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Oklahoma Horizon TV Show 1501

This week on Oklahoma Horizon, we take a look into the future with our annual economic outlook series.
Oklahoma Horizon TV Show 1501

Oklahoma Horizon TV Show 1501

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Show Details

Show 1501: Oklahoma Horizon TV
Air Date: January 4, 2015

 

Transcript

Rob McClendon: Here’s what’s coming up on your “Horizon.” Well, last year, the U.S. economy turned the corner, creating more jobs in 2014 than any time in the last eight years. But that could come to a screeching halt in 2015. Today, we’ll take a closer look at our economy from industries on the mend to those that may be hitting a bump in the road. We’ll also look at how the weather continues to play a big role in our rural economy. And we begin what will become a regular feature here on “Horizon” where we look at various careers and the people who work in them. Stay with us for “Oklahoma Horizon.”

 

 

Male Announcer: “Oklahoma Horizon” is made possible by the Oklahoma Department of Career and Technology Education.

Female Announcer: Oklahoma’s investment in CareerTech provides more than nationally recognized technology education and training. It produces solid financial returns for the state’s economic future. Oklahoma CareerTech, elevating our economy.

Male Announcer: And the Oklahoma Department of Agriculture, Food and Forestry, helping good people grow good things. And now, from the CareerTech studios in Stillwater, here’s your host, Rob McClendon.

 

 

Rob McClendon: Hello, everyone. Thanks for joining us here on “Horizon.” Well, we begin today with our annual economic outlook – our yearly analysis of where Oklahoma’s economy is heading. And this year, that direction may be driven by slumping energy prices. Crude oil prices that were in the low 100s this summer have fallen to less than half that – a drop that could impact both jobs and curtail shale gas exploration here in Oklahoma. But whether this decline in prices will lead to an ’80s style bust or just a slowdown in economic growth is a question still looking for answers. All the while, motorists are enjoying some welcome relief at the pump.

Betty Winterowd: I make $2.13 an hour, and the gas prices are so high that half the time I don’t get to go hardly anywhere but to work because I can’t afford the gas.

Rob: Well, prices at the pump are at their lowest in years – a drop that may be good for holiday travelers.

Lewis Kiper: $34.05 for 18.22 gallons.

Austin Moore: Fills this thing right up, and that’ll take you a while.

Kiper: I love it. I love it.

Rob: But no Christmas present for the energy industry or the state’s economy. States like Oklahoma, while diversified, still look to the oil patch for jobs. Oklahoma Gov. Mary Fallin.

Mary Fallin: And energy is one of our key industries in our state. All forms of energy, not just oil and gas, but so many other forms of energy too. And it employs, in the energy sector, one in every four Oklahomans. So it creates a tremendous amount of revenue in our state. Close to one-third of our revenue that’s generated is generated by some form of energy, the energy sector.

Rob: According to a report commissioned by the State Chamber Research Foundation, the energy industry is Oklahoma’s largest contributor to state revenues, about $ 2 billion – 22 percent of all state collections. So when prices began to plunge in early November, everyone from 23rd and Lincoln to downtown Oklahoma City began to take notice. Chad Wilkerson heads the Oklahoma City branch of the Federal Reserve Bank.

Chad Wilkerson: We’re in kind of a new regime of oil with the shale boom we’ve had and shale producers being in this position. The prices have fallen from over a hundred to less than 70 in just four months for a variety of reasons.

Rob: Drillers like the one behind me can drill a well in as little as a week at a cost of one and a half million dollars. And while that is still serious money, it’s just a fraction of what it costs to drill in the Arctic or the oceans where the last big oil reserves lay -- the exact reason why we’ve seen almost 20,000 new wells like this drilled nationwide since 2010, a rate that’s 10 times that of the world’s leading oil producer of Saudi Arabia. And a point the Saudis are not lost on.

Rob: When OPEC flexed its muscle in the 1970s, creating shortages and driving prices upward, that prompted huge investments in oil plays all across the world – eventually leading to a decade long glut of oil and lower gasoline prices. So rather than repeat that scenario, the Saudis and OPEC seem to be betting they can produce the cheapest oil in the world and thereby putting higher cost producers, including shale drillers here in Oklahoma, out of business, an industry move that economists like OSUs Dan Rickman says may well slow shale production, but not end it.

Dan Rickman: Because once you start doing that you’re gonna start cutting out the marginal producers, and as the supply gets cut, then that starts providing some price support.

Rob: So while the solution to low oil prices may well be low oil prices, getting there may not be pretty. In fact, Rickman believes for every 100 jobs lost in the energy sector, another 60 will disappear across the wider economy – a multiplier effect that could be felt in every community around the state.

Rickman: So not only are you losing jobs, you’re often losing high-paying jobs. So this will have spillover effects on the rest of the economy that will harm us. On the flip side though, the low energy prices spur national growth because consumers have more money to spend. So we have a little bit of an offset from the lower energy prices that help cushion the harm from energy prices, but since we are an energy state then net effect on Oklahoma is negative of falling energy prices.

Rob: So what goes up, just like in years past, does eventually come down.

Rob: Now, while a pullback in shale gas production may be inevitable, long term, the economics of energy have not changed. And when prices do recover, new wells can be brought on line in a matter of months, which is why many believe current low energy prices are only one crisis away from rebounding. Now, when we return, we end all this doom and gloom and look at economic positives to start the new year.

 

 

Male Announcer: You’re watching “Oklahoma Horizon,” featuring some of the good things that are happening in the great state of Oklahoma.

 

 

Rob McClendon: Well, often times it takes a downturn in energy prices to remind us just how much an energy state Oklahoma is. And that had me worried when it came time to show you our annual economic outlook this year. Because when I sat down with economic analyst Mark Snead, it was the middle of November, and oil prices had just begun to fall. And to his credit, Snead’s projections of what that could do to our economy are still spot on.

Rob: So, Mark, before we start talking about 2015, let’s look back at 2014. How did the state do economically?

Mark Snead: 2014 is actually turning out to be a very good year. You know, if -- you almost have to go back to 2013. The oil and gas industry slowed down considerably, and it added some drag to the state economy. We underperformed the U.S. economy slightly. But 2014, the state, you know, returned back to that pretty rapid pace. We’re outperforming the nation. Job growth is strong. Income growth is strong. There’s just a tremendous about of momentum.

Rob: You mentioned the energy industry. Just talk to me about the impact it has on the economy.

Snead: Well, there’s some question about whether Oklahoma’s still an energy state. You know, to what degree do fluctuations in oil and gas prices translate into changes in the overall economy? And when we look at it, Oklahoma is still clearly a tier one energy state. It is affected very directly and very heavily by changes in oil and gas prices. In fact, in our data, it’s almost as sensitive as it was back in the 1979 to 1982 period at the peak of the oil boom. So it matters a great deal. The thing about the industry is that it tends to either expand rapidly or contract rapidly. There’s not really a steady state for the industry. And as oil prices begin to come back a little bit, we’re, you know, at this point we’re, we’re assuming that the industry is having very little influence. If it pulls back further, we’ll have some concern in possibly 2015 or 2016. But a lot of momentum right now in the industry and at the state level.

Rob: Now, as we’re recording this, we’re seeing $80 barrel oil. While that certainly is probably good for consumers that might be driving a car – maybe not so good for oil producing states. What would happen if that becomes the norm versus a dip in prices?

Snead: Yeah, that’s, you know, the trick. Most states benefit from falling oil prices. We know that. The U.S. economy as a whole benefits from falling oil prices. But when you’re in an energy producing state, it’s a delicate balance. You really want, you know, oil and gas prices high enough to keep producers satisfied, to keep expanding the industry, but not too high to affect consumers. And we’re in that sweet spot right now, you know, consumers in Oklahoma at least, we’re paying sub $3 for gasoline. Yet, the oil and gas industry is expanding basically as fast as they can. And if we can stay in that sweet spot, it has a tremendous spillover effect to the overall economy, and consumers are perfectly satisfied.

Rob: As you look forward to 2015, are there other sectors that you’re particularly watching? What is the story for 2015?

Snead: The story is that we’re clicking on all cylinders. That’s the real underlying story. Nearly every major industry sector is doing well, adding jobs at a rapid pace. One thing I would argue is that the key difference in Oklahoma in this cycle is the quality of the job. There’s always been the suggestion that what we’re lacking is high-wage, you know, high-skill, high-quality jobs. That’s exactly what we’ve been adding at a very rapid pace the past decade. It did in fact start with the oil, you know, the resumption of growth in the oil industry about a decade ago. And it’s remarkable, it truly is. It’s effected overall average wages in the state. We’re rapidly approaching par with the nation in terms of per capita income. So a very good story – a lot of momentum, and the quality is there as well.

Rob: So as we see this per capita income just continue to grow, what does that tell us from an education perspective? I mean, how does someone get into that economy, I guess is my question?

Snead: Well, there you have the sort of double-edged sword. Again, we’ve always suggested we should be educating workers and pushing them into the labor force, but all too many times that meant pushing them to Texas, to Dallas or Houston, or pushing them to Denver or pushing them to the two coasts – that we could not absorb them. And I think the dramatic difference over 20 or 25 years is that, you know, these young, young graduates in the state have a very solid opportunity here in Oklahoma. The number of these, these jobs that require, you know, either a traditional college degree or even graduate training now have ample opportunity to find suitable employment here in the state. It’s a powerful mix. It’s coming together from both sides.

Rob: So if we are not just an energy state and benefit from that energy boom, what will our economy look like compared to the national economy?

Snead: Well, this is the concern really for 2015. Oil prices are already pulling back. For example, they pull back to $65 a barrel or less, that’s a really serious red flag for us. It would act as a drag on the overall state economic growth. Where we are currently, we basically assume that the oil and gas industry is having little positive or no affect on overall conditions. It makes us look national-like. It makes us look very national-like. And if that’s the case, you would expect strong conditions because we are now in that point where the U.S. economy is beginning to gel, and we’re beginning to see some momentum at the national level. So given that fact that we may lose our energy boost, it’s at probably the exact right time given a little extra boost from national conditions.

Rob: Do you feel good about our manufacturing numbers here in the state?

Snead: Well, you know, manufacturing in Oklahoma is also closely tied to oil and gas. And I think the short answer to that question is we will probably look very national-like or pretty good as long as the oil and gas industry is going pretty well. A sharp contraction in oil and gas would filter over to the manufacturing sector pretty quickly. And in terms of hiring, we are underperforming the nation in terms of manufacturing hiring – slightly. I wouldn’t read a lot into that, but it is a industry that is in long-run decline hiring-wise, but continues to grow in terms of output. It’s a capital industry. And we largely are going to have to adapt to that, maybe policies that focus on capital and have fewer expectations about hiring from the manufacturing sector would make more sense. Unlikely to ever again be a large source of employment, but a very large source of economic output, you know, the purchases. You know, the brick and mortar is very expensive to operate and maintain. It is, you know, it’s very good to have large manufacturing facilities, the transportation, electricity usage – all of those factors make manufacturing desirable. But it unlikely will be a large source of hiring.

Rob: So in general, as you look at 2015, a positive outlook?

Snead: A very good outlook. Actually the momentum of the state, the momentum at the U.S. level suggests that 2015 could actually be a very big year in Oklahoma. It’s just that one big variable about the path of oil prices. That’s the only real external factor we are considering at this moment.

Rob: I guess that wasn’t my last question. I’ll ask one more. If we do see those oil prices dip below $65, will that be an immediate pain or is that something we could see a contraction that would go over a couple of years?

Snead: Well, you know, the oil and gas industry has very specific behavior. It expands rapidly, and it contracts very rapidly on the hiring side. When they decide to make a move they do it very quickly. I think, you know, we will be watching the unemployment numbers very closely. That is what we consider to be the best single indicator, the number of unemployment claims within the mining sector. The moment we begin to see any surge in that we will become a little bit more concerned. But at this point, 2015 could be a very big year.

Rob: All right. Thank you so much, Mark.

Snead: Thanks.

Rob: Now, we do have more economic projections from the Federal Reserve Bank, as well as OSU’s business school streaming on our website. Just head to okhorizon.com and look for them under our value added section.



Female Announcer: Still to come on “Oklahoma Horizon,” we look at the variety of jobs across the state in a new series called Oklahoma Works. But first, our ag outlook for 2015.

 

 

Rob McClendon: Well, with unpredictable rainfall and volatile market prices, Oklahoma’s ag producers continue to plan for the worst, yet hope for the best. Joining me now is our Andy Barth.

Andy Barth: Well, Rob, the agricultural industry is never the same two days in a row. And with summer rains putting a dent in the drought in much of the state, agriculturalists look to the year ahead to see how production will play out.

Andy: It was a year of highs and lows for Oklahoma ag. No rain and then a late hard freeze left wheat producers struggling to even harvest a crop.

Kim Anderson: We’re a dollar, a dollar below the average price with our stocks probably running two-thirds of what they normally do, and that just doesn’t make economic sense.

Andy: Kim Anderson is an ag economist at Oklahoma State University and says while U.S. wheat production fell, the rest of the world had a bumper crop.

Anderson: And what we’ve seen in the world is the crops increasing in just about every other country. We’re harvesting a record world crop now. And world stocks, wheat stocks are increasing.

Andy: And Anderson says while he doesn’t expect the price of wheat to increase anytime soon, as long as wheat is produced, it’s good for the state.

Anderson: I think low prices with a lot of product to sell is better than high prices and not much product to sell.

Andy: And despite a tough wheat crop, Oklahoma’s agricultural industry is seeing the highest cattle prices in history. Oklahoma State University’s Derrell Peel.

Darrell Peel: We have record high prices pretty much across the board, or we’re very near that. We’ve got the lightweight calf prices at the highest levels we’ve ever seen. We’ve seen a tremendous increase in these cattle prices in, in the last year.

Andy: And Peel says prices aren’t slowing down.

Peel: This is a hard thing for market analyst to say – we’re at record high prices. We’ve had this tremendous run up this year, and yet I still think 2015 and probably 2016 prices will average somewhat higher.

Andy: And whether it’s low prices or high, Secretary of Agriculture Jim Reese says it’s time to look toward the future.

Jim Reese: Every year creates new challenges, but farmers and ranchers are just naturally optimistic. No matter what next year throws at us, I’m sure that we’ll survive.

Andy: And Reese says the low prices and bad weather conditions have better prepared producers for the coming years.

Reese: You know, producers have really made themselves more flexible over the last four years because they’ve learned things that they’ve had to do to make it through. The drought in 2011 was really difficult to get through, but I think all of our producers are going to be stronger for it.

Andy: Now, aside from a tough wheat crop, producers harvested high-quality summer crops and cattle producers had good grass to graze on. And, Rob, all of this is thanks to great rain at the right time.

Rob: Now, Andy, if my memory serves me, it was 2011 that the drought caused a fairly substantial sell-off of cattle that many have feared would really change the very nature of Oklahoma’s cattle industry.

Andy: That’s right, Rob. 2011 took a direct hit when it comes to cattle numbers, and those low cattle numbers in turn have created record high prices. And those cattle producers, they’re making a comeback. Let’s take a look.

Andy Barth: It’s working time at Double C Ranch, and for owner Chuck Coffey, there is a lot fewer cattle to work with.

Chuck Coffey: We went from about 800 cows down to about 450.

Andy: The drought in 2011 forced most cattle ranchers to sell most of their herds, while some had to sell out completely. Yet thanks to some moisture, producers like Coffey are back in production.

Coffey: We kept buying cows in hopes that things would get a little bit better, and we would catch some rain. Then things started improving, and we were able to increase our cow herd back up to numbers that we would like to maintain.

Andy: Yet these low cattle numbers are also affecting consumers. The price of a pound of hamburger is currently around $3.39. That’s 56 percent higher than it was in 2010. And according to Wells Fargo economist Michael Swanson, the rise in beef prices could cause lower beef consumption.

Michael Swanson: When you have 15, 20 percent year-over-year inflation at the consumer level, when they’re seeing 2 percent pay raises, they have to choose to consume less of what you’re selling them.

Andy: And while U.S. beef numbers are expected to come back, Swanson says producers must be cautious not to lose their customers.

Swanson: We have to be careful that we don’t chase out future demand so when we get more cattle and have more beef, the people are so accustomed to eating chicken and pork they don’t come back to us.

Andy: And producers like Coffey are working to bring back the beef. Coffey purchased a new ranch with more land – creating opportunity for growth.

Coffey: We’ve essentially doubled production and have been able to do so in the last year and we work closely with the banks to be able to do that. You know, we’ve got a, we’re highly leveraged at this point in time but we are very optimistic for the future of the cow/calf industry.

[Cows mooing].

Rob: Now, Andy, I understand Double C Ranch has big plans for the future.

Andy: They really do, Rob. Coffey is so optimistic about the future of the cattle industry that his three children all have part ownership in the company, and when he and his wife retire, the three kids are gonna take it over.

Rob: That’s always good to hear. Thank you so much, Andy.

Andy: You’re welcome, Rob.

 

 

Rob McClendon: Want to share something you’ve seen here today? Well, all of our episodes are streaming on our YouTube channel at OklahomaHorizonTV, or you can subscribe to our weekly free podcast on iTunes.

 

 

Rob McClendon: Finally today, we begin a regular series here on “Horizon” called Oklahoma Works, where we examine an occupation and what it takes to succeed at it. Our J.D. Rosman gives us some insight into what it is like to work as a farrier.

J.D. Rosman: With metal banging, it’s time for new shoes. Glen Hayes is a farrier, shoes horses for a living – something he’s done most of his life.

Glen Hayes: Well, I was working another job back in the ’70s and kept getting laid off and got the opportunity to learn from another guy how to shoe horses. Got started shoeing and then got offered a job at a horse shoeing school to teach and did that for five years, and after that all I really knew how to do was shoe horses.

Rosman: After 39 years of back-breaking work, Hayes and his business still thrive.

Hayes: I like doing it and if you work at it and treat it as a business instead of just as a venture, the money’s pretty good in this deal, if you treat it as a business.

Rosman: Good money and good horses, and his clients – they’re good too.

Hayes: I enjoy the people too. Most people in the horse business that I have as customers are all repeat customers. I don’t do one horse too many times and then never see ‘em. And I consider most all of my customers as friends.

Rosman: Friends that know his services are vital for their animals.

Horse Owner Lisa: The very most important thing because their feet, their feet’s everything to a horse.

Hayes: Wild horses out in the wild travel over thousands and thousands and thousands of acres, and they keep their feet trimmed theirself. Well, we put ’em in a confined area, and their feet grow, and they have to be balanced depending on what you’re doing with a horse. Sometimes it’s balancing a horse to perform a particular feat, and sometimes it’s just keeping a horse comfortable because they are out in the pasture to keep their feet from cracking and busting and being lame.

Rosman: Rewarding work, but it’s never easy.

Hayes: Yeah, very hard work. That’s why a lot of people don’t, you know, they get in it and then get out of it.

Rosman: And for Lisa’s horses, she only wants the best.

Horse Owner Lisa: I like him. He’s been here for seven years, and he does a wonderful job. He’s fast, he’s good with the horses, and haven’t had one lame yet.

Rosman: A high praise in an industry where the next job often comes from word of mouth.

Hayes: There’s gonna be a need for, for this type of employment for a long time to come. I don’t see anybody just saying we’re not ever gonna have any horses anymore. So there is a future in this if somebody’s willing to work hard.

Rosman: Hard work that pays off personally and professionally.

Horse Owner Lisa: No wheels, no horse. You know, if you don’t have good feet you’re not going to have a good horse.

Rosman: Working hard, helping others and building relationships that will last a lifetime.

Rob: Now, many farriers can make well into the six figures, in part because here in horse country, there is a healthy demand for them. Nationwide, there are about 50 farrier schools, several of those in Oklahoma, that offer certifications. But horseshoeing is a craft where you continue to develop new skills throughout your career.

 

 

Rob McClendon: Next time on “Oklahoma Horizon,” as parts of the state continue to struggle with drought, we look at the role of water conservation.

David Zetland: Some people think it should be paid, even score a profit, which is a bit strong. What we need to have is a water sector that is run on a financially sustainable basis where the price of water reflects the scarcity of water.

Rob: Water, public policy and economics, on Oklahoma’s show for the heartland, “Oklahoma Horizon.”

 

Well, that is going to wrap us up for today, but you can see more of any of our stories on our website at okhorizon.com; you can listen to us on the go with our weekly podcast on iTunes; follow us throughout the week on Twitter at OKHorizonTV; or just become a “Horizon” fan on Facebook. I’m Rob McClendon. Thanks for watching. See you back here next week.

 

Male Announcer: “Horizon” is made possible by the Oklahoma Department of Career and Technology Education and the Oklahoma Department of Agriculture, Food and Forestry. Thank you for watching “Oklahoma Horizon.”

 

Tags

economy, education, energy, oil, gas, manufacturing, skills training, agriculture, employment, workforce, Betty Winterowd, Lewis Kiper, Austin Moore, Mary Fallin, Chad Wilkerson, Dan Rickman, Mark Snead, interview, Kim Anderson, Derrell Peel, Oklahoma State University, Jim Reese, Chuck Coffey, Double C Ranch, cattle, wheat, beef, livestock, Glen Hayes, Oklahoma Works, farrier, horseshoe, horse, career