The Odessa Economic Index declined again in February falling to 263.9 for the month down from 266.6 in January, and down 1.8% from the February 2019 OEI of 268.8. The margin of month-to-month decline is beginning to widen as well at 2.7 points from January to February on the heels of a 2.9-point decline from December to January. And again, the numbers through February have yet to be affected by the coronavirus/COVID-19 phenomenon.
The downturn in the Odessa general economy through February began in the second half of 2019 after the peak in the Odessa Economic Index of 272.6 achieved in June 2019. That was in response to a slowdown in regional oil and gas activity which began in the fourth quarter 2018, with the Texas Permian Basin Petroleum Index reaching its cyclical peak in October 2018. Through February, the contraction in the regional oil and gas economy is 16 months in the making even before the coronavirus-related effects on prices and activity.
The Texas Alliance of Energy Producers’Texas Permian Basin Petroleum Indexdeclined for the 12thstraight month in February (and the 14thof the last 16 months) falling to 299.9 down from 305.8 in January, and down 14.6% from the February 2019 TPBPI of 351.1. Following three months of year-over-year increase the monthly average crude oil price (posted WTI) fell below its year-ago level again in February at 47.23 compared to $51.54 in February 2019. Permian gas pricing remains well below $1.00/mmBTU. The regional rig count, now below 300 (for RRC districts 7C, 8, and 8A) is down by 20% compared to year-ago levels.
While the rate of increase is slowing, crude oil production in the Permian, in Texas, and in the US continued to increase through February, and Permian natural gas production remains on the rise as well. The COVID-related downturn in production probably occurred from March to April, though production growth was already slowing as a result of declining activity levels in 2019.
The Odessa unemployment rate for February is still generally low at 3.3%, though it has increased compared to the extremely low unemployment rates observed in early 2019. Odessa total payroll employment actually peaked in the first quarter 2019, and the seasonally adjusted employment monthly estimate hit its high point in February 2019. Job loss since then has been relatively mild with about 1,300 jobs lost over the last 12 months according to current estimates, but those numbers will begin to look increasingly worse in March and beyond.
Inflation-adjusted spending per the Odessa February sales tax rebate (which largely reflects taxable purchases made in December) was off by over 19% compared to year-ago levels, and the total for the first two months of the year is down by over 18% compared to the total through February 2019, which in turn was up by over 16% compared to the first two months of the previous year. Spending was still on the rise in early 2019 before achieving its all-time record and peaking in the second quarter.
Auto spending declined all throughout 2019 and is down in early 2020 as well with inflation-adjusted spending on new and used motor vehicles down by over 12% in February compared to February of a year ago. Through the first two months of the year auto sales activity is down by over 8% year-over-year, with deeper declines ahead.
Construction activity is also down in early 2020 compared to record totals from a year ago. The February 2019 real (inflation-adjusted) building permit valuation total was the highest on record for the month of February, as was the total for the first two months of the year. The February 2020 permit total is down by over 67% compared to last year’s record, and the total for the first two months is down by over 53%. The February 2020 monthly total is the lowest since February 2013, and the January-February 2020 is the lowest since 2012.
New housing construction is holding up reasonably well, at least through February. The 128 new single-family residence building permits issued is the second highest on record for the first two months of the year behind only the 159 permits issued through February 2018.
Existing home sales posted a year-over-year decline for the sixth straight month with the number of closed sales in February down by 20% compared to February 2019. Through the first two months of the year the number of sales is down by nearly 14% compared to the January-February record 221 sales in 2019. The average price of those sales continued to climb sharply, however, up by 12.3% in February compared to February 2019, on the heels of a 10.5% year-over-year increase in January. Through the first two months of the year the Odessa average home sale price is up by 11.5% compared to the average through February 2019, which in turn was up by nearly 7% compared to the prior year.
The total real (inflation-adjusted) dollar volume of residential real estate activity in the Odessa market was down by over 12% in February, and by over 6% for the first two months of the year compared to year-ago levels. The market by this measure peaked about six months ago and has been declining since then.
February was the last month of economic activity that was generally unaffected by COVID-19. The wheels began to come off the crude oil market in March, followed by the economic shutdown in Odessa and beyond. A contraction in the Odessa general economy had already been in place since midyear 2019, and in the regional oil and gas economy for well over a year. Both are now contracting at a much faster pace, and the March data will begin to reflect the economic effects of the coronavirus.