Texas Economy Undergoes Steep Decline

According to data released Monday, general business activity for the state of Texas fell -34.6 in January, which constitutes a worse forecast than analyst expectations, according to Business Insider. The Texas economy has suffered immensely due to the fall of low oil prices, including new regulations that hamper economic output. Experts believe a crude price correction waits on the horizon in 2016, but such a forecast remains uncertain.

According to data released Monday, general business activity for the state of Texas fell -34.6 in January, which constitutes a worse forecast than analyst expectations, according to Business Insider. The Texas economy has suffered immensely due to the fall of low oil prices, including new regulations that hamper economic output. Experts believe a crude price correction waits on the horizon in 2016, but such a forecast remains uncertain.

Texas and Alaska have long been the top oil producers in the United States, but Texas is better suited to withstand downfalls because of its well-diversified economy. Texas went through a similar downturn during the 1980s, but the current sting is not as potent as before because the modern economy is mature enough to buffer a low-priced energy climate.

The southern state has a robust manufacturing sector, which may be a factor that propels the state forward as the oil industry falters, but this isn’t to say that manufacturing has come away unscathed, as the sector’s index fell over 20 points. Wages increased throughout the state, but the employment index dropped because companies are firing people at a faster rate due to trepidation within the business community.

Despite the rich diversity of the Texas economy, oil prices will remain an albatross around the state’s neck, as many economists believe lower oil prices could remain for the long-term, and the energy sector sent a ripple effect throughout other areas of the economy. Moreover, investors and companies are losing hope and withdrawing investments as the energy sector grows more unprofitable over time. Energy companies achieved higher profits when new fracking technologies emerged, allowing producers to extract shale oil, but such technology is expensive, and shale oil itself is a more expensive commodity when compared to international crude.

This is compounded by Saudi Arabia, the premier producer of cheaper crude, and the royal family has pumped more oil into the market to squeeze North American producers out of market-share. American companies have contended with domestic oversupply, and Texan energy hubs such as the Eagle Ford Shale of South Texas and the Permian Basin of West Texas have especially suffered because of the added glut, placing pressure on local communities that rely on extensive oil revenue.

Many oil workers accustomed to earning high salaries expect to be laid off at any moment, and the market glut has placed a further strain on local economies as a whole. With that, Texas residents can hold out for a glimmer of hope, as some economists expect prices to spike by the fourth quarter of this year.