COVID-19 is beginning to turn up in the numbers as of March 2020 with a sharp decline in the Texas Alliance of Energy Producers’Texas Permian Basin Petroleum Index, which fell by 13.2 points from February to March, the largest month-to-month decline in the history of the index. The slump was fueled by a $20 drop in the monthly average crude oil price in March compared to February, and a steep drop in the regional oil and gas index. The pace of oil and gas job loss also began to hasten in March.
The Odessa Economic Index continued its pattern of decline as well, falling to 261.4 in March down from 263.9 in February, and down 2.9% from the March 2019 OEI of 269.2. That marks the eighth monthly decrease in the index of the last nine months since peaking in June 2019 at 272.6. The Odessa Economic Index declined at a 12.1% annualized rate over the course of the first quarter 2020, suggesting the pace of contraction has hastened in the first three months of the year.
The spending indicators continue to post double-digit percentage declines through March and for the first quarter, both in terms of general spending and automobile spending.Airport passenger activity is the first obvious casualty of COVID-19 with passenger enplanements at Midland International Airport down by 43% in March compared to March of a year ago. Hotel/motel occupancy was likely affected in the second half of the month of March, but first quarter activity held up reasonably well – the second quarter will be a different story, clearly.
The construction numbers are higher compared to year-ago levels both for total building permit activity and new single-family housing construction, for which over 100 permits was issued in a month for only the second time on record (124 permits were issued in June 2019). Home sales were down in the first quarter though the average price of those sales remains generally well-supported.
Employment has been in the midst of a modest decline since early 2019 and that trend continues through the end of the first quarter. The unemployment rate began to rise in the second half of 2019 and worsened noticeably during the first quarter of the year, and the virus may well have had some effect on the March monthly unemployment rate.
The posted price for West Texas Intermediate crude oil averaged just over $27/bbl in March compared to over $47/bbl in February and over $54/bbl in January. The daily price per barrel declined by fully $10/bbl from Friday March 6 to Monday March 9 on the failure of OPEC and other participating countries (Russia, most notably) to come to an agreement to reduce crude oil production in the face of COVID-related demand contraction. And in fact, that disagreement touched off a so-called “price war” between Saudi Arabia and Russia in which not only was production not curtailed, both countries actually increased production before coming to their senses, wreaking yet greater havoc in crude oil markets.
The monthly average Texas Permian rig count declined only modestly in March, dropping about four rigs from the February average; however, the weekly count declined by some 26 rigs from week one to week four. The number of drilling permits issued in March (for RRC districts 7C, 8, and 8A) dropped to the lowest monthly level since November 2016 and will get worse before it gets better. The volume of crude oil produced in the region likely continued to increase slightly to a new record in advance of a production decline in the month of April.
Direct upstream oil and gas employment in the combined Midland-Odessa metro area had been in a state of slow decline since December 2018, losing about 1,660 jobs over the year 2019. Another 1,400 jobs were lost in the first three months of 2020, however, and again, that will get much worse before it gets better.
The slowing regional energy economy was already exacting a toll on the Odessa general economy even before any observable effects of COVID-19. Real (inflation-adjusted) general spending per sales tax receipts in Odessa began to exhibit double-digit percentage declines in January and that has been the case since then. This particular indicator is different from most others in that the current monthly number reflects activity from two months ago. The March sales tax total, for example, reflects taxable purchasing that largely took place in January. Therefore, the declines in spending reflected in the first quarter Odessa Economic Index are generally unconnected to the coronavirus. Even at that general real spending per first quarter sales tax receipts in Odessa was down by over 16% compared to the first quarter of a year ago.
Real auto spending may have been somewhat virus-affected in the latter part of the month of March, though it is difficult to know. Inflation-adjusted spending on new and used motor vehicles in March was down by over 15% in March compared to March 2019, and the first quarter auto spending total is off by over 10% year-over-year.
Payroll employment – the number of jobs estimated to exist in the Odessa metro area economy – peaked in February 2019 according to the seasonally adjusted data and has slowly shed about 1,700 jobs since then through March. The April estimates will begin to strongly reflect the economic lockdown, but through March the non-seasonally adjusted employment estimate is down by 2.0% compared to the March 2019 estimate. The unemployment rate has been climbing steadily since mid-2019 and has continued to increase through the first quarter 2020. The March unemployment rate of 4.7% is nearly double the March 2019 unemployment rate of 2.4% and the first quarter average is 50% higher compared to the first quarter 2019 average unemployment rate. Because of the sharp increase from February to March, it seems likely some employment loss related to COVID-19 began to occur in the month of March, pushing the unemployment rate upward more than would otherwise have been the case.
Construction activity was down by nearly 30% in the first quarter compared to the first quarter 2019 in terms of the total inflation-adjusted value of all building permits issued, even though the March monthly total was up by 85% compared to March of a year ago.The number of new single-family residence permits issued, however, set new records for both the month and quarter. The March monthly total of 115 permits is the highest ever for the month of March and is the second highest for any month, again behind only the 124 permits issued in June 2019. The 243 new single-family residence permits issued in the first quarter 2020 in fact represents the highest quarterly total on record for any quarter, surpassing the previous record of 221 permits in the second quarter 2019.
Existing home sales embarked on a modest decline in the final four months of 2019, and continued to slide in the first quarter 2020, again related to pre-COVID economic circumstances. The number of closed sales declined by about 9% in the first three months of the year compared to year-ago levels; the March monthly sales total was down only slightly year-over-year, but the March 2019 total was in turn down by 19% compared to the prior year. The March monthly average home sale price was down by 4.7% compared to March 2019, which in turn was up by a whopping 25% compared to March of the previous year. Additionally, the average through the first three months of the year is up by a solid 4.7% compared to the first quarter 2019, which in turn was up by over 13% year-over-year. The inflation-adjusted total dollar volume of existing home sales in the first quarter was down by 7.5% compared to the record total posted in the first quarter 2019.
The declines observed through the first quarter in the overall Odessa economy were already underway before COVID-19 came along, and while there may be some minimal effects to the index in the month of March, the April numbers will begin to reflect deeper declines in employment and other areas of the local economy.