If you missed the State of the Economy luncheon on June 18, I gave a frank update on the current state of the economy and what we can expect in the next couple of years. While LEDA always strives to be the community cheerleader, it would have been a disservice to gloss over the impact that low oil prices have had on the community when the effects are being seen and felt by residents and businesses.
Today, our community and our economy are at a pivotal point. Everyone has a story about this person or that company and how they’ve been affected by the drop in oil prices. Everyone has their own opinion about what’s happening to the economy. Those disparate stories are what make LEDA’s Economic Performance Index important as it is an objective view of the whole economy.
As reported in the June-July issue of ABiz, the index in the first quarter of 2015 was down compared to 2014. As a community, we’ve seen substantial growth for the past five years. It wasn’t until the first quarter of this year, when the Index fell below the 12-month moving average for four straight months, that we’ve started to see a shift in the economy.
Looking ahead, this momentum will continue until the economy fully adjusts and adapts to lower oil prices. Expect this year to be a rough one, with things leveling off in 2016 as the economy regulates. I suspect the economy will be on the mend by 2017 and back on track for the same kind of record growth we’ve previously seen. In the past, our community and our businesses have improved and innovated, succeeded and shined in tough times. That time has come again.
For an economic developer, the one measure that matters the most is jobs and making sure there are opportunities to create jobs in our community. Local employment of about 220,800 jobs in the Lafayette MSA has remained fairly stable for the past 12 months despite a decline of 1,200 jobs in the mining (oil and gas) industry over the past year. So far job gains in other industries have balanced out those losses. Retail has increased by 700 jobs, financial services by 200 jobs, and the health care industry has increased by another 200 jobs. This doesn’t even include the 130 technology positions that have recently been filled by CGI, Perficient and Enquero. Not all of the job losses we’ve seen so far in the mining industry are layoffs. This number can also be attributed to attrition, consolidations or resignations.
According to industry experts, we are in for a bumpy ride in the coming months. Record-low drilling and record-low permits on top of low oil prices definitely present challenges to local companies. To put a price tag on it, production companies are making $66 million dollars a day less in the Gulf of Mexico compared to last year, bringing the loss of revenue to more than $11 billion since the beginning of this year.
Overall, the rig count in the U.S. has been cut in half over the past year — to less than 900 from more than 1,800. Locally, this means rig counts in Haynesville have declined from 62 to 30, while rig counts in the Gulf of Mexico have dropped from 53 to 31.
We’ve talked to economists, industry experts and company executives; and it appears the energy industry should rebound by 2017. It took six months for prices to bottom out, and we can expect it to take longer for prices to bounce back — much like riding a bike downhill is easier than riding uphill. This means the rest of 2015 and 2016 may be a struggle.
At this point, it’s vital to note that the current downturn in oil prices should not be a repeat of the situation seen in the 1980s. Historically, there have been three main pillars to Lafayette’s economy — energy, health care and entertainment, which includes arts, culture, recreation, tourism and retail. Now, the technology sector is emerging as a fourth wealth-creating pillar.
Along with overall economic diversification, diversification within the energy industry will help to mitigate the impact. At the high point in 1981, 19.6 percent of the Lafayette MSA’s workforce was employed in mining. Today that’s 10.7 percent. In the 1980s as much as 70 percent of the local economy was tied to the energy industry. Today, that’s 45 percent.
Lafayette’s economy will continue to adjust to the price of oil. Local layoffs are expected; however, most company executives will first look to other cost-cutting options. Many in the industry still remember the generation of workers lost to other industries and other regions in the 1980s.
There is some light at the end of the tunnel. The Louisiana Workforce Commission will soon publish revised occupation projections. In the short term (two years) the Acadiana region will lose about 500 oil and gas jobs; however, the industry is expected to see 8 percent growth, or 1,800 new jobs, over the next 10 years.
Recently a vice president at Turner Industries in Baton Rouge said in order to keep pace with demand from petrochemical and liquefied natural gas growth, we will need an additional 40,000 industrial workers in the next two years between Beaumont and New Orleans. Many oilfield workers who have been displaced or will be in the coming months may quickly find comparable employment based on that demand.
At the luncheon, I shared one of my favorite quotes from Pierre Teilhard de Chardin, a French Jesuit, geologist and paleontologist. He said, “Remain true to yourself, but move ever upward toward greater consciousness and greater love! At the summit you will find yourselves united with all those who, from every direction, have made the same ascent. For everything that rises must converge.”
Not only does this apply to us as individuals, but it applies to us as a community. We all must strive for improvement — personally, in your business and in your community. For everything that rises must converge. I urge you to create opportunities for yourself, for others and for the community.