An expected case rather than a temporary shock
If there is one major city in the United States that doesn’t want oil to remain at or under $50 per barrel for very long, it has to be Houston, Texas. Now that oil’s serious dive is becoming more of an expected case rather than a temporary shock, it turns out that the fallout has started to build momentum in the Houston economy. This might not be a surprise to many people around the nation, but the implication for what lies ahead is that the economic spillover has not yet been fully felt locally in Houston — nor in many of the energy-dependent cities and towns around the United States.
We are already seeing evidence that business, spending and hiring levels are starting to hit a tipping point in Houston and elsewhere. 24/7 Wall St. has created a montage of the most recent business developments in oil and gas from oil and gas companies and from outside industry and government sources. At the time of this writing, West Texas Intermediate (WTI) crude oil was trading at $47.21 per barrel.
A Dallas Federal Reserve report from earlier this week noted that Texas and other energy-dominant regions were starting see an impact from the big drop in oil prices. A Kansas City Fed report noted that about half of energy firms in its region see capital spending cuts of more than 20%, with several firms anticipating sizable layoffs. Also, a January 8 report from the Houston office of the Dallas branch of the Federal Reserve indicated that the economic picture was already softening in November — and energy prices were much higher in November. That report said:
The Houston Business-Cycle Index growth rate slowed to 6 percent in November from 7.4 percent in October. The oil and gas industry posted solid job gains in November, and refining and plastics continued to perform well. Lower oil prices and declines in drilling activity will likely take considerable steam out of the region’s economic engine in coming months. While prospects for the Houston region are more uncertain, the outlook is for positive, though weaker, growth.