With the national economy in its current condition, it’s natural that locally people start to wonder if Acadiana’s economy will be affected the way other regions and states have been. Economic hardship is no stranger to Acadiana. When the bottom fell out during the oil bust of the mid-1980s, the effect could be felt in all sectors and at all levels of the economy. Unemployment rates were in the double digits, and people were leaving the state to look for other opportunities. It was a time for serious reflection and a re-evaluation of Lafayette and Acadiana’s economic makeup.
You hear me use the word diversification often. That’s because diversification was key to Lafayette’s economic rebound in the 1990s and the continued success we’ve experienced for the past decade. With Lafayette serving as the regional hub for health care, professional services, retail, entertainment, and post-secondary education, a sustained drop in oil prices today may have a negative effect on Acadiana’s economy, but overall we are in a better position to handle the impact than we were in the 1980s.
Even within the energy industry we are diversifying. While oil and gas is still the major industry in Acadiana, other energy segments such as renewable energy, electric power, and solar energy are being pursued and developed in the region. It’s our continued diversification with and within the energy industry and not away from it that contributes to the economic vitality of the community and Acadiana.
LEDA tracks various oil and gas statistics, many of which are viewed as leading indicators of what may happen to the overall economy six to 18 months down the line. As we see oil company stocks rise, or in some cases fall, changes in other statistics such as construction, wages, and retail sales follow suit. With that being said, it may be months before we see the impact of this summer’s record high oil prices and several more months to see the impact of the current dip in oil prices.
Other oil and gas numbers tell a similar story about what’s happening or about to happen in Lafayette. Increased drilling activity, tracked by drilling permits and rig counts, means increased production. When rigs and wells are in operation, local oil and gas service companies are supplying the manpower, tools, maintenance and other necessary services to keep production moving. As more companies engage in traditional wealth-creating industries (mining and manufacturing) the economy is positively impacted. Notice the parallel between drilling permits and rig count in the accompanying charts. Average annual crude oil prices, collected from the Louisiana Department of Natural Resources, reflect a similar growth pattern — increasing from $25/barrel in 2001 to more than $74/barrel in 2007 and $117/barrel so far this year. During the periods of lower oil and gas activity exhibited in these charts, our economy slowed somewhat but did not stagnate because of its diversification.
The most important oil and gas figures we track are employment numbers. There’s no easy way to calculate how many people are engaged in occupations that directly or indirectly tie to the oil and gas industry. It would be virtually impossible to track every company, and individual in that company, who contributes to the overall success of the energy industry. We do attempt, however, to at least track those directly employed in the oil and gas production and support activity companies. Employment in the oil and gas industry continues to grow steadily. On average, more people are employed in the mining industry this year than there were in any year since 1998.
As I mentioned earlier, growth in the oil and gas industry also affects other indicators. Retail sales specifically are immediately affected by the overall economic state. Increased workers in high-paying industries will lead to more spending thus higher sales. We have seen a congruency in oil prices and production and retail sales in the past couple of years. Retail sales so far this year follow that same pattern, with a 3.89 percent year-to-date increase over 2007 which parallels the increase in oil and gas employment.
There is a caveat, however. We can only view these numbers at face value. While the numbers are currently positive, there’s no sure way to tell how the national economic turmoil may affect Acadiana’s oil and gas industry, and in turn our overall economy, in the long-term. What I do know is that no matter what transpires in the coming months or years, Lafayette will continue to embrace that “wildcatter” mentality, and our entrepreneurial spirit will continue to open doors to bigger and better opportunities.
Gregg Gothreaux is president and chief executive officer of the Lafayette Economic Development Authority.