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2016 was a great year for Tyler area economy, despite oil decline and other factors

Roy Maynard - Tyler Morning Telegraph

The most striking thing about 2016 is that it wasn’t 1986. But it could have been.

Longtime Tyler residents will remember 1986, when a glut of world oil reserves sent crude prices plunging. The East Texas economy suffered as many were thrown out of work and the effect rippled throughout the region and state.

In recent years, another drop in oil prices might have had the same result - but a more diverse economy has prevented that.

Overall, it was a great year for the East Texas economy and business community. The most reliable indicator of an area’s economic health - home sales - is set to break records in 2016, when the final numbers are in.

Robust building activity, in both the residential and commercial sectors, shows healthy economic growth, numbers from the city of Tyler’s Planning Department indicate.

Unemployment was low and continues to drop in the region, well below what most economists consider “full employment" - the level at which anyone who wants a job has a good chance of finding one. That level is usually said to be 5 percent unemployment. Tyler is now at about 4.2 percent.

Yet at the same time, Saudi Arabia’s goal of killing the hydraulic fracturing (fracking) revolution through overproduction - thereby sending oil prices so low that frackers can’t make any money - has had an effect.

In recent weeks, the Saudis have acknowledged defeat and will soon reduce production. But worldwide oil prices have been unsustainably low for months.

In Tyler, the effect has been seen in lower sales tax receipts, and oil industry workers have seen their incomes dry up; in fewer hotel/motel tax receipts, and in less traffic at the Tyler Pounds Regional Airport, which lost United's business and Tyler-to-Houston routes in 2016.

All of these are directly related to low oil prices. And in prior years, they might have tanked the economy as a whole.

Why didn’t they? Economist Ray Perryman explained the reason in his annual economic forecast in January 2016.

First, the region has diversified. He mentioned the strong health care sector in East Texas, the robust real estate and construction markets and higher education.

The other reason is the lifting of the oil export ban. As part of the budget deal of 2015, Congress and President Obama lifted a ban in place since the energy crisis of the 1970s. That has changed the dynamics of the world oil markets, Perryman said.

“Look at the tension in the Middle East,” he said. “Look at (the ongoing conflict between) Saudi Arabia and Iran. Normally, with headlines like that, you would see oil prices spike. Instead, we see oil prices drop another 12 cents. What’s different? We lifted the oil export ban.”

Last January, Perryman correctly predicted that 2016 would be another tough year for the industry - oil was $35 per barrel on the day he spoke, down from a high of $140 per barrel - but a pretty good year for the rest of the economy.

He was right.

 

THE POSITIVES

Home sales mean so much more than just a new house and moving day. Home sales mean that jobs are secure enough that families feel comfortable committing to mortgages. They mean strong retail sales, as families buy the big-ticket items to fill their new homes, from washing machines to couches to home entertainment systems. Home sales mean work for the skilled trades, as homes are built and renovated and spruced up to go on the market.

Most of all, home sales represent the healthy flow of capital throughout the economy.

“Real estate is the foundation of the economy because it’s not just shelter, it’s an investment in our future,” said Claudia Carroll of the Greater Tyler Association of Realtors. “People buy houses when they feel good about what’s going on in their lives. It’s an emotional investment as well as a financial investment. People only do it when they’re positive.”

Tyler is set to break the record. According to GTAR, 2,353 homes were sold in Smith County in the first 11 months of 2016. The total of all of 2015 was 2,492. Even moderate sales in December mean that Smith County will have a record-breaking 2016.

And that’s not just in per-unit sales. The dollar volume of residential sales should also break a record. In 2015, home sales totaled $482.2 million. In the first 11 months of 2016, the year-to-date total is $470.5 million. Ms. Carroll said she’s confident December will put 2016 over the top.

“We’re thrilled about the coming year,” she said. “We had a great 2016, and there are so many positives. People are feeling very good.”

It goes beyond the residential sector.

The city of Tyler’s Planning Department is busy with new construction and major remodels, said chief building official Bill Johnson.

“It’s been a very healthy year for building activity in Tyler,” said “I don’t know if we’re going to break records, but we’re trending along well.”

Another indicator of a region’s economic health is the unemployment rate. It has been nearly this low before - it hit 4.1 percent in 2007, before the housing crisis and economic downturn sent the nation into the Great Recession of 2008.

And Tyler unemployment peaked in 2010 at 7.9 percent, with a much larger underemployment rate hidden by even that troubling figure.

Yet the recovery has been slow but steady, and unemployment has been dropping since then. It’s now at 4.2 percent.

What that means for the region is impending growth. A low unemployment rate - especially with a well-educated workforce, as East Texas can boast - is a powerful lure for new businesses and new economic ventures.

“The low unemployment rate is a positive because it means that most everyone who wants to work is working,” said Tom Mullins, president and CEO of the Tyler Economic Development Council. “Those still unemployed typically have physical or other barriers keeping them from entering the workforce.”

There’s a downside, however. An unemployment rate much lower than this can actually scare new businesses away.

“A low rate is a negative because it makes it difficult for employers to find qualified people,” Mullins said. “That’s why the Tyler EDC documents the labor force in a 35-mile radius because those workers would prefer to work in Tyler rather than leave the East Texas region. In addition, we have worked hard to support expanded educational and technical training programs with Tyler ISD and surrounding schools, including our higher education institutions.”

 

THE NEGATIVES

Still, it’s been a rough year for the oil and gas industry. Prices are up, with Brent Crude surpassing $55 per barrel in the week before Christmas.

But the low prices have been felt in every sector of the economy.

The last United Airlines flight departed Tyler Pounds Regional Airport in April. Passenger demand for the Tyler-to-Houston route - a staple during the oil boom days - dropped so much the airline could no longer justify the route. Airport data showed Tyler Pounds saw a 16.1 percent drop in total passenger numbers from 2014 to 2015.

As a result, airport activity declined in 2016. The Tyler airport saw an all-time high of 168,645 passengers in 2014. That fell to just 96,092 (year-to-date) in 2016. Holiday travel will bump those numbers up a little, officials said, but it will still be a troubling decline.

And hotel/motel receipts are down, as well. This is an important revenue source for the city of Tyler, but it’s also an indicator of economic health.

The city has seen its hotel/motel occupancy tax revenues decline from a high of $3.75 million in the 2014-2015 fiscal year. Currently, it’s down an estimated 6.2 percent year-to-date. The city’s fiscal year runs October through October, so there’s time for revenues to increase. But, for now, it’s something city officials are watching.

Sales tax receipts also are a concern. Those numbers continued to drop throughout the year.

“Revenues are short of budget,” the city of Tyler’s Chief Financial Officer Keidric Trimble said in October. “The city will continue on with a hiring freeze that was implemented during last fiscal year for general fund positions, with the exception of public safety.”

The 2016-2017 budget was based on an anticipated 2.5 percent increase in sales tax revenue over the 2014-2015 budget. That year, the city brought in $27.4 million in sales tax revenue. The city budgeted for $28 million in sales tax revenue, an increase of just more than $550,000 from that year.

Receipts were down 4.2 percent at the end of the fiscal year, according to the TEDC.

Officials said that rising oil prices could soften the year-end blow and even reverse the trend in coming months.

 

THE HIGHLIGHTS

The TEDC can point to some big projects that came to fruition in 2016.

Those include the Fresenius Medical Care center, an $11.2 million call center for the Germany-based renal care company. It broke ground in March, and workers are already moving in. The company is expected to add as many as 350 jobs - with average salaries between $45,000 and $50,000 - in coming months.

In 2016, GG Distributing announced its acquisition of a new distribution center - a disused U.S. Postal Service facility near the intersection of Farm-to-Market Road 3311 and Interstate 20 in Owentown. The $15 million project will bring an estimated 160 jobs.

Kent Water Sports built additional warehouse space on its facility, and looks to add 20 jobs.

And finally, Vehicle Reman opened a facility that will rebuild old fleet vehicles to like-new condition, to be sold at about half the price of new. The $1.8 million facility could soon employ up to 100 skilled workers.

Another tangible indicator of the region’s economic health is the number of new restaurants and retail shops that have opened in the past year.

It was a huge year for The Catch, a new Tyler-based franchise by restaurateurs Scott Norden and David Weaver. The first location opened in late 2015, and the chain now has eight locations, including restaurants in Longview, Lindale, Waco, Burleson, Texarkana and Atascocita.

The newest Tyler location is The Boiling Catch on South Broadway Avenue.

One closely watched development was the announcement in June 2015 that a La Madeleine Country French Café was coming to a new restaurant and retail center at Loop 323 and Old Bullard Road. That project came to fruition in mid-December, when La Madeleine held its grand opening.

New restaurants populated The Village at Cumberland Park, as well.

All those new restaurants and retail shops indicate a healthy economy and disposable income; they also provide employment for some of the 20,000 students in East Texas colleges and universities.

 

THE FUTURE

With oil and gas prices rising - albeit slowly - and the weight of a presidential election behind us, positive trends that began in 2016 could continue to play out in 2017. The TEDC’s Tom Mullins said he’s optimistic about the new year.

“We’ve got more promising (economic development) projects in the pipeline than we’ve ever had in half a dozen projects totaling almost 2,000 jobs in the TEDC,” said Mullins. “These are things we feel very positive about. And we’re also very encouraged by the new paradigm politically. Regardless of how you voted in the election, we’ve got folks going in (to the Trump administration) who are going to be very friendly to business and deregulation and to oil and gas.” 

Twitter: @tmt_roy