Lower oil prices are supposed to be a boon for the U.S. economy, but one look through the job numbers shows it could bring the country’s recovery to an abrupt halt.
Only a few months ago, booming shale production from formations like the Eagle Ford and the Permian Basin had turned Texas into a jobs gusher. It was a pillar behind America’s economic recovery after 2008. Today, however, energy companies are shuttering projects and sending out pink slips as they struggle to cope with low oil prices.
The latest example happened on Tuesday, after ConocoPhillips (NYSE:COP) announced plans to fire 10% of its global workforce. Over the next several weeks, the E&P giant expects to cut 10%, or 1,800 people, of its global workforce. (Source: ConocoPhillips to cut 10 percent of global workforce, Houston Chronicle, September 1, 2015.)
The largest portion of the job cuts will come from Houston, where the oil producer drills for crude in the shale plays of South Texas. ConocoPhillips has informed employees that more than 500 of the firm’s 3,750 positions in Texas will be eliminated.
“We’ll know more in the next several weeks as we work through our formal process,” company spokesman Daren Beaudo said in an e-mailed statement. “As we have assessed the implications of lower prices on our business, we’ve made the difficult decision that workforce reductions will be necessary.”
And this isn’t the first major oil company to announce massive job cuts, either. Last month, Royal Dutch Shell plc (NYSE:RDS-A, RDS-B) released plans to slash 6,500 positions, with a heavy concentration in the Lone Star state. The day before, American oil giant Chevron Corporation (NYSE:CVX) announced plans to cut over 1,500 jobs. (Source: Royal Dutch Shell Profits Continue to Fall, Prompting Layoffs, New York Times, September 1, 2015.)
These headlines underscore a very real problem underlying America’s so-called economic recovery: while economists like to talk about how low oil prices are a boon for the consumer, the energy industry has been almost solely responsible for every job recovered since the financial crisis of 2007.
Texas, in particular, has been the biggest jobs creator for the U.S. economy. Thanks to its shale energy boom, the state has added more than 1.2 million new jobs since the start of the Great Recession in 2007. The rest of the U.S., meanwhile, has just barely recovered all of the non-Texas jobs lost during the recession. Without Texas, America’s unemployment rate would be much closer to seven or eight percent.
Source: Bureau of Labor Statistics
Even the meager jobs recovery in “non-shale” states can be mostly credited to the Texas drilling boom. Some support jobs related to shale extraction, college courses to educate new welders, and manufacturing of parts for drilling equipment are mostly done in states without big shale reserves.
Bottom line; “Saudi Texas” was the shining star of The Great American Shale Boom. Without a perfectly-timed shale revolution, there really has been no U.S. economic recovery.
But hey, don’t worry. I’m sure all of these formerly highly-paid roughnecks, engineers, and technicians will find jobs flipping chicken burgers at their local recently IPO’ed El Pollo Loco.