A quick look at a timely topic of interest – with a brief review of why it could matter to investors.

Chart of the Week

February 2, 2015

US jobs: oil bubble, toil & trouble?
% of total net new jobs created since previous employment peak in January 2008

chart

Source: US Bureau of Labor Statistics, via Bloomberg, as of 12/31/2014. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • The US energy sector's recent boom years have had a major impact on US economic growth and new job creation.
  • It also helps to explain the uneven level of recovery between different parts of the country.
  • Consider that the top five oil-producing states¹ have accounted for nearly 94% of all net new jobs growth in the US since the pre-recession peak in employment in January 2008. Without jobs growth in the top ten oil producing-states², there would have been no net new job creation.
  • Of course, not all of those jobs were in the oil patch, but strong growth there had derivative effects, including the creation of jobs in related sectors: for every one American that works in the oil & gas industry (approximately one million) there are reportedly 9 others employed in jobs supported by, or related to the energy sector.
  • Given the collapse in oil prices since the fall of 2014, there's broad concern that job growth in general could retreat.
  • When oil prices were in the $100+ range—and with new extraction technologies available—there was an open invitation for risk takers to shift capital and to the energy. That led to increased capital expenditures and jobs growth in the oil sector.
  • Now, lower prices may signal that the return on capital might be greater in areas of the economy that benefit from lower oil prices – pushing up growth in other industries and compensating for a downturn in the energy sector.
  • Whether the net effect of any such shift is positive remains to be seen. It's too early to draw any hard and fast conclusions about jobs growth since oil prices peaked last June, but it could already be shifting—given the acceleration in overall jobs growth.³
  • What is probably clearer at this point is the likelihood of continued volatility in the markets as investors attempt to ascertain the appropriate level of individual asset prices in the wake of a lower energy environment—a task that's potentially well-suited for those focused on fundamentals of individual companies.

The chart:

  • The chart shows the percentage of total net new jobs created since previous employment peak in January 2008 in the top 5 oil –producing states and the percentage created in the other 45 states + Washington DC.
  • The total net increase in non-farm payrolls from January 2008 to December 2014 was 1.73 million—1.641 million were created in Texas, North Dakota, California, Alaska and Oklahoma.

¹ Source: Bureau of Labor Statistics via Bloomberg and Energy Information Adminstration. Texas, North Dakota, California, Alaska and Oklahoma.
² Source: Bureau of Labor Statistics via Bloomberg and Energy Information Adminstration., T exas, North Dakota, California, Alaska, Oklahoma, New Mexico, Louisiana, Wyoming, Kansas and Colorado.
³ Source: Bureau of Labor Statistics via Bloomberg. The six-month average monthly gain in nonfarm payrolls in December was the highest so far for this recovery. The top 5 oil-producing states accounted for 27.5% of that increase, but that's down from 28.5% over the previous 12-months.


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