepares the Midland-Odessa Regional Economic Index for the Midland Development Corp., said, “Coming up with new descriptions for that economy is getting more difficult.”
The June index is 21 percent higher than it was in June 2017, while the Midland index is 20.8 percent higher and the Odessa index 21.3 percent higher than a year ago, according to Ingham. All components of the index posted year-over-year increases for the second quarter, “most impressively so, and remain higher midway through the year as well,” he said in a phone interview.
“This is a pretty stunning turn of events in the overall economy, which saw stunningly high growth rates and rapid recovery from sharp downturns. (But) this is unrivaled – the sheer rate of growth, the rate at which the economy has recovered and grown past its previous highs,” he said. “And the fact is, all this is occurring with a regional oil and gas index that’s nowhere near its peak level.”
He said that trend indicates a shift in the relationship between the general economy and the region’s oil and gas industry. The success area oil and gas producers are having in increasing production despite a lower rig count, fewer drilling permits and commodity prices well below the highs seen in recent years is pushing more and more revenue into the overall economy, he said.
Retail spending in Midland-Odessa continued at what Ingham called a white-hot pace, jumping 42.2 percent in the first half of the year, 42.9 percent in the second quarter and 41.5 percent in June compared to a year earlier.
“Incredibly, the January to June 2018 real spending total is nearly 50 percent higher compared to the total through June 2016, just two years ago in the depths of the general economic contraction induced by an 80 percent decline in crude oil prices,” he said.
In Midland, retail spending was up 37.6 percent in the first half of the year, up 39.6 percent in the second quarter and 36.5 percent in June over the same period of 2017.
In Odessa, spending is up 46.9 percent in the first half of the year, 46 percent in the second quarter and 46.4 percent in June over last year.
Even more impressive, Ingham said, is another component of consumer spending. Automotive spending was up 38.3 percent in the first half of the year, 32.7 percent in the second quarter and 19.6 percent in June over a year ago.
In Midland, automotive spending was up 32.1 percent in the second half, 18.7 percent in the second quarter but a scant 0.8 percent in June compared to 2017 levels.
Still, compared to the growth in real spending, Ingham said the growth in new and used motor vehicles is even more impressive, up 68 percent compared to the January-to-June 2016 total, the low point in automotive spending during the economic contraction.
The unemployment rate has joined other components in record territory, Ingham said. The combined Midland-Odessa unemployment rate of 2.7 percent is the lowest rate ever and a decline of 34.4 percent from the 4.1 percent recorded at the same time last year. Unemployment rates for June and the second quarter are also below 3 percent, with June’s 2.8 percent marking the first time a June rate has fallen below 3 percent, and the second quarter rate averaged 2.5 percent.
In Midland, the June unemployment rate averaged 2.4 percent; it averaged 2.2 percent in the second quarter and 2.3 percent for the first half of the year.
In Odessa, the June unemployment rate averaged 3.2 percent; it averaged 2.9 percent in the second quarter and 3.1 percent in the first half of the year.
Ingham said seasonally adjusted employment data indicates total employment in Midland-Odessa was 178,200 in June, the highest June total on record and a gain of 6.9 percent from 166,700 last June. But the total is down about 900 jobs from the peak of 179,100 in December 2014. He said that gap will close in the coming months and employment “will be in record territory by every measure.”
Midland employment in June totaled 102,400, up 9.5 percent from 93,500 last June, while second quarter employment averaged 101,765, up 10.2 percent from 92,365 the previous year, and 99,850 for the first half of the year, a gain of 10 percent from 90,735 for the first half of 2017.
Odessa employment averaged 75,800 in June, up 3.6 percent from last June; 76,035 in the second quarter, up 4.7 percent; and 75,685 in the first half of 2018, up 5.8 percent.
The only negative in the June index was total building permit valuations, which sank 55.9 percent compared to the previous June, which was the second-highest total on record and second only to June 2013 valuations. For the second quarter, valuations were up 1.2 percent, and for the first half of the year, they’re up 35.7 percent.
In Midland, June valuations were down 4.3 percent from the previous June. Valuations in the second quarter were up 40.6 percent, and valuations in the first half of the year soared 101.6 percent.
Odessa saw declines in its building permit valuations across the board, with June valuations down 74.4 percent, second quarter figures down 23.6 percent, and first half totals down 14.5 percent.
New housing construction shattered the previous records for the month of June, the second quarter and the first half of the year. Midland and Odessa issued 970 building permits in the first half of the year. That is 33.4 percent higher than was issued in the first half of 2017, which was a record high and more than 42 percent higher than the first half of 2016. The six-month total is higher than the annual total for each year up to and including 2011, Ingham said.
Midland has issued 556 new housing permits so far in 2018, up 22.5 percent from 454 in the first half of 2017. Odessa has issued 414 new housing permits, a jump of 51.6 percent from 273 a year ago.
Existing home sales in Midland-Odessa through the first six months of the year surpassed 2,000 for the first time ever, outpacing the January-to-June 2017 sales total by 8.9 percent. There were 420 homes sold in June, up 1.2 percent from 415 last June. There were 1,214 homes sold in the second quarter, up 11.7 percent from 1,087 in the second quarter of 2017 and a record quarterly total.
In Midland, existing home sales took a breather from year-ago levels. The June total of 272 was down 2.9 percent from 280 last June, while the second quarter total of 765 was up 2.1 percent from 749 last year. In the first half of the year, 1,353 homes were sold, down 1.7 percent from 1,377 last year.
Odessa saw a much healthier housing market, with the 148 homes sold in June, up 9.6 percent from 135 the previous June. The 449 sold in the second quarter is a gain of 32.8 percent, and the 802 sold in the first half of the year is an increase of 33.2 percent.
Ingham predicts Midland-Odessa will see a decline in growth rates as the region’s oil and gas industry is impacted by the pipeline constraints that have resulted in lower prices for locally produced crude and difficulty moving Permian crude and natural gas to market.
“You won’t have 20-plus percent year-over-year growth in the Midland-Odessa Regional Economic Index indefinitely. Spending growth won’t be above 40 percent indefinitely,” he said.
Even with lower growth rates, the economy will continue to grow, Ingham said.
“Even in the most difficult times, this is the most interesting region economically in the country,” he said.