AJF News

End of Year President's Report

12/29/2015 by Jessika Leatherbury
Tags: President, Michael Southard

We provide an evaluation of the local economy each month, and this month I’ll explain what we track and provide deeper insight into the local and state economy. Last week, the State Finance Director estimated the state budget shortfall for 2016 to be nearly a billion dollars. Most of the current and projected shortages are due to the direct impact of oil and natural gas prices through production taxes, income taxes and sales taxes paid.

Several people have asked about the impact of oil and natural gas prices on the Ada economy. It is a difficult correlation to prove because there are no large oil and gas companies in Pontotoc County, nor is there exploration occurring in the area. Our unemployment rate has remained well below the state the entire year and Oklahoma has maintained one of the lowest unemployment rates in the country. While there have been several announcements of large layoffs in 2015 (65,000 total for the state), there were nearly 20,000 more layoffs in 2014. The unemployment rate for Oklahoma never exceeded 5% after February 2014 and was as low as 3.9%. Fortunately, oil and gas layoffs are being absorbed by other industrial sectors. Our local unemployment rate never exceeded 4.8% and the US rate topped 6.7% over the last two years.

Total local sales tax collections hit a record high in 2014 but dipped slightly in 2015 by $43,000 or -0.3%. For the second year in history, sales tax collections exceeded $15M. 2015 started slow with 4 of the first 6 months lagging the same months in 2014, but 4 of the last 6 months exceeded the previous year. Of the four larger communities in SE Oklahoma, Ada was the only one that saw a decline with McAlester (3.9%), Durant (3.3%), and Ardmore (1.7%) each posting growth.

Sales tax collections are made up of both cash register receipts and taxes paid on industrial purchases. Economists at OU and OSU analyze the figures and factor out industrial purchases which provides a better reflection of retail trade in 48 communities around the state. This additional analysis causes a lag in reporting, but the 2015 figures through September were recently posted to their website. Ada has experienced a positive Adjusted Retail Sales figure every year since the figures became public in 1990 with the exception of 2009 (Oklahoma’s worst recession period since the Oil Bust). Early figures for the first 9 months of 2015 are tracking to become Ada’s second negative year at -4.0%. The Adjusted Retail Sales for 2014 were $343M and cash register sales for 2015 are currently lagging by $2.8M.

This alarming figure caused me to look at the other 48 communities with posted data. Only one year in the 25 years of data has every community had a decline for the year and that was 2009. Through the first 9 months of 2015, only 7 of the 48 communities are ahead of where they were in 2014. Only two communities have a growth rate higher than 2%. Some of the communities have not seen more than 5 positive months since late 2013, and these are heavily tied to the oil and natural gas sector.

While most of my answers to the oil and gas influence on our economy are anecdotal. The adjusted retail sales figures may be the most telling. Even though laid off oil and gas sector employees are finding jobs elsewhere, the wages are typically less resulting in lower income taxes. As production decreases, extraction declines, resulting in lower royalty payments and lower production taxes. Both lower income and royalty payments influence consumer spending and lower retail sales. The 2009 decline in adjusted retail sales had 14 months of consecutive negative months. It took 4 years for retail sales to rebound to 2008 figures. The current decline is at 9 consecutive months, so let’s hope and pray that the recent lifting of the oil and natural gas embargo will stimulate production. Otherwise, the retail sector and the State of Oklahoma will experience rough times ahead.

As we forge into the New Year, the Ada Jobs Foundation will continue to work with area employers, city leaders, and educators in the best interests of the community.

Chart: Regional Comparison of Sales Tax Receipts