Oklahomans are feeling widespread pain because of the nation’s economic shutdown in response to the coronavirus pandemic and a resulting glut in the demand for oil. Economic recovery in the state will be slow through this summer and into the winter, according to economists at Oklahoma State University, who predict that as many as 10,000 jobs could be lost in the energy sector alone.
“It’s not a pretty picture,” said Dr. Dan Rickman, a Regents Professor in Economics and a researcher at the OSU Center for Applied Economic Research (CAER) at the Spears School of Business. “Oklahoma faces economic fallout from both COVID-19 and collapsing oil prices.”
Rickman and CAER director Dr. Hongbo Wang have written an economic forecast for the state and the economists warn that the downturn in Oklahoma’s economy will get worse before it gets better. Contraction in the energy sector will lag behind the restart of the rest of the nation’s economy as energy companies facing low oil prices continue to shut down production. Rickman said the success of the national recovery also depends on the country’s management of the pandemic and how carefully businesses are brought back online. Analysis by IHS Markit forecasts U.S. gross domestic product (GDP) will not begin to rebound until at least the fourth quarter of this year.
Rickman said economists are concerned about the nation’s ability to restart the economy without improved testing and tracking of the coronavirus to avoid flare ups and the need to lock down parts of the country again.
The OSU economists forecast a 21 percent drop in the state’s gross domestic product in the second quarter of 2020 that began April 1. If there is a bright spot, the state’s GDP is expected to be better than a forecasted national GDP decline of 26.5 percent. Those losses far exceed the decline in GDP in any period during the Great Recession of 2008-2009, according to Rickman.
Much of Oklahoma’s recovery depends on the price of oil, Rickman said, which dropped to around an average of $20 per barrel for the benchmark West Texas Intermediate crude in early April as the pandemic worsened, oil demand evaporated, and OPEC producers failed to agree on production cuts. IHS Markit had forecast the price of oil to drop to as low as $12 a barrel this quarter, but a recent OPEC meeting and promised production cuts stabilized prices. The U.S. Energy Information Administration now forecasts the price for West Texas Intermediate will rise but stay below $30 a barrel through the end of this year. With oil selling at around $30 a barrel, the OSU economists estimate mining sector employment in the state will bottom out by the start of 2021.
“We’re predicting a loss of about 10,000 jobs in the energy sector, but the losses would be another 10,000 if we had that complete collapse in oil prices at $12 a barrel,” Rickman said.
The OSU report also forecasts total employment growth and wage and salary growth in Oklahoma will lag behind the nation through next year. And those forecasts already take in consideration the federal government’s $2.2 trillion pandemic stimulus package and unemployment compensation, the benefits of which dry up by the end of the year.
“We’re not experiencing as severe a drop in the second quarter because the energy sector has a lag response to price changes, but as we start restoring parts of the national economy later this year, we’ll still face the fallout from the decline in the energy sector. That will give us additional weakness through to the end of the year,” Rickman said.
Visit https://business.okstate.edu/economy/index.html to learn more about the Center for Applied Economic Research and read more research reports.
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