An oil and gas bonanza in the southwestern states could help fuel the continued national economic boom.
The country’s GDP growth of 4.2%, estimated last month by the Bureau of Economic Analysis, is the strongest quarterly growth since 2014. State estimates are not due until mid-November, but from many experts see oil and natural gas drilling, driven by rising prices, as the main reason.
“The states that contribute the most could be those experiencing a surge in energy production,” including Texas, New Mexico and Colorado, said Mark Perry, a University of Michigan economist and economic analyst. for the conservative American Enterprise Institute. GDP measures gross domestic product, or the value of all goods and services produced during a given period.
The oil and gas industries have benefited from rising prices over the past two years, leading to increased production and jobs. Production has risen nearly half in New Mexico over the past year, 29% in Texas and Colorado and 19% in North Dakota and Oklahoma, according to federal figures for June. Natural gas production has also increased in Louisiana.
Tech companies, the main driver of California’s recent economic growth, also show no signs of slowing down, said Lynn Reaser, chair of the state Treasurer’s Council of Economic Advisors. The technology also exploded in New York, Colorado and Pennsylvania earlier this year, and nationally it continues to reach levels not seen since 2001.
Energy and technology have been major factors in national and local economies since the early 2000s, according to a study last year from the left-leaning Brookings Institution. Almost all fast-growing economies have one or both factors in their favour.
New Mexico expects nearly $1.2 billion in additional tax revenue from oil and gas next year, after struggling to make ends meet in the current budget, and plans to create a rainy day fund to help mitigate future downturns, said Jeffrey Mitchell, director of the University of New Mexico’s Bureau of Business and Economic Research. As oil and gas drilling has been concentrated near the Texas border, jobs in the state’s largest city, Albuquerque, have also seen a recovery, he said.
“The situation was grim,” Governor Susana Martinez, a Republican, recalled in her State of the State Address this year. “We find ourselves in a very different position today.”
The Texas state budget also expects a surplus: an oil and gas tax hike of about $2 billion to be split between a rainy day fund and a highway fund, said Chris Bryan, spokesman for the state’s Comptroller of Public Accounts.
Texas’ economy has diversified with technology and health care, and is more likely to survive cyclical downturns, Bryan said.
California projects a $9 billion surplus. Technology demand helped boost California job growth in the second quarter, as well as health care and tourism, Reaser said.
“California is weathering pressures on global growth and trade,” she said.
Texas and New Mexico have seen the largest recent increases in oil production due to rich reserves in the Permian Basin, an underground formation that spans both states. But state and local politics also played a role, said Kathleen Sgamma, president of the Western Energy Alliance, a Denver-based oil and gas trade group.
“States that have made significant gains have reasonable policies that allow development to move forward,” Sgamma said. “Compare that with California, which put up multiple hurdles and as a result slipped in the rankings.”
California ranked third last year for oil production, but has been overtaken this year by New Mexico and Oklahoma and now ranks fifth with around 462,000 barrels per day in June. , according to federal figures.
California lawmakers voted in May to ban all new offshore drilling in state-controlled waters. Environmental groups have called on Democratic California Governor Jerry Brown to freeze and then phase out oil and gas production in the state, although Brown has resisted the idea.
While economic news was generally good mid-year, in some ways the second quarter is an aberration, said Paul Flora, a Federal Reserve Bank of Philadelphia analyst who studies state economies, adding that growth of GDP is expected to slow.
Wyoming and Alaska have seen some of the biggest economic upturns this year, with oil and gas profits driving big increases in economic output after losses between 2016 and 2017.
Oil drilling and production are driving Wyoming’s rebound, said Wenlin Liu, the state’s chief economist. It brings more output but less job gains than previous oil booms, Liu said.
“After the downturn in 2015 and 2016, the oil and gas industry has become much more efficient in its operation with more automation,” Liu said. “Job growth in oil and gas is much slower.”
Nationally, jobs in the mining sector, which includes oil and gas, have increased by 17,000 since April, eclipsed by business services, which added 186,000 jobs, and construction, which added 79,000 jobs.
The states with the strongest annual job growth in July were Utah, Nevada, Idaho, Texas and Washington, all of which recorded annual job growth of more than 3%.