Energy

The Bleak Texas Energy Jobs Picture in 2016, and the Coming Spillover Elsewhere

Jon C. Ogg

Published: January 22, 2016 12:35 pm

Last Updated: January 13, 2020 2:42 pm

The jobs market is all peachy in Texas. At least that is what the monthly reports from the Texas Workforce Commission (TWC) would indicate. What must be kept in mind is that energy jobs in oil and gas are heading the other way. In fact, the mining and logging sector, where oil jobs are housed, lost 10.5% of its payrolls between December of 2014 and December of 2015. Many market pundits have said this painful drop in oil is a net gain and a pay hike for consumers. 24/7 Wall St. would point out that pundits who mistakenly fall for that just do not get the whole economic picture with a spillover effect.

A fresh TWC report showed that Texas employers expanded their payrolls in December 2015 by some 24,900 seasonally adjusted nonfarm jobs from November. This was the 10th month of job increases for Texas in 2015, with some 166,900 jobs added over the year, and with 11,916,400 at the end of 2015 in the nonfarm payrolls. TWC’s report indicated that the job additions were across a diverse range of industries. Here is the problem: the words oil and energy did not appear once in the TWC report — and the losses here in the mining and logging classification are already atrocious.

Texas’ seasonally adjusted unemployment rate actually increased to 4.7% in December, up from 4.6% in November. This remains under the 5.0% national average, but some of us cannot help but wonder just how widespread the fallout is going to bleed over into other sectors as less and less oil money is being sloshed around by companies and their workers in the economy.

Before focusing on energy jobs, it is important to remember that one job in this sector does not necessarily have the same footprint as a job elsewhere. It just so happens that oilfield workers and employees of energy companies tend to make a whole lot more than hotel and restaurant workers, retail workers, most government workers, teachers and many of the health care jobs. Maybe three times as much!

Here is a breakdown of the sectors that grew in December:

• Professional and business services added 12,500 positions.
• Education and health services added 7,400 jobs.
• Financial activities added 3,700 jobs.
• Government added 3,700 jobs.

So, if you look back at the one-month reading, logging and mining lost only 100 jobs in December. But go back over the whole year and it was a loss of 33,600 to 286,000, or a loss of 10.5% from the 319,600 a year earlier. Then there is manufacturing, which lost 4,800 jobs in December’s monthly reading and lost a whopping 41,900 jobs from a year earlier. Many of those manufacturing jobs are actually energy jobs in disguise, as many of the pipes, valves and other things manufactured in Texas actually serve the energy sector.

Where things get more complicated is not just what took place in 2015. It is what lies ahead in 2016 and beyond if oil prices remain too low. The mining and logging sector (again, including oil and gas jobs) and manufacturing are likely to get a lot worse. It was not until December and January that many of the oil and gas companies started confirming their new rounds of layoffs, after the layoffs announced in 2015. What the TWC report does not take into consideration is that many energy companies have been or are starting to make mandatory salary cuts and benefit cuts rather than just issuing pink slips, nor does it consider unpaid mandatory time off. These all act as stealth layoffs in the economy because of what that does to purchasing power.

Sadly, the biggest leaked secret is that 2016 is the year that the real layoffs will take place. Not all energy jobs will be lost inside of Texas of course, but many in the energy sector in Texas are already braced for more layoffs being announced with lower capital spending plans in first weeks and months of 2016.
It was already bad when oil went under $50 in August. After rising for a bounce, oil went under $40 in December, and it slipped under $30 in January. That takes the energy sector from working and trying to trudge through here and there to a standstill.

The Greater Houston Partnership (GHP) issued a very cautious local economic snapshot in January of 2016. The forecast is that things will get much worse in the year ahead. The GHP noted that the Texas Railroad Commission issued 727 drilling permits in December, the lowest reading for the month in records dating back to 2003. A typical monthly permit count is 1,400 or so. The GHP showed just how cautious and uneven the impact will be:

The long-expected shakeout in the energy industry may finally happen this year. … The impact outside energy has been uneven so far. Office leasing is down, but retail construction is up. City of Houston sales tax collections have slipped, but vehicle sales set a new record. Home closings have fallen. Airport and port traffic continues to grow. And employers continue to add jobs, just enough to offset losses in energy. What follows is a summary of how these sectors are responding to the downturn in oil prices.

Also noted in Houston, office space leasing posted its first loss in 2015 since 2010. The vacancy rates rose in Houston, while the average rents dipped. Here is how the energy sector’s weighting is for Houston alone:

The U.S. Bureau of Economic Analysis reports Houston’s gross domestic product totaled $525.4 billion in ’14, of which mining (i.e., oil and gas exploration and oil field services) accounted for $101.1 billion, or 19.2 percent. This doesn’t include the sizable contributions from other sectors that most Houstonians consider part of the energy industry.

It was once noted that energy sector jobs are worth about three times non-energy jobs when you consider the overall economic footprint. The GHP showed that the average compensation in the energy industry exceeded $170,000 in 2014, while the “all occupations” average in Houston was $62,700.
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It is important to start factoring in how thousands of more layoffs in the energy sector are not yet on the books. Then you have to factor in pay cuts and unpaid time off as stealth layoffs. Then there are the lower benefits and heavily curtailed corporate spending that have started taking place, and will get even worse before it gets better. It is now effectively inevitable that all these factors (and others not stated) in the energy patch in Texas are going to spill over into other sectors. In many cases it already has, with local reports of boom to bust already becoming more prominent:

• United Continental Holdings Inc. (NYSE: UAL) said this week that lower oil prices have cut revenue and demand from corporate energy flyers, and the company is starting to see declining revenues from the broader non-energy Houston market. If it helps as a counter, Southwest Airlines Co. (NYSE: LUV) downplayed this.
• Schlumberger Ltd. (NYSE: SLB) confirmed another 10,000 in global job cuts from its fourth-quarter report.
• Royal Dutch Shell PLC (NYSE: RDS-A) confirmed another 10,000 in global job cuts.
• USA Today showed how fresh boomtowns are getting crushed in 2016.
• The San Angelo Times showed an even bleaker outlook for energy jobs in 2016.

One final warning here: Beware market pundits who say that ever lower oil is a good thing. It all sounds great in theory, but the reality is that they missed their shots by a mile or more. When high-paying industries that are so important nationally and internationally suddenly are faced with declines that are too rapid to react to, there is a spillover effect. If that happens to be the energy sector, that spillover effect is going to be far worse.

Written by a guy in Houston, wondering how all of that new and current construction will ever be occupied, and who never forgot how bad things were in the local economy in the 1980s.