Economists and state officials are reaching for their calculators as to predict how the Texas economy will respond to lower oil prices. We’re already seeing falling oil and natural gas revenues pinch incomes and constrain spending, including layoffs at some energy companies. But is there also a silver lining? Could the downturn in the energy sector also mean savings at pump and a new eagerness to spend?
Lower Gas Prices = More Road Trips
The average price of gas in Texas dipped to $1.82 a gallon in late January, and though it’s climbed back to $2.17 today, it’s still a dollar cheaper than the state average a year ago, according to the Automobile Association of America (AAA). The U.S. Department of Energy’s Energy Information Administration predicts the average price of gas will remain under $3 per gallon for the coming year.
With those savings, drivers are starting to hit the road more.
Recent numbers show consumers are putting extra gas in their tanks, though not enough to help station owners recover the revenue they’ve lost to lower prices.
And highway-friendly tourist destinations might want to expect more guests this year. Texas’s state parks registered 1,740,000 visitors between September and November 2014, when gas prices were starting to fall, nearly 200,000 more than the same period the year before.
The Texas Parks and Wildlife Department (TPWD) says the price of gas is just one variable among many that affects park attendance, which is complicated by the state of the economy. All the same, Rob McCorkle of the department suggests that if you are going to take advantage of low gas prices and hit the road, visit Palo Duro Canyon, which he calls “a true gem.” Located in the Panhandle, the park is far from the state’s population centers, but a cheaper opportunity to drive there hasn’t been around for a while.
Time for a Tune-Up
Jacob Loyd, who owns Patriot Engine and Transmission, a mechanic shop on Manor Road in Austin, says he’s seen a lot of new business this year. He’s noticed that customers spend more when gas costs less.
“Back when gas started going up, in 2006 and 2007, we took about a 50 percent decline in business over two years,” he says. “And then when gas prices started dropping back down again, our sales right now for January are about 30% larger than last year.”
Fewer Drilling Trucks = Safer, Better Roads
As the energy industry slows down in response to depressed prices, there will be fewer tankers and heavy rigs on the roads, which should result in fewer accidents. Crashes and fatalities shot up during the boom years in the major oil and gas producing counties. The Texas Department of Transportation (TxDOT) recorded a seven percent increase over the previous year in traffic fatalities in the Eagle Ford Shale, which covers 26 counties, in 2013, and a 15 percent increase in fatalities in the Permian Basin area, which covers 59 counties.
TxDOT is allocating approximately 30 percent of its $1.74 billion budget to repair roads damaged by oil and gas production. It’s also responded to the rise in fatalities through a “Be Safe. Drive Smart.” campaign. Now TxDOT’s job of making the shale roads safer might become somewhat easier thanks to less tanker trucks and heavy machinery in these areas.
Cheaper Gas = More Splurging
Glenn Hegar, the State Comptroller, sounded an optimistic note when he delivered the state’s biennial revenue estimate in January. He predicted that the economy would see “moderate” growth despite the energy sector slowdown, and that the budget would make up for the energy revenue shortfall.
“This decline in oil prices and its implications for the Texas economy comes at a time when the national economy appears to be picking up steam,” Hegar said at the time. “Strength in the broader economy, such as in construction and professional and business sector services, should help counterbalance a marked slowdown in the Texas energy sector.”
So far, his optimism seems to have been well-founded. Tax revenues for the fiscal year, which began in September 2014, are up 6.8 percent compared to the same period the year prior, propelled by a 9.5 percent increase in sales tax revenues, a 13 percent increase in motor vehicle sales and rental tax revenues, and a 6 percent increase in fuel tax revenues. Encouraged by a stronger economy and lower gas prices, Texans not directly impacted by the oil and gas downturn are likely to spend more on retail goods.
Americans aren’t spending all their savings on new consumption, though. They’re replenishing their rainy day funds and likely paying off their credit card debts. Data collected by the Federal Reserve indicates that the personal savings rate ticked up from 4.3 percent in November 2014 to 4.9 percent in December. That’s good news for banks and credit unions, who should see more liquidity on hand.