By Dr. Vance Ginn and William Wang
Though far from an economic avalanche that critics had predicted, the Texas economy has slowed since the second half of 2014 when oil prices plummeted.
However, a Federal Reserve Bank of Dallas report explains that the worst is likely over and “looking slightly better in the second quarter,” whereby the negative shock of the drop in oil prices has stabilized.
Chart 1 shows that the West Texas Intermediate (WTI) crude oil price, a major indicator of global oil prices, has rebounded almost 40 percent in June after hitting a 6-year low at $43.39 per barrel in March 2015. The U.S. Energy Information Administration’s latest Short-Term Energy Outlook report forecasts the average 2015 WTI crude oil price at $55 per barrel. This forecast is lower than the current level, but higher than in the first quarter, signaling less of a potential burden on the Texas economy.
Chart 1: Crude Oil Price Surges Almost 40 Percent Since March 2015
The oil price not only demonstrates a good trend, but Chart 2 shows that the substantial decline in the oil rig count may bottom out soon like neighboring states. This would be a good sign for the roughly 2.5 percent of the labor force that work in the oil and gas sector and the other tangential sectors as there will likely be fewer layoffs.
Chart 2: Texas Rig Count May Bottom Soon as in Neighboring States
Since petroleum products are the largest export category in Texas, the higher oil price contributed to a 4.9 percent increase in Texas exports in April. Though Chart 3 presents evidence that state exports are down 2.9 percent from a year ago, Texas has maintained a stronger performance compared to the rest of the nation since 2009.
Chart 3: Higher Oil Price and Lower Dollar Led to Recent Increase in Texas Exports
Though low oil prices, stronger dollar, and weak global economy have challenged the Texas economy, the economy has withstood these headwinds relatively well from a highly diversified economy supported by pro-growth policies championed by the Texas model.