Monday, December 29, 2014

What Kind of Impact Will Falling Oil Prices Have on Texas?

Paul Krugman, of all people, actually did the research on this one:
[F]alling oil prices will have very different effects on different regions of the United States, with those states that have benefited most from the shale boom hurt a lot even as most Americans gain.

The big losers will be in the Dakotas and Nebraska, but that whole region has a population not much bigger than that of Brooklyn. The big enchilada is Texas; so how big a deal will the oil slump be there?

Pretty big. If you look at the BEA regional data, you learn that mining output nationally is up a lot — 39 percent between 2007 and 2013 — but that this is still fairly small change on a national basis, 0.7 percent of 2007 GDP. However, more than half the mining growth took place in Texas, which was only 8 percent of the national economy. So in Texas mining directly contributed 4.7 percent to GDP; if we use a multiplier of 1.5, which is what the best research suggests, we conclude that the shale boom added 7 percent to Texas’s growth — and what shale giveth, shale may now take away.

We’re not talking real disaster here... we surely aren’t looking at a Russia-style crisis. We could, however, be looking at a situation in which Texas is sliding into recession even as the rest of the country is doing fairly well. That is, after all, what happened after the 1985 oil price collapse.

1 comment:

  1. Refining is a larger part of the Texas Economy than mining. It also has a multiplier of nearly 20. Refiners are currently expanding in Texas, and nowhere else. Refiners benefit from lower oil prices.