Texas economy equipped to deal if oil prices collapse, BBVA Compass economist says

HOUSTON, Nov. 18, 2014 /PRNewswire/ -- As oil prices continue to fluctuate, the Texas economy is better prepared to deal with an oil price drop and many of the state's major markets – including Houston – are able to withstand moderate to severe price changes, according to the latest BBVA Compass report.

As of July, Texas ranked as the sixth largest oil producer in the world. The rapid surge in oil production relative to growth and employment, and unquestioned benefit to the recovery, raise specific questions about how susceptible the state's economy would be to a sharp drop in oil prices and if the economy is fundamentally different from the 1980s.

"Today there are striking differences with the 1980s – when Texas suffered one of the worst recessions ever – which suggest that the downside risks are relatively contained," BBVA Compass economist Boyd Nash-Stacey wrote in his report. "For example, greater economic diversification, increased trade openness, regional and national bank financing, and absence of a real estate bubble, to name a few."

However, Texas still has exposure to the oil and gas sector, which suggests that persistently low prices, or sharp drop in prices, would create economic headwinds.

For Houston, the energy capital of the U.S., which has the largest number of mining sector employees and is one-third of the Texas' economy, the outlook is less dire.

"While it's obvious that a decline in oil prices will negatively impact Houston's economy, our estimates suggest a moderate-to-mild impact," Nash-Stacey wrote.

He predicts that the net impact for Texas may not be as strong as in the past, as the largest metropolitan statistical areas appear less dependent on oil and gas. His analysis confirms a high level of success in the efforts that followed the 1980s crisis to increase economic diversification and reduce the probability of experiencing another devastating shock that came from falling oil prices.

"For others, our estimates suggest significant economic losses," Nash-Stacey wrote. "Specifically, metropolitan statistical areas in the central and western portion of Texas that have higher concentrations of drilling activity and are less diversified are vulnerable to oil prices shocks. For Dallas-Fort Worth, Austin, San Antonio and El Paso, the outlook is slightly more optimistic."

Despite the obvious downside to lower oil prices in Texas, his estimates also suggest that a handful of states may benefit from lower oil prices and experience a non-trivial increase in activity with measured price declines.

Led by BBVA Compass Chief Economist Nathaniel Karp, the bank's five-member research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.

In addition to Karp and Nash-Stacey, the bank's economic research group includes Kim Fraser, Marcial Nava and Shushanik Papanyan. Follow their work on Twitter @BBVAResearchUSA and @BBVACompassNews.

About BBVA Group

BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes. More information about the BBVA Group can be found at www.bbva.com.

About BBVA Compass

BBVA Compass is a Sunbelt-based financial institution that operates 673 branches, including 342 in Texas, 89 in Alabama, 77 in Arizona, 62 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico, and commercial and private client offices throughout the U.S. BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (5th). BBVA Compass has been recognized as one of the leading small business lenders by the Small Business Administration and recently earned the top ranking with customers in American Banker's 2014 annual reputation survey of the top 25 largest U.S. retail banks. Additional information about BBVA Compass can be found at www.bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com. 

Editor's Note:
BBVA Compass is a trade name of Compass Bank.

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SOURCE BBVA Compass

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