Lindale economist notes ongoing oil industry recovery

Perryman calls for immigration reform that ensures security, protects workforce

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“Everybody’s doing pretty well right now.”
Dr. M. Ray Perryman’s 2018 Economic Outlook was a bit brighter last week, the veteran Lindale-based analyst presenting his expectations for the coming year to a sold-out crowd Jan. 11 in Tyler during his 34th annual tour of Texas.
“Texas went through a really bad storm this year, but it’s coming back,” he said. “There’s a lot of positive things going on in the oil industry and international trade and technology. I think the country’s in for some growth as well.”
Locally, the state of oil and gas is a recurring theme in the economist’s summits. He also addressed ongoing attempts at tax reform and immigration policy during his remarks at Green Acres Baptist Church, the event hosted again by the Tyler Chamber of Commerce.

OIL-AND-GAS
“The oil and gas industry’s beginning to get more activity in East Texas again,” Perryman noted. “It hasn’t been that active the past few years.”
The East Texas Oilfield was one of the early, great finds of the industry back in the 1930s, spawning a lot of legends Kilgore residents know well, he said.
“Obviously, early on it was all traditional well drilling, and it’s been on the decline for many years. Hydraulic fracturing made it possible to find more oil and increase production from the existing fields they didn’t think was possible before. It also increased the reserves.”
According to recent numbers from the U.S. Geological Survey, there’s five times more resources under the ground here than previously certified, Perryman said.
Recent years saw prices soaring in 2014 then falling hard in 2015 and 2016: “The rig count fell 80 percent, employment fell 75 percent.”
The price-per-barrel has finally recovered a lot of ground, hovering at $60 instead of $27 or 28. With the industry’s burgeoning efficiency at hydraulic fracturing, the cost of production has decreased, and prices are on the cusp.
“It’s very profitable again to drill oil and gas,” Perryman said. “The rig count’s more than doubled in the last year. You’re seeing a lot of activity. We haven’t seen 2014 levels yet, but we’re on a very strong trajectory.
“It will contribute more to the economy in the next five years than it has the past five years.”

IMMIGRATION
Immigration was a key theme at Perryman’s outlook this year, the economist underscoring the positive impact that particular political football has on the national and state economy.
“In Texas, we could not live without that workforce,” he said. “One out of every 10 workers in the state is undocumented. We don’t have another resource for those workers, period. So it’s very important for us that whatever type of immigration reform happens, it lets us make use of that workforce in an effective way.”
People don’t always realize how important the immigrant workforce is, Perryman repeated, and how integrated it is with the economy.
As far as costs and benefits, he said, “On balance it’s a huge benefit. The federal government does very well because about 75 percent of those folks pay Social Security tax and never collect it – it works out very well in that direction. It works out pretty well for most state governments including Texas because we fund by sales tax and if they’re here they’re spending money and we collect sales tax. So that works fairly well.”
On the other hand, local governments often lose in the process: the low-income housing generally favored by undocumented immigrants generates less property tax on the municipal level.
“When you’re providing a lot of services and not getting a lot of revenue back, some of the local governments are losers.”
On the whole, though, immigrant labor is critical, Perryman insisted, regardless of how the numbers are crunched, and immigration policy reforms must take that into account.
“We have about 12 million people in Texas working currently. If you suddenly took away 1.2 million of those, it would be devastating to the economy,” he said. “It would destroy our construction industry, which is a driver of a lot of our economic growth. It would destroy our agricultural industry. A lot of our oil-and-gas employment comes from there. We could never rebuild from Hurricane Harvey without that workforce. It would never happen.”
The ideal, Perryman concluded, is reform that provides more security while enabling the workforce to remain and to move back-and-forth more efficiently and more humanely than is possible right now.
“It’s a very tough issue politically. A lot of people don’t understand the underlying economics of it. It’s very easy to say ‘I lost my job because of an undocumented worker.’ That’s almost universally not the case.”

EDUCATION & INFRASTRUCTURE
The state must put resources toward infrastructure, Perryman said.
Innovations, like toll roads, are improving the situation, but there’s much more innovation required to afford the infrastructure improvements that are necessary.
“I think it will take a lot of public/private cooperation,” he added, amid an ongoing struggle between regions like East Texas struggling for funds that are often diverted to metro-areas. Meanwhile, “The Texas Legislature hasn’t been in the mood to increase funding for lots of things for a very long time.”
Lawmakers are focused on other issues, he said.
While the legislature has made use of the state’s rainy day fund, “As far as generating some new, ongoing sources of revenue for these kinds of things, they haven’t been able to do that yet,” Perryman added. At the same time, “I think some type of comprehensive school finance reform has to take place in the pretty near future. It’s going to take a lot of resources to educate the kids we have right now, and if we don’t we’re not going to be able to keep growing as an economy.
“I do think we have a day of reckoning coming where we’re going to have to invest some money now to avoid to some really difficult problems moving forward.”

TAX REFORM & TRADE
“The tax reform bill will clearly stimulate growth,” Perryman said last week. “You can’t put a trillion-and-a-half dollars into the economy and not stimulate growth. It will also increase the deficit. The bottom line is it will do a little bit of both.”
Ongoing efforts include elements for corporations that will be very beneficial to Texas, he added.
That said, “I think other things are driving most of our growth. You might add a tenth or two because of this you might not get for other reasons. I think it will have a net positive impact.”
The uncertainty on trade policy, like immigration reform, is a problem.
“When people have uncertainty about things, they tend to sit back and wait, not do things they might do otherwise. Our economy is based on people doing something, not doing nothing.”
Trade is important to Texas, Perryman said simply; the North American Free Trade Agreement (NAFTA) is important to Texas.
“If you have some of the things that have been discussed take place, that could be negative to Texas, but on balance there hasn’t been a big huge policy shift. On balance I think the tax reform has had a net positive effect on Texas.”

INTERNATIONAL FACTORS

“There’s always complexities in the world. Probably the biggest uncertainty we face right now is North Korea,” he said. “As an economic actor they’re not that important, but they’re certainly important from a political perspective.”
OPEC is still an important influence and still has the ability to disrupt the economy as it did in recent years by manipulating oil prices. That came at a cost, however.
“At this point in time I think they’re going to maintain a very tight production schedule because they need prices at least where they are right now to sustain a lot things they need to sustain,” he said. Conflicts in Central and South America could erupt and cause issues for the oil market, Perryman added, citing Venezuela. “There’s always international conflicts. There’s not one in particular that I’m concerned about. Russia has the capability to do a lot of harm in Europe” by, for example, cutting off the flow of natural gas, but “they can’t afford to do that.”
More imminent, he thinks, is the threat of cyber-warfare.
“I think our next outside force that comes in and does harm is very likely to be some kind of cyber-attack. Whether it shuts down the power grid, our financial system, our logistics system or what, there’s a lot of places we’re vulnerable in that regard.”

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