Dallas economist analyzes TX job growth trends in services, oil

By Staff | January 23, 2018

Economists and researchers at the Federal Reserve Bank of Dallas have analyzed how job growth in Texas has changed during different oil cycles. Although oil prices and oilfield activity will always play a part in the job curve, new insight shows that Texas job growth swings more with services than oil. Below is an economic letter explaining the research and findings. 

-As the Texas economy diversified after the 1980s oil bust, the link between overall economic growth and the oil and gas sector weakened. The sector’s connectedness with the state economy increased again with the shale boom. However, service sector employment, especially in financial activities and professional business services, became increasingly prominent following the Great Recession.

Expectations that Texas would fall into recession after the oil price collapse in 2014—just as it did in the energy bust of the 1980s—were not realized. While growth slowed during the most recent decline, the shock to the oil and gas sector did not spread to other sectors in a way that significantly weakened the overall state economy. The importance of oil and gas, which drove Texas economic growth in the 1970s and 1980s, waned as the sector’s share of both state gross domestic product and employment fell after the oil bust. The sector’s prominence rose once again in the late 2000s with the shale boom as its share of state employment doubled from levels recorded during the depths of the 1980s oil bust. Yet the oil price shock in 2014, when crude prices fell 50 percent, did not push Texas into recession. To understand why Texas was more resilient this time, it is helpful to examine the interconnectedness of different sectors of the economy.

Although the upstream oil and gas sector became more closely linked with other sectors of the Texas economy in the 2000s, it is less central to the Texas economy today than it was during energy’s previous heyday. Instead, service-providing industries—particularly financial and business services—have achieved outsized contributions to overall connectedness across the economy. Furthermore, the oil and gas sector is currently tied mainly to refining and oilfield machinery manufacturing, while financial and business services are linked to a wide range of sectors. The diversification of the Texas economy since the 1980s toward service-providing industries, together with the greater linkages of financial and business services, likely helped insulate the Texas economy from the latest oil price drop.

Measuring Connectedness

Analyzing the connectedness of various sectors of the economy provides a way to gauge how sudden changes in job growth in one sector might affect growth in others. Specifically, it is helpful to empirically measure how much swings in one sector spill over and cause fluctuations in others, regardless of the underlying source of those swings.1 We use monthly Texas employment data for 13 distinct sectors. The sectors are (1) upstream oil and gas, (2) construction, (3) refining and oilfield machinery manufacturing, (4) other manufacturing, (5) professional and business services, (6) financial activities, (7) wholesale and retail trade, (8) transportation and utilities, (9) health services, (10) educational services, (11) leisure and hospitality, (12) information and (13) government. Refining and oilfield machinery manufacturing are termed oil-related, while other manufacturing is non-oil-related. Together, this mix covers more than 95 percent of total Texas employment.

To view the full economic analysis from the Federal Reserve Bank of Dallas, click here.