12
Texas Association of Builders
July/August 2015
Feature
Interpreting the Number
The 140,000 job-loss forecast estimates
the number of jobs that currently exist
but would disappear because of lower oil
prices. It includes cuts in both oil- and
gas-related and non-oil sectors. The latter
losses can occur, for example, because
employees who lose their jobs in the
oil and gas sector may reduce spending
on other goods and services such as
restaurants, which can lead to reductions
in local service sector employment.
The number should not be viewed as a
forecast of a jobs contraction in Texas
in 2015. Rather, putting the number
into context requires considering the
contributions to employment growth
from non-oil sectors. In recent years, the
state has produced a significant number
of jobs across all sectors. For example, the
state added 373,000 jobs in 2012; 300,000
in 2013; and more than 380,000 in 2014.
While the disappearance of 140,000 jobs is
significant, it pales relative to the number
created in recent years. As a result, if one
takes the model literally, the prediction
suggests that falling oil prices alone will
lower the rate of net job growth but will not
bedetrimental enough tobring employment
expansion to a halt. This is in line with a
recent forecast produced by Dallas Fed
economist Keith Phillips, who anticipates
that Texas employment will grow 1 to 2
percent, compared with 3.4 percent growth
in 2014. This forecast is based on a model
totally unrelated to the one in the Council
on Foreign Relations report, though it tells
roughly the same story.
Varying Impacts in Texas
Negative effects of the price decline will
probably not be evenly spread across
Texas, for at least three reasons. First,
oil production is not evenly distributed
across the state. Second, some areas are
more profitable to drill in than others.
Third, the importance of oil- and gas-
related employment also varies across
metropolitan areas of the state.
changes affect employment in each
state. The model takes into account a
state’s overall exposure to the oil and
gas sector as of 2012. It also makes other
assumptions, such as how responsive
employment in various sectors is to
changing oil prices.
3
The model predicts that an oil price
decline would negatively affect total
employment in eight states and positively
influence jobs in 42. The percentage
impact on total employment from a
50 percent oil price drop varies across
the states
(Chart 5)
. For Texas, the
model predicts that the number of jobs
eliminated by such a decline would equal
1.2 percent of total nonfarm employment,
which averaged about 11.7 million in
fourth quarter 2014.That translates to
about 140,000 jobs at risk.
