10 Texas Association of Builders
July/August 2015
Feature
T
he oil and gas sector in Texas has
boomed in recent years due to high
oil prices and surging production
from
new
drilling
technologies.
However, with prices down sharply
since last summer, the sector’s outlook
has dimmed
(Chart 1)
. The economic
fallout is especially important in Texas,
the leading producer of crude oil in the
U.S. and home to the nation’s major oil
and gas companies.
Lower oil prices are a boon and a bane
for oil-producing economies. Falling
prices reduce the cost of energy, generally
viewed as a positive for economic activity.
Conversely, lower oil prices negatively
affect economic activity in oil-producing
states as drilling activity is cut back, royalty
payments are reduced and government
revenues are adversely affected. Whether
the overall effect of lower oil prices is
positive or negative depends on the
relative importance of the energy sector to
the economy.
While several metrics suggest the Texas
economy is less reliant on the oil and gas
sector than in the early 1980s, research
suggests that the decline in oil prices will
depress net job growth in the state. The
effects by themselves are not expected
to halt job creation in Texas in 2015,
but will, nonetheless, be felt in areas
heavily dependent on oil production
and employment related to the sector.
Oil and Gas Riding High
The oil and gas sector’s relative importance
to the Texas economy has varied
dramatically as oil prices and production
have evolved. By several metrics, the
sector’s heyday occurred in the late 1970s
and early 1980s, a period of extremely
high prices. The sector crashed as oil
prices subsequently plunged, contributing
to a statewide banking crisis. Years of
stagnation followed, with a seemingly
irreversible decline in production.
Over the past decade, Texas—and more
generally, the Eleventh Federal Reserve
By Michael D. Plante
Lower Oil Prices Weaken Prospects
for Job, Economic Growth in Texas
ABSTRACT:
Although the relative
importance of oil and gas to the Texas
economy has grown in recent years,
lower energy prices are unlikely to
halt net job growth statewide.
