SO FAR, SO GOOD
Lafayette’s third quarter EPI reveals an economy beginning to feel the impact of falling oil prices.
It's the big question on just about everybody’s mind: Where is Lafayette's economy headed? Because regardless of how closely connected to oil your business is, your way of life in these parts is still largely tied to how well the oil and gas industry performs.
The really good news is that we’re not nearly as dependent on oil as we were the last time oil prices nosedived on over-supply in the mid- 1980s, taking our economy down with it.
At LEDA, via our own Economic Performance Index, we are closely tracking the economy to keep you informed and able to plan for the future.
So far, so good — but there is certainly cause for concern. Lafayette’s September 2014 EPI is 121.6, up three points compared to September 2013. The index at the end of the third quarter showed a less than one point decrease from the end of the second quarter, when it hit an all-time high in June. Since experiencing a dip in fourth quarter 2012, the EPI has consistently moved upward until stalling slightly in the third quarter of 2014, as seen in Figure 1. Currently, the EPI is more than one point higher than the 12-month moving average; though the August index was closest we’ve been to the 12-month moving average in the past 20 months. The index’s position relative to the 12-month moving average gives an indication of how the overall economy is fairing. Nothing will be considered a trend or an indication of the economy’s direction until the index has at least three consecutive months above or below the 12-month moving average.
Lafayette’s economy has steadily grown since 2010. The index has increased 18 percent since hitting a decade low in August 2009. This economic prosperity has created many opportunities, including business recruitment announcements from Bell Helicopters, CGI, Perficient and Enquero in the past 13 months.
The incredible amount of recent projects and investment in Lafayette is a reflection of our economic strength and diversification. While the local economy has diversified its industries, we are not immune to sustained pressures to a predominant industry — like we are experiencing now with the drop in oil prices. Given the unpredictability and volatility of energy prices, it is difficult to estimate the impact this will have on the local economy or for how long we could feel the effects. The EPI will help us identify changes in the economy and quantify the impact.
When looking at all 15 indicators as a whole, the fi rst half of 2014 was off to a solid, strong start but has slowed a bit in the third quarter due to shifts in some leading indicators. When all three categories of indicators — leading, current, and lagging — move in the same direction, it means that the local economy will continue on that track.
With the leading indicators showing signs of decline in response to low crude oil prices, it is expected that the current indicators will begin to shift in the fi rst quarter 2015 and the lagging indicators in late fi rst quarter or the second quarter 2015. This could lead to a small blip on the radar, much like the drilling moratorium in 2010, or it could be more impactful depending on how depressed energy prices are over the next year.
Good news is still coming in for Lafayette, though. For the sixth time in seven years, the Lafayette MSA is ranked in the top 25 metro areas in the Milken Institute’s Best Performing Cities Index. Lafayette gained fi ve spots, coming in at 19 out of the 200 largest metros. Editors note that Lafayette has benefited from job creation in industries that support the energy sector, thereby stimulating growth in consumer spending and creating more retail jobs. Recent announcements of 1,000 technology jobs point to the region’s diversifi cation efforts and may help to attract a highly educated workforce and retain technology graduates from the university.
For a detailed overview of leading, current and lagging indicators, go to acadianabusiness.com/3QEPI. Also, be on the lookout for the fourth quarter EPI, which will be published in the April- May issue of ABiz. That should really tell us where we’re heading.
ABOUT THE EPI
The Lafayette Economic Performance Index tracks the pulse of the local economy. Like any index, it combines multiple data points into a single score that can be tracked and compared over time. This particular index monitors 15,000 data points and 15 local statistics that together illustrate a unified story about how the Lafayette economy is performing. The index is the most accurate reflection of the economy, because it is seasonally and inflation adjusted, meaning movement in it is based on actual changes, not those caused by changes in periodic variation or time. The EPI is also retroactively adjusted to allow for a more accurate comparison between present and past performance of the economy. This allows for an “apples to apples” comparison of where we are and where we have been.