San Antonio’s Oil-Fueled Growth To Ease

Eagle Ford shale oil development in the San Antonio region has spurred strong economic growth through the high multiplier effect of drilling activities on local businesses including manufacturing industries, transportation, grocery stores and restaurants. However, the recent decline of oil prices below $60 per barrel raises concern over the viability of the multibillion dollar economic impact of the Eagle Ford Shale oil on the region. With the decline in petroleum prices, oil and gas rig counts are moderating in recent weeks through early December. If oil prices remain low we expect to see ongoing evidence of declining oil field activity, dragging on the regional economy.

The San Antonio Metropolitan Statistical Area saw a robust housing market in the third quarter of 2014. Total housing starts grew at an annualized rate of 9.5 percent with a strong growth in multifamily housing starts. While the single-family housing starts slightly dampened in 2014Q3, home prices are growing at a strong 7.7 percent year-over-year rate, the highest since 2007. Nationwide, home builders’ confidence has increased in recent months fueled by strong job growth, favorable housing price momentum and low mortgage rates. We expect San Antonio’s real estate market to cool in 2015 and 2016 as drilling activity eases.

San Antonio’s unemployment rate has stalled near 4.8 percent during the seven month stretch from April to October this year. Payroll employment in San Antonio increased by 2.3 percent year-over-year in 2014Q3 which is still above the U.S. average for the period. Most of the new jobs in the third quarter, more than 4,480, came from the service-producing sector, followed by construction. With the volatility in oil prices, the regional employment in resources and mining appears to be plateauing. We expect to see job losses in the sector by early 2015 as petroleum drilling companies adjust to the new price regime. Although the region’s economy is diversified with a blend of industries like services and biotech, we expect San Antonio’s economic growth to moderate, reflecting reduced profitability on the upstream side of the oil business.

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Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio 2014Q3.

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