9.18.22 -The Oklahoman – Chris Casteel
The Oklahoma economy has been running strong throughout 2022 as consumer spending and employment have shown resilience despite inflation and higher interest rates.
A tight labor market in which job openings outnumber job seekers has pressured many Oklahoma industries, however, and has served as a ceiling on profits for some businesses. Workers, meanwhile, are making more money, but increases in rent and groceries have outpaced their raises.
The strong economy has produced record tax revenue for the state, with collections in the past 12 months up 18% from the previous 12-month period.
“Oklahoma’s economy is doing quite well, in spite of the challenges posed by inflation,” Oklahoma State Treasurer Randy McDaniel said last week.
“Personal income is on the rise resulting in strong individual income tax collections. Consumer spending is also expanding, even though rising prices are diluting purchasing power.”
In August, the unemployment rate in Oklahoma was 3.1%, which was up from 2.9% in July but down from 3.5% a year earlier, according to figures released Friday by the U.S. Bureau of Labor Statistics. The U.S. unemployment rate in August was 3.7%
The civilian labor force in Oklahoma in August was 1.88 million, seasonally adjusted. That was up slightly from July and up nearly 30,000 from a year ago. The latest figures show big year-over-year employment gains in oil and gas extraction, leisure and hospitality and financial activity.
Construction employment in August was nearly 79,000, the same as in June and July and up from 77,000 in August 2021. Manufacturing employment was 133,600 in August, unchanged from June and July and up from 129,000 in August 2021.
In July, there were 130,000 non-farm job openings in Oklahoma, according to figures released Friday, which was more than double the number of job seekers.
In the Oklahoma City metro area, non-farm employment was up 4.5% from July 2021 to July 2022.
Revenue from sales and use taxes — a reflection of consumer spending — totaled $590 million in both July and August. That is higher than every month in 2022 except January and higher than every month in 2021.
The possibility of a recession looms as Fed hikes interest rates
The Federal Reserve Board is expected to raise interest rates this week for the fifth time in 2022 in an effort to reduce inflation. Board members have acknowledged that the rate hikes could push the economy into a recession.
“A potential national recession is a growing concern, but the state’s gross receipts show no signs of retreat at this time,” McDaniel said. “We are closely monitoring all sectors and revenue streams for any signs of weakness.”
The Oklahoma Business Conditions Index, part of the Creighton University Mid-America Business Conditions Index, declined to 60.7 in August from 63.2 in July, but the reading still reflected healthy growth.
How can Oklahoma become a jobs leader in our country?
A recent survey of business leaders by the State Chamber of Oklahoma, its research foundation and the Oklahoma Business Roundtable showed 63% believe the state economy is moving in the right direction, compared with the national economy, and 79% said their companies will make investments in the next year.
Fears of a recession have already contributed to a drop in oil and gas prices, which began rising last year and skyrocketed after Russia invaded Ukraine in February.
Major energy companies in Oklahoma have reported quarterly profits topping $1 billion this year as oil and gas prices have spiked, contributing to the high inflation. Those companies are themselves facing higher costs for supplies and labor, executives said on earnings calls last month.
Inflation hits some industries harder than others
James Leewright, president and CEO of the Oklahoma Restaurant Association, said people have been seeking post-pandemic normalcy this year and returning to restaurants.
However, he said, inflation has had “a huge effect on sales and much more on profits.”
“With rising food costs and supply chain issues, restaurants are having to constantly adjust menus to what can be sourced and reasonably priced. Margins for restaurants have been narrowing for years, but after the ramifications of the pandemic, it is very difficult for a restaurant to remain profitable even when they have a strong patronage.”
Leewright said the tight labor market is forcing some restaurants to limit capacity “merely because they do not have the staff to serve the demand. This exacerbates the narrowing of profit margins and in some cases eliminates profits altogether.”
Looking ahead, he said, “All indications are that supply chains, shortages and food costs — along with labor costs and shortages — will be an issue for the industry.”
A recent report by Chad Wilkerson, branch executive of the Oklahoma City branch of the Kansas City Fed, showed growth easing somewhat in the services sector in the region that includes Oklahoma.
“In August, 50% of firms reported adjusting employees’ compensation due to inflation during the year, mainly through wage increases but also through added benefits, more flexible hours, and one-time inflation or cost of living bonuses,” Wilkerson reported.
In terms of tax revenue, the impact of inflation is seen primarily in sales and use tax receipts, McDaniel said
“As prices rise, so must spending just to keep up,” the state treasurer said. “However, with those collections up by more than 12 percent in the past year, consumer spending is outpacing inflation. In addition to supply issues, the sluggish performance of motor vehicle receipts suggests consumers are hesitant about making some large ticket purchases.”
Oklahoma jobs shift from energy to warehousing
Wilkerson, with the Federal Reserve, released a report this month about trends in employment in Oklahoma. The report shows a continued loss of jobs in oil and gas extraction and oil field services, along with losses in manufacturing, heavy construction, nursing and residential care, information services and local government.
The biggest gains have come in transportation and warehousing — Amazon has invested heavily in central Oklahoma — employment services, retail trade, fast food and Native American tribes.
Employment in oil and gas service work dropped 42% between July 2019 and July 2022, according to the report. Employment in nursing and residential care facilities has dropped 10% in that time period. Transportation and warehousing employment has risen by 47% and employment services have grown their payrolls by 17%.
“The change in energy jobs — even with this increase the past year — is still a much bigger change than happened in, say, the seven years prior in energy,” Wilkerson said last week. “So it accelerated some of the efficiency gains, doing more with less, in that industry. Difficulties of getting people into manufacturing — those have accelerated further. The same with nursing/residential care facilities. They’re having a hard time finding workers. Now it’s at a whole other level.”
State lawmakers have made workforce development a priority and recently directed pandemic aid money to the state’s career tech system for training health workers.
Accounting, tax preparation, bookkeeping and payroll service employment has grown by 16% since July 2019, while food manufacturing has grown by 10% and tribal employment has risen 8%.
In the recent State Chamber/Oklahoma Business Roundtable survey, 62% of business leaders identified workforce challenges as their top concern. More than half said skilled workers, including individuals with credentials, were the toughest to find, and the challenge extended to required technical skills and soft skills.
Leewright, the head of the state restaurant association, noted that the industry plays a major role in developing the workforce and offers career paths that can start at dishwasher and lead to manager or owner.
“A successful restaurant industry is vital for a strong Oklahoma economy,” he said.
This article originally appeared on Oklahoman: Oklahoma economy still sailing strong despite headwinds