The oil surge ended in 2015, and the Texas economy felt the effects. Through November, 133,100 jobs were added to reach a total of 11.9 million nonfarm employees in the state.
While the economy is creating jobs, this is well below the pace of hiring from last year, when by this time the economy had already added 361,200 jobs. Most of the difference is due to the drastic changes that have occurred in the oil industry following the drop the oil prices. Where the mining and logging sector added 27,500 jobs over the entire year in 2014, the sector has already lost 33,500 jobs in Texas thus far in 2015.
Although the price of oil is far below sustainable levels, the oversupply in the market continues to pressure the price down. As mentioned in previous columns, the oversupply is largely due to increased U.S. shale production as well as increased production from OPEC nations as part of a strategy to price out other oil producers. As OPEC and major U.S. companies have yet to cut their production, it is likely that the price of oil could continue to fall, though many analysts (including this one) agree that the price is projected to rebound sometime in 2016.
It is estimated that American oil and gas companies have cut over 86,000 jobs since June 2014, and with the price of oil falling again to less than $40 per barrel and low capital budgets being reported, we may well see further job losses in the industry. However, although rig counts are reaching pre-oil boom levels, the industry has still not seen the level of job loss from the oil bust in the 1980s when Texas alone lost 240,000 jobs. Unlike in the previous oil bust, the Texas economy has so far remained fairly resilient, as job growth in other sectors has offset the losses in the oil industry.
The great majority of the job growth in Texas so far this year has come from the service-providing industries, which comprise 85 percent of total nonfarm employment in the state. Specifically, the education and health services sector has added 57,600 jobs this year, 48,600 of which were in the health care and social assistance subsector alone. In addition, the leisure and hospitality sector has added another 54,600 jobs, 92 percent of which were in the accommodation and food services subsector. Large gains have also been seen in the trade, transportation, and utilities sector with 33,200 additional jobs (mainly driven by the addition of 25,200 jobs in retail trade) and the professional and business services sector with 28,200 additional jobs. Public sector jobs have also increased by 20,800 thus far this year.
Along with the logging and mining sector, the manufacturing sector has also taken a hit this year with a loss of 35,800 jobs as of November. Employment in the information and construction sectors has remained relatively unchanged, though the number of building permits for single-family homes and multi-family buildings issued over the past year has increased from previous annual totals.
In the 84th Texas Legislative session this past year, lawmakers approved $4 billion in tax cuts in the face of a multi-billion-dollar budget surplus. Specifically, the Legislature passed a 25 percent cut to the business franchise or margins tax and an increase to $25,000 in the homestead exemption on school property taxes, which is estimated to save the average Texas family over $120 per year. The state budget leaves billions of dollars of estimated revenue unspent, in part due to political philosophy and in part due to the uncertainty in the economy with lower oil prices.
The past year has been a rocky road for the Texas economy. Even so, the state business complex has proven to be resilient. Despite the losses in the goods-producing sectors, the Texas economy is now much more diversified than in the past, as shown in the growth in services and other sectors. I expect 2016 to be somewhat calmer in terms of the state economy, with growth across most sectors and some late strength in oil and gas, and I wish you all the best in the year to come.