AP NEWS

State’seconomystill hotbut cooling

January 17, 2019

It’s hard to find a CEO or an economist who thinks the Texas economy will see tough times in 2019. Then again, it’s hard to find one who thinks the new year will be as good as 2018 was for the state. The outlook seems to be continued growth, but at a slower rate with uneasy concerns about the effect from trade wars or oil prices.

The numbers remain strong in virtually every category.

The unemployment rate, one of the best barometers for both people and companies, is 3.7 percent. That just happens to be the lowest such figure since the state started measuring unemployment in 1976. You just can’t argue with that — unless you’re an employer who wants to expand but can’t afford new labor, which is where more and more companies are finding themselves. Still, that’s kind of a “good problem,” like a football team with two quarterbacks. It drives up wages overall, which leads to more consumer spending, which leads to more sales for stores or factories that want to add a job or two.

The manufacturing sector has slowed, but that’s only because it set post-recession records in the summer. That was driven by surges in real estate and construction as well as our links with the national economy. A red-hot pace like that can’t last more than a quarter or two. Even with the cool-off, new orders in manufacturing rose in December, and that’s a key indicator for that sector.

The big question mark is the oil and gas sector, which has such a big direct and indirect impact on the state’s overall economy. It’s one industry that sees boom-bust cycles more than virtually any other. People who’ve been in it a long time like to compare their roller-coaster rides with other roughnecks or geologists.

A barrel of oil is now trading at just above $50. Most producers can make money at that level, but they’d be more comfortable above $60. Anything above $70 means healthy profits, and ironically, some analysts are predicting that surge. The media forecasts of 24 oil analysts in one survey predicted that the Brent crude benchmark, a key international standard, will average exactly $70 a barrel in 2019. That’s optimistic, however.

The belief (hope?) that oil prices will rise is based on a decision by OPEC nations to cut back production to improve the supply/demand ratio. U.S. oil output will not slow down, however, meaning higher profits for domestic companies. Many of them are operating in our own Permian Basin in West Texas, which is booming like never before, bringing in $4.8 billion in tax revenues to state coffers last year.

You might think that numbers like that would excite state officials, who just kicked off the new session of the Legislature. But state comptroller Glenn Hegar is warning lawmakers not to become too dependent on oil and gas tax revenues, especially for new plans to increase funding for public schools.

“Anything is more reliable than oil and gas,” Hegar said bluntly. “If you count on that revenue to be there and it’s not, you have a problem pretty quickly.”

Another cloud on the state horizon is the on-again, off-again trade battles that have erupted under President Donald Trump. If the U.S. reaches a deal with China — the country we have the biggest disagreement with on this issue — economists will breathe a sigh of relief and bump up their forecasts. If the dispute drags on through much of the year, it will harm states like Texas that export both oil and gas and agricultural products.

The same goes for the current government shutdown, though to a lesser extent. It gets a lot of media attention, but its actual long-term impact on the massive U.S. economy is minimal. Most furloughed government workers will, after all, get back pay for the checks they have been missing. That’s no party to go through, but that eventual deposit in their bank accounts will fix a lot of problems for many family budgets.

But it’s into its fourth week, the longest on record, and both sides are insisting they won’t give in. That’s not a good sign, because eventually a minor irritant like this can have a negative ripple effect. Combine it with an ongoing trade war and maybe a new international crisis or two, and suddenly the people in the corner offices start to worry.

Those are worst-case scenarios. For Texas, the future still looks pretty good overall. The short-term problems will probably get solved, as they usually do, and the state economy should rock along over the next 12 months. Again, the final numbers might not be as good as 2018’s, and there are some fears of a recession in 2020. For 2019, however, the pluses still outweigh the minuses.

Look for Thomas Taschinger’s business column every Thursday.

ttaschinger@beaumontenterprise.com

AP RADIO
Update hourly