Economist Ray Perryman gave a presentation at the Odessa Country Club Tuesday giving a five-year forecast on the Permian Basin economy, and said he was feeling very optimistic about the growth right now being driven by a booming oil and gas industry.
“The cost of producing petroleum out of a fracked well has gone down so much that it’s really changing the whole nature of the market and making it possible for people to make money at lower prices than they could before,” Perryman said.
There are some issues that could have significant impacts on the local economy, Perryman said, such as ongoing trade wars causing tariffs on commodities like steel and lumber, as well as the workforce shortage due to such a low unemployment rate.
“The number of job openings is the highest it’s ever been,” Perryman said. “Right now, you can’t just go out and find workers.”
Couple that with the possibility of more restrictive immigration policies, a population Perryman said Texas relies heavily on, and there could be some significant problems down the road. Some of that could be solved by investing in new technologies and using less labor, he said, but that is a long-term process.
Another long-term process is the growth of Odessa as it learns to deal with issues such as housing shortage and infrastructure problems. This is an issue many communities in the Permian Basin are dealing with right now, Perryman said, due to the ongoing oil boom. And Perryman said the booms and busts won’t be as dramatic in the past.
“It’s not going to be like it was where they pack up and leave,” Perryman said. “The Permian Basin is the epicenter of this thing and it’s truly historic.”
Any time an area sees this type of growth, and it becomes a more permanent situation, Perryman said communities will have to adjust to that type of environment, making efforts to fix issues such as housing and workforce shortages and crumbling infrastructure. But Perryman said many communities like Odessa and Midland are making efforts to address those issues long-term. And these problems are much better than the problems associated with a bust.
“The problems of decline are much greater than the problems with growth, because the problems with growth are solvable,” Perryman said. “The good thing is the community seems to be looking at it strategically and recognizing it’s not a quick fix. It takes people engaged and committed to make these things happen, and we’re seeing that.”
Some of the efforts being made in Odessa right now include an ongoing housing study by the Odessa Development Corporation to look for solutions to a housing shortage, and the recently ratified Tax Ratification Election, boosting the amount of tax revenue ECISD receives.
“There are a lot of people in all the communities that are engaged in this and that’s really important because part of it is just a big education campaign,” Perryman said. “People have got to understand that this is not your grandmother’s oil boom. This is a different type of animal you’re dealing with.”
Some of the hard numbers provided by Perryman’s firm, The Perryman Group, include projections of a gain of about $2.4 billion in real gross product by 2023, with the mining sector, including oil and gas, expected to contribute more than $990 million of the increase, and employment in Odessa is projected to increase by more than 8,500 net new positions, led by the services sector. Growth in Odessa is also expected to occur at a significantly faster pace than the state and nation in the next five years.
Texas as a whole is also doing very well right now, Perryman said, seeing growth not only in oil and gas, but also in the technology and health industries. Perryman said they are expecting a slight drop-off in the state’s growth rate next year, but only because there isn’t much capacity to grow more after a year where the state added nearly 400,000 jobs.
Nationally, some are predicting another recession is on the way, but Perryman said he doesn’t think there will be.
“If you look underneath the noise and just look at the numbers, the economy is still growing,” Perryman said. “There’s things that could happen, but I don’t think will happen to the degree it takes to knock it off course.”
One issue could be a stagnating wage growth. While Perryman said wage growth is doing slightly better now, it has not kept up with the rate of inflation and job growth in the country. Perryman said wage growth stagnation is self-correcting to some extent, as when there is a worker shortage, employees are paid more. Wage growth also goes up when companies are competing for workers.
“There’s some concern about that, but I think overall the market will drive it up some, but not as much as you’d like to see,” Perryman said. “I think inflation is gonna stay pretty moderate though.”
Frost Bank Regional President Wesley Bownds attended the presentation, and felt positive about Perryman’s comments.
“As Ray said, he didn’t see any economic indicators pointing toward any kind of a national recession, which is something I think has been in the news,” Bownds said. “There was a million more job openings than there are people looking for work, the lowest unemployment rate in 50 years. Clearly there’s still some uncertainty out there with trade wars, but he was very upbeat I think.”