A few years ago I spent a good deal of time overseas. When you travel for an extended period, it is always interesting to begin to understand the perception that people in other parts of the world have about where you come from. When I was living and working in Spain, it was a common misconception that since I was from Texas I must own cows and oil wells. (I was also asked several times if we really did ride horses to work and wear cowboy hats.Okay, some people still do.) The point is that perception and reality can be two entirely different things. The current perception is that falling oil prices will be a net positive to the economy. However, could reality actually be quite different?
Since 2010, the Texas economy has boomed due to the surge in oil prices which has led to substantial increases in employment, net worth and corporate profits. People from all over the country have moved to Texas in droves in search of higher wage-paying employment than what could be achieved in many other states. With a substantially lower cost of living, Texas has been a mecca in the desert of economic growth found in many states since the financial crisis.
As I wrote recently in Falling Energy Costs:
“Oil and gas production makeup a hefty chunk of the “mining and manufacturing” component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve.”
This is a very important point as oil prices continue to fall towards the $40/bbl range. As oil prices rise and fall so does the number of rigs being utilized to drill for oil which ultimately also impacts employment. This is shown in the two charts below.The first is oil prices versus rig count, and the second is rig count versus employment in the oil and gas sector of the economy.
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