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Are we still in a recession?

Don Stowers

The New York Times recently ran an article on its website with the headline: "People Think We're in a Recession. Don't Blame Them." That's what I want to focus on in this month's column.

Technically, the United States economy emerged from the so-called "Great Recession" back in June 2009 – five years ago this month. So why do some people still think we're in a recession?

In part, it's because people don't look at the technical definition of a recession. They are really responding to the question: Is the economy good? To some people in some parts of the country, the answer is no.

Back during a previous economic downturn in the 1980s, someone told me: "If your neighbor loses his job, it's a recession. If you lose your job, it's a depression." Therefore, the answer to "Are we still in a recession?" depends on your perspective.

According to a survey from the London-based firm Absolute Strategy Research, nearly a third of Americans think the economy is in a recession or even a depression. The survey also found that 85% of the 1,000 adults polled said they were worried about their personal financial situations.

Although the US has had nearly negligible inflation in recent years, the survey also found that 26% of those surveyed said that "a rise in the cost of living" was their top concern.

Despite years of modest gross domestic product growth and strong stock market gains, the economy still isn't good for many Americans. Nationally, the labor market is only improving modestly and wages haven't risen much. An economist with the University of California, Berkeley has research that shows 95% of income gains between 2009 and 2012 accrued to the top 1% of income-earners. Higher corporate profits and improved stock prices haven't given us significantly higher wages for the vast majority of workers.

This doesn't seem to be true in the booming oil and gas sector. In Houston, for example, arguably the energy capital of the world, the Houston Chronicle ran a story recently about how jobs are going unfilled, not just in energy but in health care and many other industries. And these are not just upper-tier executive jobs either. Even companies looking for entry-level employees with little or no job experience are having to dig deeper into their pockets to pay higher salaries due to worker demand. The jobless rate in Houston is a full 2% below the national average.

A spokesman for one search firm said that job applicants often have more than one offer, so employers are having to shell out more or risk losing the prospect to a competitor, a situation that companies would not have imagined was possible a year ago.

Anecdotal evidence indicates that increased drilling and production activity and the infrastructure building that goes hand-in-glove with it are key factors in job growth in geographic regions impacted by shale development. North Dakota is a notable example because it has a small population and small economy that has benefited enormously by the Bakken shale play. Texas, which has both the Eagle Ford shale in South Texas and the multi-layers plays of the Permian Basin in West Texas, is also growly rapidly. Has anyone visited Midland or Odessa recently and seen all the new construction or tried to find a hotel room on short notice?

Those of us who have been following the oil and gas industry for years are aware that the industry tends to be cyclical with an ongoing series of boom and bust cycles. Is this still a concern for people who make their living in the petroleum industry or who are somehow dependent on it for their livelihood?

The global research and consulting firm Wood Mackenzie says no. In a report released in March, Wood Mac says the US tight oil market is "too robust to bust," adding that 70% of US reserves would remain economic even if global oil prices fell to $75 a barrel.

Brent crude oil pricing remains in excess of $100 a barrel, and almost all tight oil proven reserves are commercially viable at today's prices, said Dr. Harold York, principal downstream research analyst for Wood Mackenzie.

This is noteworthy because producers are focused on oil and gas liquids in today's price environment. Natural gas prices haven't risen much in the past several years, but this may start to change by 2016-2017 as LNG export facilities began to export gas to overseas customers. Opening up new international markets for US gas will create jobs domestically as producers ramp up activity in gassy plays such as the Haynesville (in Louisiana and Texas) and the Marcellus/Utica (Pennsylvania, Ohio, and West Virginia).

Mexican energy reforms could also be good news for US companies, which are preparing to bring the latest drilling and completion technologies to Mexico's upstream sector. Oilfield service companies will be a major beneficiary of these reforms.

Forbes magazine says that economic forecasts for the US are looking better. Economists are upgrading their predictions for 2014 and 2015. The improvement is clearly visible, and the risk of returning to a recession has lessened. However, we shouldn't forget that for those who lost their jobs in 2008-2009 and are underemployed or still looking for work, the recession has not ended. We can only hope that a rising tide lifts all boats.

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