×

Texas jobs, consumer economy feel the low price of crude oil

Lower oil prices and the loss of thousands of jobs in energy hubs such as Houston and Lubbock are pinching consumer discretionary spending in Texas, with weakness being noted in the third-quarter earnings of companies in such areas as hotels, restaurants and auto sales.

Rusted out "pump-jacks" in the oil town of Luling, Texas.
Getty Images
Rusted out "pump-jacks" in the oil town of Luling, Texas.

Trends also highlight how the statewide economic outlook is taking a turn for the worse. Texas' real gross domestic product is forecast to slow to 2.4 percent growth in 2015 — well below the 5.8 percent rate clocked in 2014, according to figures from the Texas Comptroller's Office.

"The center of the weakness is certainly Houston, because of the energy services industry," said Wedbush Securities analyst Seth Basham, who wrote a report last week that highlights how more consumer companies are seeing Texas-driven weakness and talking about it on their recent earnings calls. "We've seen other cities that are very skewed to energy services like ... Odessa and Lubbock are also being impacted."

"We didn't see any impact on the labor market until January of this year. ... It took a little bit of time at first and now it's hitting at full force." -Pia Orrenius, senior economist, Federal Reserve Bank of Dallas

Nearly two dozen companies reported softening trends in Texas in the September quarter, or said they expected weakness to hit over the next several quarters. Several companies with exposure to the Lone Star State also cited negative effects from the weather and the weak Mexican peso on the border economy.

Consumer companies talking about the Texas economy include:

  • Michael Kors Holdings Chairman and CEO John Idol, who told analysts during the luxury retailer's Nov. 4 earnings call that "all of us are now being impacted in parts of Texas because of oil prices there. That's a little bit less tourist, but some of it's related to the Mexicans shopping across border with the peso to the dollar."
  • Dallas-based Brinker International, which is struggling with sales given that about 30 percent of company-operated Chili's restaurants are in energy states such as Texas. "The whole state is soft," said President and CEO Wyman Roberts. "This isn't something we're experiencing in isolation. … The whole industry is a little more challenged in Texas than in other parts of the country right now."
  • "Texas softened up a little bit," Denny's President and CEO John Miller told analysts during the restaurant company's Nov. 3 earnings call. "You see that falloff in the smaller areas, Midland, Odessa and the smaller towns."
  • The state of Texas represents approximately 18 percent of rent-to-own giant Aaron's sales, and company President Steve Michaels told analysts on an Oct. 30 call that "stores across the state are experiencing negative impacts."
  • "There is a very slight impact in certain Texas markets," Group 1 Automotive President and CEO Earl Hesterberg told analysts during the auto dealer's Oct. 27 call. "We have a BMW dealership in downtown Houston that services the energy company headquarters. … That dealership has been impacted."
  • "West Texas is going to continue to be tough," said Dennis Fink, CFO of Haverty Furniture. He told analysts listening to the retailer's Oct. 29 earnings call that "Texas was our hottest state we had, and now it is a bit of a drag."
  • About one-fourth of La Quinta Holdings' hotel rooms are located in the Texas market. "Texas was impacted not only by the oil business but the biblical rain that we've experienced in the region," said Keith Cline, interim CEO of Texas-based hotel chain.
  • Tempur Sealy International CEO Scott Thompson said during the mattress maker's Oct. 29 conference call that the company has been through three major downturns in the oil business and "you don't feel it immediately; it takes a while. Although the third quarter … came in strong, I would expect going forward that we would begin to feel some weakness in those marketplaces over the next few quarters."

While some casual and higher-end restaurant chains are hurting in Texas, fast-food chains such as Sonic and Jack in the Box report they are still seeing positive sales trends in the state. "We're seeing a trade-down effect where some people are trading down from casual dining to quick service dining," said Wedbush's Basham.

Meanwhile, figures from the Texas Alliance of Energy Producers show that upstream oil and gas employment peaked in December 2014 at about 306,000 jobs. From that top through October 2015, there's been an estiamted loss of "a conservative 56,000 jobs — perhaps more," the group's economist Karr Ingham said.

Outplacement firm Challenger, Gray & Christmas puts the number of oil-related job losses in Texas this year at 79,800.

Figures from the U.S. government point to jobs losses in Texas as well, at least anecdotally.

"We didn't see any impact on the labor market until January of this year," said Pia Orrenius, vice president and senior economist at the Federal Reserve Bank of Dallas. "It took a little bit of time at first and now it's hitting at full force."

Those cutbacks have come from some good paying jobs, too.

"Typically, those were higher paying jobs we've lost," said David Anderson, an economist at Texas A&M University. "So those people who have lost their job start spending less money, and we see it show up in ... restaurants, car purchases, and stuff like that."

Orrenius also pointed to losses in Houston. "We've seen that the situation in Houston is getting worse, and the rest of the state has remained stable. Even if you're going to see improvement regionally like North Texas, or Central Texas around Austin, you're not going to see it in Houston. Houston is going to be suffering for a while."