The Texas economy will weather storm

Published 9:40 pm Sunday, January 11, 2015

A J.P Morgan economist warns that Texas may be heading toward a recession fueled by low oil prices. But a clearer picture — and a more positive outlook — comes from the Federal Reserve Bank of Dallas, which points out that the state has diversified since the oil bust of the 1980s.

Still, there’s something Washington can do that will help.

J.P. Morgan’s Michael Feroli told investors in a letter last week that “As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession.”

He specifically points to the 1986 drop in oil prices. Texas was hit hard, but the pain was very localized.

“The national economy performed quite well in 1986, in spite of the Texas recession,” Feroli wrote. “We expect the U.S. economy will perform well next year too, though some regions — most notably Texas — could significantly underperform the national average.”

But it’s not 1986. The Dallas Fed expects the economy to grow — not contract — in 2015 by about 2.5 percent, even with the oil price drop. Sure, that’s down from last year, which saw growth of 4.5 percent. But it’s not a recession.

Many of us in Tyler and East Texas remember the last time oil prices dropped precipitously. Following the energy crisis of the 1970s, petroleum production reached a peak — at the same time, demand was down. Crude prices went from $35 per barrel in 1980 to a low of less than $10 per barrel in 1986.

Adjusted for inflation, those prices essentially dropped from $78 to $26 per barrel.

The prices we’re seeing today aren’t quite that low. At the same time, our economy is much more diverse now than it was in 1986.

Economist Dr. Ray Perryman pointed out these positives last week at the 31st annual Economic Outlook Conference in Tyler.

“We’re now seeing some increases in housing activity; we are seeing some increases in commercial activity,” he said. “You are seeing new stores and restaurants popping up, and that’s all indicative of positive things going on. In general, this region is doing well. This area has a lot of good resources going for it. Our regional forecast is very positive this year.”

Still, there something lawmakers in Washington can do to help ensure that forecast: Lift the ban on foreign export of crude oil.

As Alex Mills of the Texas Alliance of Energy Producers notes, “Oil production has grown more in the United States over the past five years than anywhere else in the world. With these changes has come a widening gap among the types of oil that U.S. fields produce, the types that U.S. refiners need, the products that U.S. consumers want, and the infrastructure in place to transport the oil. Allowing companies to export U.S. crude oil as the market dictates would help solve this mismatch.”

It’s simple supply and demand, really. We have the excess supply (hence the low prices). The rest of the world has the demand.