This is no longer a blip, but a new reality.
It is by now an indisputable fact, driven home by just about everyone, including the Dallas Fed, that the Texas economy is big, diversified, and “highly resilient,” and that the collapse of the oil boom, while it may cause some “negative ripple effects,” won’t dent the overall economy.
Dallas Fed President Robert Kaplan himself had pointed that out. The energy sector accounted for only 2% of the state’s employment – albeit well-paid employment including many specialized engineers – and 10% of the state’s GDP, “a good deal lower than in the 1980s, when that oil bust pushed the Texas economy into a major recession,” he said.
So, well, yes, job growth came to a crawl as the manufacturing and energy sectors shed jobs; the unemployment rate rose from 4.4% at the beginning of 2015 to 4.6% at the end of 2015. Kaplan sees “a further rise” of the unemployment rate in 2016, with risks to his forecast being “to the downside if oil stays at or below $30 per barrel for an extended period.”
But the service sector “showed steady, moderate growth,” he said:
This recent economic performance has been bolstered by the diversified nature of the Texas economy. While Houston’s growth has been brought to a halt by the energy downturn, Austin, Dallas, and San Antonio have shown strong growth and continue to attract people and firms from around the country and the world.
And he expects “this resiliency and underlying strength to continue as the negative impacts of energy begin to dissipate in the years ahead.”
But retail sales in Texas paint a different scenario.
Since their Financial-Crisis low, retails sales in Texas have been booming, in line with the oil boom at the time. Sales tax collections, reported by the Texas Comptroller of Public Accounts, soared 46% from the first half of 2010 to the first half of 2015! But then it all came unglued.
Sales tax collections don’t capture every retail sale. Basic food products like flour, sugar, bread, or vegetables are exempt. Motor vehicle sales and rentals are reported separately. Since the data is not seasonally adjusted, it can only be compared year-over-year. Sales tax collections lag sales by one month, with collections reported for February representing sales that occurred in January. And they’re raw data, not based on estimates, surveys, or opinions, but on dollars that people actually spent, and so they give an unvarnished glimpse at reality.
The retail sales boom in Texas first tripped up in June and August last year, when sales tax collections declined year-over-year for the first time since March 2010. Then in October, collections dropped 5.4%; in November, 3.3%; in December 1.0%. In January – for December’s crucial holiday sales – collections fell 3.9%. And now the Comptroller’s office released data of sales tax collections in February: they plunged 6.8%!
It was the fifth month in a row of declines. Over those five months, total sales tax collections fell 4.1% compared to the same period a year earlier. This is no longer a blip. This is a new reality.
This chart by “David in Texas,” who gleaned the data from Texas Transparency, shows how the 5-year retail sales boom, as depicted by sales tax collections, began hissing hot air last year. I circled the months of year-over-year declines (yellow = 2014, neon-green = 2015, dark blue = 2016):
So all protestations to the contrary, consumers, once hell-bent on spending with all their might to get Texas through this, are putting their credit cards away. That they have done it for five months in a row, and that sales tax collections plunged 6.8% in February, the worst year-over-year plunge since March 2010, shows that the “negative ripple effects,” as Kaplan had called the phenomenon, are now coalescing into a toxic mix for them.
Surely, many folks in Dallas are still feeling the boom, and they’re wondering what all the fuss is about in Houston, as they’re bidding up homes to flip them and make an instant ton of money. And Austin might still be exuberant, but some of its startup juice has started to dry up, as in Silicon Valley and elsewhere, and every city has its own dynamics.
But on average, so to speak, Texas consumers are now getting hit by the “negative ripple effects” from the oil bust, the manufacturing recession, and the suddenly weakening service sector. Texas isn’t alone in this.
As layoffs of well-paid workers cascade through the Texas economy, consumers are beginning to sing the retail blues for the first time since the Financial Crisis. Given the magnitude of the Texas economy – it accounts for nearly 10% of US GDP – this is not a promising development for the rest of the nation.
And the pressures stemming from the oil bust aren’t going to get better anytime soon. Read… Dallas Fed Unplugs Oil Bulls, Warns of Liquidity Crunch, Contagion
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Californias turn coming soon. IPO’s failing to take off.
A great majority of the IPOs are completely bogus, with a focus on IPO dumping, beware!
It’s even got a name: the greater fool theory
IPOs generally exist in their current form because of OPM. I don’t think any serious investors would go for the garbage they sell these days. But, if your job is to invest and you collect fees/bonuses for a while, then why the hell not!
This realization has painted quite a conundrum for me because when I do finally getting around to having surplus cashflow I am extremely reluctant to let someone else decide how to manage it – and I think the deck is stacked against the small fry like me.
Same as it ever was I suppose.
Regards,
Cooter
Check Out –
Chevron Corp.’s $54 billion Gorgon liquefied natural gas project,
reportedly starting to ship next week ( 3/14/16).
Initially estimated cost of $37 billion came in at 54 Billion.
Sell Sell Sell price is irrelevant must sell product to get income regardless of price…………
====== additionally Argentina oil ( and others ) which has no choice but to borrow from China to increase production and sell sell sell to support the economy or face civil war……
Then See Mexico too – but it is not just low prices – IT IS THEFT
rising by gangs.
http://www.insightcrime.org/news-briefs/oil-theft-in-mexico-up-44-percent
Finally we all know Iran will not cooperate with Russia and Saudi to limit production at this time they are just starting to produce oil and legally sell oil why would they limit it….. they would not, no one would.
Just many reasons oil should stay low for long time Saudi’s too do not want eat all the Sovereign funds they Must produce and sell. Every one has to produce and sell- Sell – SELL.
Texas North Dakota and others have seen the tip of the iceberg.
The Chevron-operated Gorgon Project is a joint venture between the Australian subsidiaries of Chevron (47.3 per cent), ExxonMobil (25 per cent), Shell (25 per cent), Osaka Gas (1.25 percent), Tokyo Gas (1 per cent) and Chubu Electric Power (0.417 per cent).
cost around $54 billion to build.
expected to produce 18 per cent of Australia’s future LNG.
Chevron Corporation has announced the first shipment is expected to leave next week from Barrow Island.
INITIATED IN 2009 54 BILLION SPENT
You just don’t shut it off because prices are low.
.
.
– There’s something else going on as well. Receivers of Social Security didn’t get a COLA this year. And COLA is the abbreviation of “Cost Of Living Adjustment”. In other words: no increase of their Social Security payment.
That’s 3 years in a row if you hadn’t noticed.
The Dems used to be on our side…
So which would you rather have?
Option A: higher inflation and Social Security increases
Option B: Lower inflation and lower/no Social Security increase
Remember, while Social Security may get adjusted, it’s hardly the sole income for most people.
Assuming Texas boom was unrelated to oil, thus can’t we say the bust is correlated with some other undiscovered phenomenon?
Personally, I believe the FED is part and parcel to criminal enterprise.
Bernanke 2008: “The housing market is strong”
http://dailyreckoning.com/obama-americas-pretty-darn-great-right-now/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+dailyreckoning+%28The+Daily+Reckoning%29
“The energy sector accounted for only 2% of the state’s employment…”
That’s true for all private sector type jobs. Federal employees made $119,934 in total compensation last year, while private sector workers earned $67,246, a difference of over $52,000, or 78 percent. I’m living proof. I started serving my fellow Americans at age 18, retired at age 48 and can stay in bed and receive $58,894.00 a year plus all the perks.
The United States has never been nor will it ever be a democracy. If you are an American, surly at one point in your life you said ‘The Pledge of Allegiance’. The US is a Republic. That means the citizens hire people like me to run the country for them as well as protect it. Like it or not, private sector people are going to pay us what we think we deserve. These private sector people get a say on Election Day. Then when their savior shows up, we inform him or her what they can and cannot do. JFK and Bobby didn’t listen and that caused the phone in the basement where I worked to ring. When that phone rings it isn’t long before a phone in some morgue will ring. I just may be the only Atheist in the US who has said, “Praise God” and “God bless America” on the first of the month now for 57 years.
I certainly agree with Mr. Orszag comment below. It sure sound good to me. How about you, Mr. Wolf Richter? I mean, you did say to me, “Don’t get me started.”
The Obama administration has called for federal workers to get a 1.4 percent pay raise next year, which Budget Director Mr. Orszag said, “frankly, I think to a lot of Americans, sounds pretty good.”
Am I the only one who thinks that government employees shouldn’t be better paid than the rest of us? So you do a job. So do we. Of course, ANYTHING offense/defense (correct order) related certainly guarantees the worker completely, in this world of constant, endless war. What’s wrong with this picture? Teachers in my city make $23K.
Bob, you sound very content and happy…..in the trough.
Speaking as a fellow government contractor and an atheist, I will wholeheartedly say, God bless America. :)
I’ve always got a kick out of the statement used by public sector workers, “I served my country” when the truth is that public sector withers are overpaid, underworked, and wouldn’t last 5 mins in the real world.
Public sector workers serve themselves not their nation.
That’s a fact.
Mick, you said it clearly, but I’m a redneck, and not the smartest redneck at that, when you speak of ‘public sector workers’ are you talking about people who work for Target or those working for the NSA?
Unfortunately 35.3% of government workers (unclear if this includes Fed + state + local; unclear how military is counted) are unionized…as opposed to 6.7% of private employees.
So much for the free market determining your government salary.
I’ve been next door, in Louisiana, for the past week and this place is bustling. You can see new homes being built all over, as well as, road construction and piping. The traffic is as bad as Long Island or California at rush hour. We had to wait to get a table at a chain restaurant. That hasn’t happened to us since before the financial crisis started. I saw a want ad in the Sunday paper for workers at some retailer. I can’t remember the last time I saw that.
The newspaper headlines all complain about a 1B state budget deficit, they blame Jindel and the GOP. The oil layoffs are just starting. Overall, I was surprised by how good the economy looks here.
Department of Defense Jobs, Employment in Louisiana …
$40,000+ (93) – $55,000+ (78) – $70,000+ (56) – $80,000+ (40) – $100,000+ (19) http://www.indeed.com/q-Department-of-Defense-l-Louisiana-jobs.html
They need workers, and they need them now, I’m 75 and I can leave for the Middle East any time I want. I believe my friend who is 68 is now in Sudan.
Lotta people gettin’ rich off of the Global War on Terror. Much like the War on Drugs.
I believe you just discovered “change”. Some things just never change, they morph.
I’d rather serve the public from Louisiana as opposed to the Middle East, a friend of mine working in Saudi Arabia never drove himself anywhere, he walked instead. One day he decided to drive (for some reason, out of the blue) his vehicle blew up and he was gone.
Obtaining details was a sketchy venture, at best.
This thing that happened to your friend in Saudi Arabia, didn’t that happen to a lot of people in New York City and Oklahoma City? Then there’s that insurance matter. If a guy in Louisiana gets shot driving to work his family will only get what insurance he is carrying, my friend’s family will get a US government check for $100,000 tax free dollars. I’ll admit that we federal employees take advantage of the private sector. That it’s Robin Hood in reverse, but you get addicted to the easy money and carefree lifestyle. Let’s face it, it like Bill Gates said, “Life is not fair; get used to it.”
Understood and all good points. Thanks for the sincere non-circular conversation BTW, refreshing.
I’ve lived and breathed the environment you describe all my life, so I know it well.
My friend worked for an oil company actually, don’t want to mislead anyone… Pretty sure his demise wouldn’t have happened had he been a government employee.
Got to agree with the premise that there is air escaping from the tech bubble. My daughter just ‘graduated’ from one of those silicon valley coding boot camps, and the boot campers have been warned to stay away from the tech start-ups, and to take jobs with large established companies, instead.
Fracking companies aren’t the only companies that are running out of outside money investors (speculators). Consequently, finding solid employment in the underfunded companies, that are rooted in the boom/bust sectors of the economy, is proving itself to be much like trying to shoot one arrow into a series of rapidly moving targets.
This is on top of the fact that info tech is inherently deflationary – and will require less workers in the long run than many folks realize. A coder is like a construction worker – they just build software instead of multi-family apartments. And there comes a day when most of the construction is over – it is maintenance time – and a much lower level of replacement activity.
I am not knocking it – it is a good field for someone who is talented and works hard – but it is also a treadmill and proves difficult to stay relevant and well paid over the years.
It is one of the reasons I will take my first CPA quad this year to keep relevant, marketable skill sets by blending my two decades of software development experience with a qualified understanding of accounting.
I figure every company has books and computers, so I like the size of that labor market – and few folks in the field out there are competent in both which should improve salaries offered.
Regards,
Cooter
I do not see any evidence of the air coming out of the bubble in the bay area yet……..
Here’s some evidence for you:
http://www.sfweekly.com/sanfrancisco/news-tech-silicon-valley-tech-boom-tech-bubble-uber-pinterest-airbnb-square-twitter-jack-dorsey-ipo-mid-market-san-francisco/Content?oid=4404805
“This recent economic performance has been bolstered by the diversified nature of the Texas economy. While Houston’s growth has been brought to a halt by the energy downturn, Austin, Dallas, and San Antonio”
Wolf, at some point you’re likely to be writing about the Austin over-population disaster once it finally arrives.
What SEMATECH did to Austin is just sad. I won’t rant – but anyone who knew Austin before they set up shop knows exactly what I mean.
Another reason I left Texas.
And I think Austin will weather this much, much better than Houston. Same for Dallas-FtWorth. But there is a lot of income that flows to the smaller communities and much of it is tied to the oil industry in some form – so Wolf is humming the right tune.
Regards,
Cooter
AMD and Motorola were both biting the big one when I was still there, Sematech moved in next door to our office but I don’t recall much of an impact.
Go ahead and rant, otherwise it’s a wasted post.
The last time I was in Texas was in the 80’s after a big oil bust. I remember all the empty office buildings in the middle of nowhere in the Dallas/Ft. Worth area. In those days the secretaries were making 60K and then nothing for a long time.
Native Texan and Semiconductor professional here… SEMATECH didn’t impact Austin at all. It was opened and funded by Government mid 80s to help US Semi manufacturing collaborate and compete against the Japanese. They were not meant to be a big employer as most of the staff was “on loan” for 2 year stents by the different US manufacturing companies. Austin had way overbuilt at this same time based on the oil business. It was the overbuilding and oil collapse that brought Austin down during that decade.
Texas is the number one State in Semiconductor manufacturing in the US. Even Korea’s Samsung has a huge facility in Austin (which interestingly makes some of Apples chips).
Dallas/Ft. Worth Metroplex is gaining many company HQs out of California because of the housing affordability index. Everywhere I go are help wanted signs with $11 entry minimum wage, $14 with some experience. Not bad for a grocery stocker or burger flipping job.
Austin seems to be gaining more DoD sponsored companies such as 21CT (suspicious activity algos).
Houston is definitely in the negative ripple. Even non-profits are seeing the pledged money renigged on. Lots of law firms closing. The only bright spot is the Medical city.
Houston, Midland…yeah they are going to be hurt, but the rest of the State, not so much. Sorry to disappoint all of the Texas haters. ;-)
I’m in Austin. Flipping homes seems profitable, but people are sketchy with details and it’s hard to know how profitable it is. One local home-flipping couple I know is now teaching a $500 2-day course on flipping homes – that’s how popular it’s becoming.
You can still buy property that rents for more than your mortgage on the edge of town, which I do, and gives me a sense of security in case of a downturn.
Job-wise, people move in and people move out. It doesn’t seem like a peak year, but it’s better than some years in the past. Seattle is often a destination (Amazon) for many tech workers, while most try to avoid going to California.
The renewed run of house flipping TV shows and people offering to teach others their trade for a price seems deja vu all over again, again. As do credit card commercials telling folks to do what they want to do now and pay later; you will be glad you did. I remember seeing the same nonsense in the run up of the last burst. Greater fool theory? Oh yes. There is one born every minute.
Except I see Texas plates everywhere up and down the state and official statistics show that tens of thousands of Texans move to California each year. It’s normal for the two most populous states to trade large amounts of people. During the oil boom and recession, lower income /educated people moved to Texas while higher skilled / educated folks moved from Texas to California. Now as Texas recesses, there is an increasing number of unemployment forms being filed outside of Texas, meaning people are fleeing the state.
Go here to find out the real foundation of the Texas economy:
http://www.governmentcontractswon.com/search.asp?type=dt
Select “Texas” and behold.
See, that’s the entire problem, the money is flowing to the worst possible places and the public doesn’t realize it. (IMO)
Has anyone heard Texas threaten to secede lately? I am guessing they would miss all that USA gubmint money sent there way.
If you think Texas is bad, try Virginia and California.
In short, the US “economy” will collapse without perpetual enemies and perpetual war.
There is and has been a huge chip based manufacturing base in Texas since the 80s for the DoD. Very small, under the radar Semiconductor Fabrication plants. It is not going anywhere. It can’t based on the intrinsic nature of the semiconductor manufacturing process and keeping it nationally secure.There is one manufacturing element who actually used to test missiles here back in the day where some of our fast growing outer cities are located now. They will obviously not be sending this business overseas “because it is cheaper” due to national security. Talking about Government contracts….Sandia Labs in New Mexico ring a bell?
Other Government spending listed in that report is for construction, other types of manufacturing, infrastructure….it is done by required biding process.
The Austin scene seems to have a burgeoning software business for DoD. Good move to focus on DoD business instead of apps don’t ya think? Plus Austin is fabricating a lot of chips. Austin is (the new) Silicon Valley as the term was intended. Making silicon based chips…not apps.
I’ve got all you guys beat.
I worked in Corporate Finance for a major casino company.
Gambling is a racket that can be more lucrative than government if you get to be high enough on the food chain. Casinos sell the suckers a fantasy that hardly ever comes true – that of being a ‘winner.’
I worked in the gaming industry for only a little over 9 years before I was able to retire…
Texas is on a downward spiral (and this is just the beginning): http://www.naturalgasintel.com/articles/105873-cant-pay-for-texas-miracle-with-cheap-oil-gas