Oil crunch could cost Texas 128,000 jobs, Fed model shows

HOUSTON – Plunging oil prices may grease the wheels of the U.S. economy, but a prolonged shakeout could hurt in the oil-soaked state of Texas.

If U.S. benchmark crude remains cheap at around $55 a barrel, the state could lose 128,000 jobs by the middle of 2015, according to a Federal Reserve Bank of Dallas model of how oil prices impact U.S. jobs. 

That’s a big number, but it wouldn’t be enough to slow the state’s job growth to zero: Texas is on track to add 390,000 jobs this year, and it added 295,000 jobs last year, said Michael Plante, a senior research economist at the Dallas Fed. The losses would amount to around 1.1 percent of the state’s non-farm employment of more than 11.6 million jobs.

Houston, Plante said, “is always the prime suspect” for job losses when oil prices fall, but planned spending cuts on drilling activity in West and South Texas means jobs will be lost in Texas’ oil-dependent rural areas, as well.

“I would think of falling oil prices more as a headwind to the economy,” Plante said. “There is uncertainty around any prediction made, so things would be better or worse depending on how things work out.”

But different states will benefit from falling oil prices in different ways. Across the United States, employers will likely expand their payrolls by 1 million jobs across non-energy producing states. Crude prices have crumpled to about half their levels in June. That’s cutting into gasoline prices and dramatically improving consumers’ purchasing power, said Doug Handler, U.S. chief economist with research firm IHS Global Insight.

Overall, lower oil prices will probably mean 0.5 to 0.6 percentage points in additional growth in U.S. gross domestic product next year, Handler said. But lower investment in the oil industry will slow and probably reverse a sector of the economy that has been a source of growth in recent years, as shale plays have yielded new bounties of oil and gas, he said. The oil-driven growth had added about 0.1 percentage point in U.S. GDP each year for the past four years.

Investments in the oil industry “have about doubled its position in the U.S. economy, and we’ve come to rely on that for growth,” Handler said. “This is a very serious mitigating factor.”

In inflation-adjusted dollars, the sector’s investment in the U.S. has grown from $75 billion in 2009 to $134 billion in 2014, and is forecast to decline to $122 billion in 2016, according to IHS.

Only eight states, including Texas, see overall job losses when crude prices fall at least 25 percent for sustained periods, according to a study prepared by Dallas Fed economists for the Council on Foreign Relations.

Pound-for-pound, the Dallas Fed said, falling oil prices aren’t as painful in Texas and Louisiana as they are in Wyoming, Oklahoma, North Dakota and Alaska, because those two states have 40 percent of the nation’s refining capacity, which makes more money when oil prices are low.

“This may take some wind out of the sails but it won’t sink the boat,” said Karl Kuykendall, U.S. regional economist for IHS Global Insight.