Commerce &Agriculture Commerce and Agriculture Commerce in Oklahoma According to the Oklahoma State University 2009 Economic Outlook, falling energy prices and the weakening United States economy are the two dominant factors steering Oklahoma’s economy in 2009. State job formation is expected to continue to slow along with the nation, eventually stalling in the first two quarters of 2009. Given the state’s current momentum and the anticipation that the national economy begins to improve in the third quarter of 2009, the forecast calls for a slowdown in hiring in Oklahoma leading to a slight year-over-year decline of -0.2 percent (2,800 jobs) in 2009. This is well above the expected -1.5 percent job loss at the national level and very similar to the state’s experience in post war recessions where the state was receiving an energy boost. The reported state unemployment rate has already increased from just above 3 percent in early 2008 to roughly 4 percent in recent data. The unemployment rate is only a rough indicator of labor market conditions but is expected to continue to rise slightly to an average of 5 percent through 2009. Current U.S. Economic Conditions The economic backdrop for Oklahoma has changed in dramatic fashion in the last three months of 2008. The initial blow from the combination of the housing collapse, the sub prime debacle, and surging energy prices stunned the national economy over the past year. The more recent combination of the collapse in the exotic derivatives market, the wholesale de-leveraging of the financial sector, and seized-up credit markets have brought much business lending to a halt. These are serious macroeconomic concerns that will undoubtedly bleed over into the economy of all fifty states including energy producing states in 2009. The combination of these factors could be at least equivalent to extreme monetary tightening by the Federal Reserve, akin to the action taken by Paul Volcker prior to the 1981–82 recession in a concerted effort to kill both the economy and inflation. Timing of the National Recovery It seems unlikely that the current set of conditions will unwind fully in 2009. The national economy has already shed 1.9 million jobs the past eleven months and economic conditions at the national level continue to deteriorate. The outlook for the national economy assumes that output (real GDP) will fall in the first two quarters of 2009 and rebound only slowly in the second half of the year. Job losses are expected to lag behind output and to continue throughout 2009, not showing meaningful growth until early 2010. The national unemployment rate is expected to average 7.7 percent in 2009 and rise above 8 percent by 2010 as more workers continue to enter a weak labor market. Total U.S. job losses are expected to exceed more than three million from peak to trough in the current recession, which suggests that the labor market has a long adjustment process ahead of it in 2009. This would place the correct recession roughly in line with job losses experienced in the 1981–82 recession. 922 Oklahoma Almanac Commerce and Agriculture Household Income and Consumption Personal income growth should slow markedly from the rapid 8 percent average pace enjoyed in 2004. Slower income growth in the 3 to 4 percent range through 2010 is expected. This will still outpace income gains at the national level and allow the state to continue to make up ground in relative per capita income. The forecast is for Oklahoma to reach nearly 95 percent of national per capita income by 2010, the highest relative level in the post-oil bust era. Retail sales growth is expected to follow income growth and ease to the 3 to 4 percent range in the slowdown. Industry Growth The state is currently about one year behind the nation in the current cycle in terms of the industry-level impacts on hiring. Cyclical weakness is currently being witnessed in a few industries but this is expected to spread to other industries in Oklahoma in 2009 much as it has nationally in 2008. Temporary employment (administrative, support, and waste management services), is expected to suffer the largest decline of nearly 5,000 jobs next year. Smaller job losses are expected in wholesale trade, retail trade, transportation, and warehousing and reflects the general slowing in income growth in the household sector. Non-durable manufacturing is expected to weaken sharply along with the nation, though durable goods manufacturing should continue to benefit from oil and gas activity. Job gains are nevertheless expected in oil and gas (natural resources and mining), utilities, educational services, health services, and the government sectors. The government sectors along with consumer services such as arts, entertainment, recreation and accommodation, and food services are expected to add a small number of jobs in 2009. Population Gains The strong overall growth in the state economy continues to stimulate net migration into the state. The U.S. Census Bureau reports population growth above 1 percent since 2006; however, the model based estimates suggest that this is understating the current level of in-migration and that Census estimates will continue to be revised upward. Much of the population increase is occurring in the metropolitan areas and rural communities as evidenced by the strong job growth rates in the non-metro regions of the state since 2003. The rural gains are driven primarily by three factors: oil and gas, agriculture, and the expansion of the state’s Indian nations and tribes. Possible Additional Economic Deterioration It remains a real possibility that both the national economy may weaken further and that energy prices could fall significantly below current levels. Hence, an evaluation of the potential impact on the Oklahoma economy using a more pessimistic scenario for national economic activity and energy prices is as follows: (1) U.S. GDP growth remains negative through the fourth quarter of 2009; (2) U.S. job loses extend through the second quarter of 2010; (3) oil averages $41 a barrel in 2009 and $57 in 2010; (4) natural gas continues to average $5.50 million per BTU in 2009 and $6.75 in 2010; and (5) the U.S. unemployment rate increases from 6.5 percent to 9.3 percent by 2010. State economic conditions are forecasted to downshift considerably under the pessimistic Oklahoma Almanac 923 Commerce and Agriculture scenario. The oil and gas boost is all but eliminated and begins to act as a constraint on overall state economic activity. In this scenario, state growth declines to -0.6 percent (10,000) jobs lost in 2009 before rebounding to only 0.7 percent growth in 2010. These numbers continue to compare favorably, however, to expected national job growth under these conditions of -2.1 percent and -0.9 percent, respectively, in 2009 and 2010. 2010—Oklahoma’s Risk Year In short, it is believed Oklahoma will slow along with the nation in the next six months, but remain one of the few states positioned to come through the current recession unscathed relative to many areas of the country. However, if energy prices continue to fall and the national recession lasts much longer than expected, 2010 becomes the risk year for the Oklahoma economy and may well signal the return of the familiar “Oklahoma Lag” relative to the nation. Selected Oklahoma Indicators 2006 2007 2008e 2009f 2010f Real Gross State 105,748 112,299.9 116,327.4 117,763.4 121,536 Product ($Mil) Real Personal Income ($Mil) 105,748 107,316.7 109,729 113,117.1 114,847 Wage and Salary 55,061.5 58,353.5 61,725.9 63,721.9 66,220.7 Income ($Mil) Ratio OK/US 89.2 90.6 91.9 92.8 94.0 Per Cap Income (%) Unemployment Rate (%) 4.1 4.3 3.7 4.9 5.2 Commercial Bank Total 40,311.9 43,169.9 46,643.5 47,592.7 47,590.7 Deposits ($Mil) Commercial Bank Total 33,368 36,224.4 39,275.6 40,454.9 41,614.5 Loans ($Mil) Taxable Retail Sales ($Mil) 39,671 42,391 45,135 46,803 48,256 Source: 2009 Oklahoma Economic Outlook, College of Business Administration, Oklahoma State University (e = estimate, f = forecast) 924 Oklahoma Almanac Oklahoma Gross State Product by Industrial Sector Actual (1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, and 2007) in Millions Major Industry 1999 2000 2001 2002 2003 2004 2005 2006 2007 Actual ($) Agriculture 1,439 1,618 1,480 1,785 1,777 2,294 2,154 2.035 2,149 Mining 3,204 5,667 6,307 6,028 9,161 11,598 16,301 20,882 19,536 Contract 3,374 3,557 4,076 3,909 4,051 4,222 4,772 5,162 4,450 Construction Manufacturing- 7,845 7,973 7,587 6,760 6,802 7,373 7,964 9,090 9,554 Durable Manufacturing- 4,112 4,284 3,927 4,051 4,575 4,332 4,661 4,909 5,954 Nondurable Wholesale and Retail 11,426 11,695 12,312 12,760 12,960 13,643 14,370 15,397 15,940 Trade Finance, Insurance, 11,883 12,754 13,630 14,180 14,931 15,819 16,442 18,327 17,743 and Real Estate Transportation & 5,020 5,189 5,527 5,804 6,066 6,417 6,668 7,238 8,415 Utilities Oklahoma Almanac Services 17,750 18,696 20,033 20,926 22,208 23,506 24,775 26,950 29,068 andAgriculture Commerce Government 13,994 14,885 15,698 16,678 17,296 18,284 19,392 20,551 21,811 Source: 2007 U.S.