Texas economy rises, falls with oil

State leads nation in 2Q activity but may cool with shale boom

How important is the energy industry to the Texas economy? The answer is still, “Very.”

Two reports, one looking back to the spring, the other gauging the latest conditions, illustrate that starkly.

The Commerce Department reported this week that Texas led the nation in economic activity in the second quarter, expanding at a 4.7 percent annual rate, more than double the national pace of 2 percent. The state’s growth was driven by the mining sector — which in Texas is dominated by the oil and gas industry, particularly record levels of oil production and energy exports.

Oil prices held above $60 a barrel for most of this period, topping $66 a barrel near the end of April. Oil ended the quarter at about $59 a barrel.

Oil production in Texas, mean

while, nearly hit 5 million barrels per day at the end of the quarter in June, up more than 15 percent from 4.3 million barrels per day in the same month of 2018, according to the Energy Department. Energy exports in the second quarter reached $83.5 billion, up nearly 3 percent from a year earlier, according to Commerce Department data.

Another indicator of oil’s

economic impact: The top four fastest growing states in the quarter — Texas, Wyoming, Alaska and New Mexico — are major oil and gas producing states.

Not so fast

But the industry’s struggles in recent months is a leading factor in the slowdown in the state’s economic growth, according to analysis by the Federal Reserve Bank of Dallas.

With oil prices stuck between $50 and $60 a barrel and investors pulling back

from the sector, oil and gas companies focused on shale are having a difficult time finding the capital they need to expand operations. Some analysts have declared an end to the socalled shale revolution.

The number of operating drilling rigs in Texas has plunged by more than 100, or more than 20 percent, over the past year, according to the Houston oil field services company Baker Hughes. Energy companies have cut more than 5,000 jobs since May, according to

the Texas Workforce Commission.

Oil settled in New York Friday at $57.24 a barrel, down 9 cents.

Employment in Texas grew 0.7 percent in September, 1.1 percentage points lower than in August and below the national rate of 1.4 percent. Taken with declining energy activity and slowing export growth, Dallas Fed research economist Yichen Su wrote that the regional economy appears to be growing at a slower pace in recent months.

Still, the state’s economy remains solid, with employers across the state reporting that they are struggling to find workers with unemployment sitting at an alltime low at 3.4 percent. But as economic activity in the energy sector has slowed, the labor market is showing some initial signs of cooling with initial claims for unemployment benefits ticking up slightly in early October.

Export growth is slowing as well, in part because of the the U.S.-China trade war, but still remains positive. Texas exports to China declined more than 50 percent in the second half of 2018, but have since partially recovered.

The three-month average of Texas exports through September rose 5.2 percent over the same period last year, but that was a marked deceleration from the 22.1 percent growth rate during the 2017 to 2018 period.