The San Antonio economy will feel the drag from a consolidating energy sector this year. Oil field activity is slowing down in the Eagle Ford basin due to the decline in oil and natural gas prices that began at mid-year 2014. According to Baker Hughes, the total rotary rig count in Texas was down to 654 for the first week of February 2015, compared to 822 from the same period in 2014. In the Eagle Ford basin alone, the rig count declined to 168 in the first week of February from 248 a year ago. We expect rig counts to decline further, reflecting very low oil and natural gas prices in early 2015. The decline in drilling activity will be felt as both a direct and an indirect drag on the San Antonio economy. Job losses will be felt directly through a reduction in well drilling and service activity. Indirect effects will extend through many sectors of the local economy, including consumer and housing-related industries.
Job growth in natural resources and mining (NRM) has already started slowing down in the San Antonio metro area after peaking in early 2013. In 2014, the region was able to add about 766 NRM jobs, just half of what was added in 2013 in the sector. Fortunately, the region ended 2014 with good job gains outside of NRM, bringing the December unemployment rate down to 4.3 percent. We expect job growth to cool significantly through the second half of 2015 and into 2016 as direct and indirect drags from a consolidating energy sector are felt.
As oil field activity winds down, weighing on job growth, housing markets will cool as well. Total housing starts increased by nearly 25 percent in San Antonio in 2014. We expect construction activity to remain strong in 2015, in response to favorable demographics. However, as we look into 2016 we expect construction to plateau as weaker job creation leads to a slowdown in in-migration. By the third quarter of 2014, house price appreciation in San Antonio was outpacing the national average, reflecting the tight local housing market. As demand growth eases, we expect San Antonio house prices to soften and underperform the national average. A quick resumption of oil field activity would cause us to revise our outlook.
Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio2014_Q4.