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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


November 19, 2015

Southeastern Transportation: Tapping the Brakes?

Em_trade_transportation

The Atlanta Fed's Trade and Transportation Advisory Council met on October 6 at the Jacksonville Branch to discuss economic conditions in the industry. According to a majority of council members, transportation activity has been affected by slowing of exports resulting from tepid global demand, a stronger dollar, and increased inventory levels. Although the European economy appeared to be doing better, the slowdown in China was having an impact on every key global market.

Council members reported seeing growth in inventory-to-sales, which reduced customers' needs for transportation services, and most members perceived the extra inventory as a result of slower sales rather than from overpurchasing or hedging against future price increases.

Employment and labor markets pose continuing challenges
Finding appropriate labor in logistics at all levels continues to be a challenge. Issues negatively affecting recruiting include failing substance abuse tests, experience and education gaps, and difficulty attracting talented youth into the sector. As these issues continue, domestic trucker and qualified mechanic availability remains a concern.

Costs, prices paint a mixed picture
Driver shortages continued to plague the industry, and persistent increases in driver pay have not alleviated the problem. Demand for talent has been pushing wages up for professional levels as well. However, some reported different types of pressure that are causing turnover and recruitment challenges. For example, younger workers expect flexibility, access to technology, and scheduling autonomy, conditions that are difficult to accommodate in businesses that require a specific work schedule.

Declines in fuel costs were reportedly keeping overall nonlabor costs steady by offsetting increases in other input costs. Increases in insurance premiums and an uptick in equipment costs were examples of upward pressure on costs. Congestion at West Coast ports was cited as a cause for an increase in nonproductive operating costs.

Regarding pricing power, rail continued to see strong pricing power as capacity remains tight across other modes of transportation. For others, the softening of the economy has dampened the ability to raise prices. Therefore, pricing power is limited, and increases engender considerable customer pushback. The majority of council members, however, expect to be able to increase rates one year out and beyond, though opportunities could become limited if the economy does not continue to improve and fuel prices do not rebound.

International trade plays a regional role
The appreciation of the dollar has continued to exert downward pressure on exports. The economic slowdown in China, the larger Asia-Pacific region, and Latin America (specifically, the recession in Brazil and ongoing economic turmoil in Venezuela) is substantially affecting air trade. However, these markets have not had a material impact on some transportation businesses such as rail since exports' direct exposure to the Chinese economy is limited.

Over the horizon...
Although the overall message from this council meeting was one of decelerating activity, the majority of council members anticipate the same level of growth during the next three to six months, and they expect the same or higher level of activity during the next two to three years.

Topping the list of challenges for the industry down the road are the lack of drivers, finding and retaining quality/qualified labor, and a tighter regulatory environment, which may exacerbate the driver shortage in the coming years. Council members said long-term strategic planning and capital investments in ports and highway infrastructure will be necessary to continue to meet demand.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

August 20, 2015

It's Mostly Sunny in Florida

20130910-0498-jacksonville
Jacksonville, Florida. Photo by Kendrick Disch

In a February SouthPoint post about economic conditions in north and central Florida, we reported that our contacts' optimism in late 2014 had carried into the new year. Since then, the Regional Economic Information Network team at the Jacksonville Branch has noted an overall improvement in activity and continued positive sentiment.

General business conditions continue firming
Feedback throughout the winter months was quite upbeat. Most contacts felt that an improving economy and labor market were driving growth. In early spring, although feedback remained positive, the messages became more mixed, with some contacts indicating a plateau in growth—most notably, transportation and retail contacts cited challenges from severe weather in various markets. However, bankers noted reasonable momentum with consumers and businesses; real estate contacts saw robust activity with increasing sales and prices at all price points; and homebuilders and commercial construction firms noted much stronger levels of activity. Tourism remained vibrant. Though the consumer inched along, restaurants reported revenue increases that they believe were the result of lower gas prices influencing discretionary spending. As spring progressed, activity continued along an upward, albeit slow, trajectory.

By midsummer, a small number of contacts reported demand was flat, and transportation contacts reported that activity—especially related to the movement of energy-related materials—declined notably since the first quarter. However, a majority of other contacts noted improved activity. Some began to add to capacity to meet increased demand—and, more importantly, anticipated future demand.

Employment largely stable
Throughout the first part of 2015, contacts continued to indicate no major problems in filling jobs outside of information technology (IT), accounting, compliance, and truck drivers. Staffing levels across firms generally remained steady, with some adding to headcount. Those hesitant to add staff turned to contingent labor (such as contract staff or temps) to meet demand. In late spring, we began to hear about increased turnover at many levels, and recruiting and retention appeared to be getting tougher. In central Florida, tourism contacts cited concerns of potential worker shortages as a result of a very low regional unemployment rate and increased construction attracting available labor.

Labor, nonlabor costs and price pressure surfacing
By March, mentions of mounting wage pressures at all job levels surfaced. Though not universally reported, numerous contacts said they were beginning to increase starting salaries, which they noted will eventually ripple through higher levels of staff to maintain internal pay equity and retain talent. Wages increased for engineers, truckers and technicians, and IT specialists. Into the summer, stories of referral and signing bonuses, customized perks, and other benefits enhancements for both recruitment and retention became more common.

Feedback on health care costs continued to be mixed. Health care costs for most increased at a pace greater than overall inflation, though companies continued to try to minimize the increases by changing plan designs or by sharing more of the cost with employees.

Overall, concerns about nonlabor costs were muted. Some mentioned lower energy and fuel costs have offset increases in other input costs.

The ability to raise prices varied among industries. However, a number of contacts indicated pricing power had improved, though the magnitude of price increases was limited. Generally, though, margins were edging up.

Credit, investment remain available
Throughout the first half of the year, credit was readily available and banking contacts reported increased activity. Many companies, especially small businesses, continued to deleverage even in the low interest rate environment, and many larger firms reported funding investments internally. Lenders reported increases in mortgage refinances as rates dipped, and they noted improved home equity levels. Auto lending was described as extremely strong.

Almost without exception, retail contacts noted expansion activity and further growth plans, all the result of expectations for stronger consumer spending. Real estate agents indicated that appraisal issues improved, and buyers, even the self-employed, generally faced little trouble financing home purchases. Stories regarding business investment were mixed between outlays for deferred projects and spending for new demand. This year, it's become clear that there is less hesitation about investment.

Business outlook mostly bright
Though we heard a couple of references to a cloudier outlook during the next two to three years as we approach another presidential election, collectively—and as recently as July—most REIN contacts and board members were as positive about current activity and future expectations as we have seen since the recession.

What's is in store for Florida in the second half of the year? Stay tuned.

By Chris Oakley, regional executive, and Sarah Arteaga, REIN director, both of the Atlanta Fed's Jacksonville Branch

June 17, 2015

Southeast Manufacturing Dips in May

National manufacturing activity hasn't been particularly strong so far this year. It hasn't been particularly horrible mind you, but there hasn't been much to get excited about, either. Southeastern manufacturing activity—until recently—has been a different story. The Southeast purchasing managers index (PMI) and the Institute for Supply Management's national index both indicated that southeastern activity had been outpacing national activity in each of the first four months of 2015. I hate to throw cold water on the strong numbers, but according to the latest PMI report, released on June 5, that trend may be reversing.

The Atlanta Fed’s research department uses the PMI to track manufacturing activity in the Southeast. The survey, produced by the Econometric Center at Kennesaw State University, analyzes current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates contracting activity.

The Southeast PMI has averaged a 57.9 reading so far in 2015, compared with a 52.4 for the national index. However, the May Southeastern PMI's overall index fell 5.2 points from April to 52.4, clocking in below the national index for the first time in four months (see the chart).

Se-purchasing-managers

The index remained above the 50 threshold for expansion, but the subindexes of the May report contained some disconcerting numbers:

  • The new orders subindex fell 11.0 points to 46.0.
  • The production subindex decreased 16.0 points compared with the previous month and now reads 49.0.
  • The employment subindex declined 1.0 to 60.0.
  • The supplier deliveries subindex increased 3.0 points to 56.0.
  • The finished inventory subindex decreased 1.0 points to 51.0.
  • The commodity prices subindex rose 9.0 points and now reads 54.0.

The 11-point fall in the new orders subindex was discouraging since it is the most forward-looking indicator of future activity. The new orders subindex has seen large one-month fluctuations in the past. For instance, it fell 27 points last December only to rebound 23.4 points the following month. So it could be a one-month aberration. Let's hope so. The 16-point fall in the production subindex was also an abnormally large fall, but—like new orders—it has happened before. Optimism for future production also decreased from April to May. When asked for their production expectations during the next three to six months, only 38 percent of survey participants expected production to be higher going forward, compared with 46 percent in April. The good news is that the employment subindex registered a strong reading, which is a good indication that manufacturers are still adding to their payrolls. So even though production outlooks have come down, firms still seem to expect that they will need employees to work more hours in the future, which could be a good sign for employment.

We should remember that the overall index still indicated expansion in manufacturing. Hopefully, as the summer heats up, so will manufacturing activity. I hate to throw cold water on our hot streak, but this time of year, a little cold water can feel good.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch

June 15, 2015

Assessing the Impact of Oil Price Declines on Louisiana's Economy

It's no big secret that the energy sector is a huge contributor to Louisiana's economy. According to the Energy Information Administration, Louisiana is one of the nation's biggest energy producers and consumers, largely because of the industrial sector, which includes many refineries and petrochemical plants. In fact, with 19 operating crude oil refineries, Louisiana ranks second in the nation in both total and operating refinery capacity. Nearly 112,000 miles of pipelines transporting crude petroleum and natural gas run throughout the state and the Gulf of Mexico. Additionally, the Henry Hub natural gas distribution point in Erath, Louisiana, is the interconnecting point for nine interstate and four intrastate pipelines that provide access to major markets throughout the country.

A 2014 study by Louisiana State University economist Loren Scott cited that the oil and gas industry's total direct and indirect annual impact on the state economy is around $73.8 billion from taxes, royalties, fees, salaries and other money spent in Louisiana by the industry. Also, according to the U.S. Bureau of Economic Analysis (BEA), oil and gas extraction and petroleum and coal products manufacturing accounted for more than 12 percent of Louisiana's real gross domestic product in 2012.

Consequently, what happens in energy markets influences Louisiana's economic performance. So when oil prices tumbled in 2014, I wondered about the extent of the impact on the state's economy. A barrel of West Texas Intermediate crude oil fell from a peak of more than $105 in mid-2014 to less than $50 a barrel in early 2015. The price has since recovered a bit, to about $61 a barrel as of June 11, yet it remains a fair distance from last year's peak (see chart 1).

Chart-1

Earlier this year, the Atlanta Fed's Energy Advisory Council shared some insights about changes in business activity and investment in the region as a result of lower energy prices, which I recapped here. But what about the labor market? During the last several months, I've seen numerous announcements of worldwide oil and gas layoffs, which Houston consulting firm Graves & Co. tallied at more than 100,000 jobs. How many Louisiana energy sector workers will be caught up in those layoffs?

Unfortunately, the true impact is not very easy to extrapolate. It's not as simple as extracting employment data on oil and gas industries, since pieces of so many other industries (such as manufacturing and construction) support the energy sector. Plus, even more industries are influenced by the energy sector's growth or contraction, such as education, health care, tourism, and services industries—it's extremely difficult to determine the number of "spillover" jobs created or lost. Using an input-output table constructed by the BEA, the impact study cited above estimated that for every job created in the extraction, refining, and pipeline industries, 3.4 additional jobs are created in other industries in Louisiana. Holding all else constant, that multiplier should apply to jobs lost in Louisiana's economy.

Business contacts in the Atlanta Fed's Regional Economic Information Network (REIN) have cited instances of layoffs tied to falling energy prices over the last few months. Furthermore, various media outlets have reported recent layoffs in Louisiana's energy sector (for example, here, here, and here). However, REIN contacts also indicated that firms that generally compete with oil and gas companies for workers in a very tight labor market have scooped up recently laid off workers, likely masking the net impact and potentially clouding the multiplier calculation.

If the focus is on jobs lost in Louisiana's energy sector alone as a result of falling energy prices, at this time I'll concentrate on what's happened in the segment that encompasses the bulk of energy-related jobs: the goods-producing sector, which includes the mining and logging, construction, and manufacturing subsectors. When more detailed industry data through the first quarter of 2015 are published by the U.S. Bureau of Labor Statistics (BLS) later this year, I'll revisit the impact on specific energy-related industries.

In mid-2014, when the price of oil peaked and then began to fall, jobs in the goods-producing sector in Louisiana followed a very similar trajectory (see chart 2).

Chart-2

In July 2014, the goods-producing sector contributed about 4,000 new jobs on net in Louisiana. Then, as the price of oil began to fall, job creation followed suit, and in January 2015 the sector subtracted nearly 3,000 jobs. Judging from the data, as well as REIN anecdotes, it is clear that oil price declines from mid-2014 to early 2015 resulted in job losses in Louisiana's energy sector. Recent BLS data reflected just 800 net goods-producing jobs lost in the state in April. So is the environment improving, considering oil prices recovered a bit?

Reports from REIN contacts have been mixed. Some business leaders indicate that the volatility of lower energy prices has become better understood and integrated into flexible business plans, positioning firms to respond to the current environment. However, their response, in some cases, has involved and continues to involve layoffs, though these reports have tempered recently.

Time will tell what the ultimate impact of this period of precipitous oil price declines will be on Louisiana's economy and labor market. I'll revisit this topic after our next Energy Advisory Council meeting and the release later this year of detailed industry data from the BLS.

Photo of Rebekah DurhamBy Rebekah Durham, economic policy analysis specialist in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed

November 19, 2015

Southeastern Transportation: Tapping the Brakes?

Em_trade_transportation

The Atlanta Fed's Trade and Transportation Advisory Council met on October 6 at the Jacksonville Branch to discuss economic conditions in the industry. According to a majority of council members, transportation activity has been affected by slowing of exports resulting from tepid global demand, a stronger dollar, and increased inventory levels. Although the European economy appeared to be doing better, the slowdown in China was having an impact on every key global market.

Council members reported seeing growth in inventory-to-sales, which reduced customers' needs for transportation services, and most members perceived the extra inventory as a result of slower sales rather than from overpurchasing or hedging against future price increases.

Employment and labor markets pose continuing challenges
Finding appropriate labor in logistics at all levels continues to be a challenge. Issues negatively affecting recruiting include failing substance abuse tests, experience and education gaps, and difficulty attracting talented youth into the sector. As these issues continue, domestic trucker and qualified mechanic availability remains a concern.

Costs, prices paint a mixed picture
Driver shortages continued to plague the industry, and persistent increases in driver pay have not alleviated the problem. Demand for talent has been pushing wages up for professional levels as well. However, some reported different types of pressure that are causing turnover and recruitment challenges. For example, younger workers expect flexibility, access to technology, and scheduling autonomy, conditions that are difficult to accommodate in businesses that require a specific work schedule.

Declines in fuel costs were reportedly keeping overall nonlabor costs steady by offsetting increases in other input costs. Increases in insurance premiums and an uptick in equipment costs were examples of upward pressure on costs. Congestion at West Coast ports was cited as a cause for an increase in nonproductive operating costs.

Regarding pricing power, rail continued to see strong pricing power as capacity remains tight across other modes of transportation. For others, the softening of the economy has dampened the ability to raise prices. Therefore, pricing power is limited, and increases engender considerable customer pushback. The majority of council members, however, expect to be able to increase rates one year out and beyond, though opportunities could become limited if the economy does not continue to improve and fuel prices do not rebound.

International trade plays a regional role
The appreciation of the dollar has continued to exert downward pressure on exports. The economic slowdown in China, the larger Asia-Pacific region, and Latin America (specifically, the recession in Brazil and ongoing economic turmoil in Venezuela) is substantially affecting air trade. However, these markets have not had a material impact on some transportation businesses such as rail since exports' direct exposure to the Chinese economy is limited.

Over the horizon...
Although the overall message from this council meeting was one of decelerating activity, the majority of council members anticipate the same level of growth during the next three to six months, and they expect the same or higher level of activity during the next two to three years.

Topping the list of challenges for the industry down the road are the lack of drivers, finding and retaining quality/qualified labor, and a tighter regulatory environment, which may exacerbate the driver shortage in the coming years. Council members said long-term strategic planning and capital investments in ports and highway infrastructure will be necessary to continue to meet demand.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

August 20, 2015

It's Mostly Sunny in Florida

20130910-0498-jacksonville
Jacksonville, Florida. Photo by Kendrick Disch

In a February SouthPoint post about economic conditions in north and central Florida, we reported that our contacts' optimism in late 2014 had carried into the new year. Since then, the Regional Economic Information Network team at the Jacksonville Branch has noted an overall improvement in activity and continued positive sentiment.

General business conditions continue firming
Feedback throughout the winter months was quite upbeat. Most contacts felt that an improving economy and labor market were driving growth. In early spring, although feedback remained positive, the messages became more mixed, with some contacts indicating a plateau in growth—most notably, transportation and retail contacts cited challenges from severe weather in various markets. However, bankers noted reasonable momentum with consumers and businesses; real estate contacts saw robust activity with increasing sales and prices at all price points; and homebuilders and commercial construction firms noted much stronger levels of activity. Tourism remained vibrant. Though the consumer inched along, restaurants reported revenue increases that they believe were the result of lower gas prices influencing discretionary spending. As spring progressed, activity continued along an upward, albeit slow, trajectory.

By midsummer, a small number of contacts reported demand was flat, and transportation contacts reported that activity—especially related to the movement of energy-related materials—declined notably since the first quarter. However, a majority of other contacts noted improved activity. Some began to add to capacity to meet increased demand—and, more importantly, anticipated future demand.

Employment largely stable
Throughout the first part of 2015, contacts continued to indicate no major problems in filling jobs outside of information technology (IT), accounting, compliance, and truck drivers. Staffing levels across firms generally remained steady, with some adding to headcount. Those hesitant to add staff turned to contingent labor (such as contract staff or temps) to meet demand. In late spring, we began to hear about increased turnover at many levels, and recruiting and retention appeared to be getting tougher. In central Florida, tourism contacts cited concerns of potential worker shortages as a result of a very low regional unemployment rate and increased construction attracting available labor.

Labor, nonlabor costs and price pressure surfacing
By March, mentions of mounting wage pressures at all job levels surfaced. Though not universally reported, numerous contacts said they were beginning to increase starting salaries, which they noted will eventually ripple through higher levels of staff to maintain internal pay equity and retain talent. Wages increased for engineers, truckers and technicians, and IT specialists. Into the summer, stories of referral and signing bonuses, customized perks, and other benefits enhancements for both recruitment and retention became more common.

Feedback on health care costs continued to be mixed. Health care costs for most increased at a pace greater than overall inflation, though companies continued to try to minimize the increases by changing plan designs or by sharing more of the cost with employees.

Overall, concerns about nonlabor costs were muted. Some mentioned lower energy and fuel costs have offset increases in other input costs.

The ability to raise prices varied among industries. However, a number of contacts indicated pricing power had improved, though the magnitude of price increases was limited. Generally, though, margins were edging up.

Credit, investment remain available
Throughout the first half of the year, credit was readily available and banking contacts reported increased activity. Many companies, especially small businesses, continued to deleverage even in the low interest rate environment, and many larger firms reported funding investments internally. Lenders reported increases in mortgage refinances as rates dipped, and they noted improved home equity levels. Auto lending was described as extremely strong.

Almost without exception, retail contacts noted expansion activity and further growth plans, all the result of expectations for stronger consumer spending. Real estate agents indicated that appraisal issues improved, and buyers, even the self-employed, generally faced little trouble financing home purchases. Stories regarding business investment were mixed between outlays for deferred projects and spending for new demand. This year, it's become clear that there is less hesitation about investment.

Business outlook mostly bright
Though we heard a couple of references to a cloudier outlook during the next two to three years as we approach another presidential election, collectively—and as recently as July—most REIN contacts and board members were as positive about current activity and future expectations as we have seen since the recession.

What's is in store for Florida in the second half of the year? Stay tuned.

By Chris Oakley, regional executive, and Sarah Arteaga, REIN director, both of the Atlanta Fed's Jacksonville Branch

June 17, 2015

Southeast Manufacturing Dips in May

National manufacturing activity hasn't been particularly strong so far this year. It hasn't been particularly horrible mind you, but there hasn't been much to get excited about, either. Southeastern manufacturing activity—until recently—has been a different story. The Southeast purchasing managers index (PMI) and the Institute for Supply Management's national index both indicated that southeastern activity had been outpacing national activity in each of the first four months of 2015. I hate to throw cold water on the strong numbers, but according to the latest PMI report, released on June 5, that trend may be reversing.

The Atlanta Fed’s research department uses the PMI to track manufacturing activity in the Southeast. The survey, produced by the Econometric Center at Kennesaw State University, analyzes current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates contracting activity.

The Southeast PMI has averaged a 57.9 reading so far in 2015, compared with a 52.4 for the national index. However, the May Southeastern PMI's overall index fell 5.2 points from April to 52.4, clocking in below the national index for the first time in four months (see the chart).

Se-purchasing-managers

The index remained above the 50 threshold for expansion, but the subindexes of the May report contained some disconcerting numbers:

  • The new orders subindex fell 11.0 points to 46.0.
  • The production subindex decreased 16.0 points compared with the previous month and now reads 49.0.
  • The employment subindex declined 1.0 to 60.0.
  • The supplier deliveries subindex increased 3.0 points to 56.0.
  • The finished inventory subindex decreased 1.0 points to 51.0.
  • The commodity prices subindex rose 9.0 points and now reads 54.0.

The 11-point fall in the new orders subindex was discouraging since it is the most forward-looking indicator of future activity. The new orders subindex has seen large one-month fluctuations in the past. For instance, it fell 27 points last December only to rebound 23.4 points the following month. So it could be a one-month aberration. Let's hope so. The 16-point fall in the production subindex was also an abnormally large fall, but—like new orders—it has happened before. Optimism for future production also decreased from April to May. When asked for their production expectations during the next three to six months, only 38 percent of survey participants expected production to be higher going forward, compared with 46 percent in April. The good news is that the employment subindex registered a strong reading, which is a good indication that manufacturers are still adding to their payrolls. So even though production outlooks have come down, firms still seem to expect that they will need employees to work more hours in the future, which could be a good sign for employment.

We should remember that the overall index still indicated expansion in manufacturing. Hopefully, as the summer heats up, so will manufacturing activity. I hate to throw cold water on our hot streak, but this time of year, a little cold water can feel good.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch

June 15, 2015

Assessing the Impact of Oil Price Declines on Louisiana's Economy

It's no big secret that the energy sector is a huge contributor to Louisiana's economy. According to the Energy Information Administration, Louisiana is one of the nation's biggest energy producers and consumers, largely because of the industrial sector, which includes many refineries and petrochemical plants. In fact, with 19 operating crude oil refineries, Louisiana ranks second in the nation in both total and operating refinery capacity. Nearly 112,000 miles of pipelines transporting crude petroleum and natural gas run throughout the state and the Gulf of Mexico. Additionally, the Henry Hub natural gas distribution point in Erath, Louisiana, is the interconnecting point for nine interstate and four intrastate pipelines that provide access to major markets throughout the country.

A 2014 study by Louisiana State University economist Loren Scott cited that the oil and gas industry's total direct and indirect annual impact on the state economy is around $73.8 billion from taxes, royalties, fees, salaries and other money spent in Louisiana by the industry. Also, according to the U.S. Bureau of Economic Analysis (BEA), oil and gas extraction and petroleum and coal products manufacturing accounted for more than 12 percent of Louisiana's real gross domestic product in 2012.

Consequently, what happens in energy markets influences Louisiana's economic performance. So when oil prices tumbled in 2014, I wondered about the extent of the impact on the state's economy. A barrel of West Texas Intermediate crude oil fell from a peak of more than $105 in mid-2014 to less than $50 a barrel in early 2015. The price has since recovered a bit, to about $61 a barrel as of June 11, yet it remains a fair distance from last year's peak (see chart 1).

Chart-1

Earlier this year, the Atlanta Fed's Energy Advisory Council shared some insights about changes in business activity and investment in the region as a result of lower energy prices, which I recapped here. But what about the labor market? During the last several months, I've seen numerous announcements of worldwide oil and gas layoffs, which Houston consulting firm Graves & Co. tallied at more than 100,000 jobs. How many Louisiana energy sector workers will be caught up in those layoffs?

Unfortunately, the true impact is not very easy to extrapolate. It's not as simple as extracting employment data on oil and gas industries, since pieces of so many other industries (such as manufacturing and construction) support the energy sector. Plus, even more industries are influenced by the energy sector's growth or contraction, such as education, health care, tourism, and services industries—it's extremely difficult to determine the number of "spillover" jobs created or lost. Using an input-output table constructed by the BEA, the impact study cited above estimated that for every job created in the extraction, refining, and pipeline industries, 3.4 additional jobs are created in other industries in Louisiana. Holding all else constant, that multiplier should apply to jobs lost in Louisiana's economy.

Business contacts in the Atlanta Fed's Regional Economic Information Network (REIN) have cited instances of layoffs tied to falling energy prices over the last few months. Furthermore, various media outlets have reported recent layoffs in Louisiana's energy sector (for example, here, here, and here). However, REIN contacts also indicated that firms that generally compete with oil and gas companies for workers in a very tight labor market have scooped up recently laid off workers, likely masking the net impact and potentially clouding the multiplier calculation.

If the focus is on jobs lost in Louisiana's energy sector alone as a result of falling energy prices, at this time I'll concentrate on what's happened in the segment that encompasses the bulk of energy-related jobs: the goods-producing sector, which includes the mining and logging, construction, and manufacturing subsectors. When more detailed industry data through the first quarter of 2015 are published by the U.S. Bureau of Labor Statistics (BLS) later this year, I'll revisit the impact on specific energy-related industries.

In mid-2014, when the price of oil peaked and then began to fall, jobs in the goods-producing sector in Louisiana followed a very similar trajectory (see chart 2).

Chart-2

In July 2014, the goods-producing sector contributed about 4,000 new jobs on net in Louisiana. Then, as the price of oil began to fall, job creation followed suit, and in January 2015 the sector subtracted nearly 3,000 jobs. Judging from the data, as well as REIN anecdotes, it is clear that oil price declines from mid-2014 to early 2015 resulted in job losses in Louisiana's energy sector. Recent BLS data reflected just 800 net goods-producing jobs lost in the state in April. So is the environment improving, considering oil prices recovered a bit?

Reports from REIN contacts have been mixed. Some business leaders indicate that the volatility of lower energy prices has become better understood and integrated into flexible business plans, positioning firms to respond to the current environment. However, their response, in some cases, has involved and continues to involve layoffs, though these reports have tempered recently.

Time will tell what the ultimate impact of this period of precipitous oil price declines will be on Louisiana's economy and labor market. I'll revisit this topic after our next Energy Advisory Council meeting and the release later this year of detailed industry data from the BLS.

Photo of Rebekah DurhamBy Rebekah Durham, economic policy analysis specialist in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed