So, we’ve established that the Lafayette’s metro area’s economy lost $10 billion in annual GDP since 2012. But how? That’s a more important component to the equation.
Here’s a list highlighting the local industries with the greatest shrinkage or growth since 2012, pulled from data collected by the Bureau of Economic Analysis.
|Oil & Gas||-$5,010|
|Transportation & Warehousing||-$80|
|Agriculture & Hunting||-$78|
|Arts & Entertainment||+$29|
|Finance & Insurance||+$72|
|Education & Healthcare||+$189|
Not surprisingly, the biggest loser has been our energy economy. Not only has it lost more than $5 billion a year in local GDP, it’s also undoubtedly been a drag on pretty much every other industry that’s down in Lafayette, especially real estate. Fewer good paying jobs means less people able to afford to buy or rent homes in Lafayette, not to mention the drop in occupancy in commercial buildings as oil and gas companies have downsized, merged, moved away or folded.
The simple answer for why this part of our economy dropped so much is that just like the downturn in the ’80s, lower oil prices drastically reduced exploration and drilling, leaving Lafayette with fewer jobs and less wealth.
But there’s more going on here than just the price of oil. In fact, Lafayette’s GDP started dropping from 2012 to 2013 when the price of oil was still more than $100/barrel. Additionally, even as the price of oil rises and oil production in the U.S. is at all-time highs, Lafayette’s energy economy remains stuck in the mud.
Rather than being in a typical down cycle of temporary market conditions, we’re facing the establishment of a new normal, one in which domestic production of oil in the U.S. has shifted from drilling offshore to fracking onshore.
This shift has an acutely detrimental impact on our community because a significant portion of our energy economy is powered by our proximity to the Gulf of Mexico and our expertise in drilling offshore. So when the rig count in the Gulf drops from 200 to as low as 50, it hurts.
And unfortunately this new normal isn’t likely to revert to the old normal any time soon, as fracking onshore has gotten cheaper, faster and safer, with a lower breakeven price than drilling offshore. So while offshore drilling will never go away entirely, it’s also highly unlikely to return to the boom times our economy has traditionally relied on, at least for the foreseeable future.
What this all means is that Lafayette can’t afford to wait around for the oil and gas industry’s recovery to save us. Because while energy will always be a significant portion of our economy, especially as many of our companies support drilling around the world, both offshore and onshore, relying on doing business as usual is insufficient to replace the billions of dollars in revenue that have been lost. That’s not just because of the low price of oil but also because of the evolution in the industry in how oil can be most cost effectively extracted from the ground.
Another number I wanted to draw attention to in this chart is the performance of the Information sector, which has lost $48 million since 2012. Information is a category that includes our community’s publishing industries, motion picture and sound recording businesses, broadcasting and telecommunications, and data processing, hosting and other information services.
While the decimation of oil and gas likely had an impact on the performance of Information-related industries, this shrinkage is still particularly troublesome given the big wins Lafayette’s realized in this area, like the opening of a CGI branch, which created 400 jobs with a payroll north of $20 million.
Also, the categories underneath Information are some of the most important when it comes to highlighting Lafayette’s performance in the digital economy. While Information does account for $426 million of local GDP overall, almost $350 million of that is for broadcasting and telecommunications, which includes local TV and radio stations as well as broadband providers. So one could argue that our digital economy is less than $100 million today, and it’s shrinking rather than growing. Again, these numbers come from the Bureau of Economic Analysis.
To me this suggests that we have a long way to go before we can truly consider ourselves a tech town, and that we can’t assume this part of our economy is growing as well as the headlines make it seem on the surface.
I did find it interesting that aspects of our cultural economy are on the rise in spite of the macroeconomic issues we’re facing. Arts, entertainment and recreation as well as accommodations and food service together added $74 million in net gain to our GDP over the last few years.
Much of our GDP has been lost to an industry that seems unlikely to ever fully recover. And none of our industries are on pace to have the kind of billion-dollar growth our economy needs to get back on track.
Of course, $74 million is a drop in the bucket compared to the billions in losses we’ve been suffering elsewhere, but it does suggest that these are growth industries with the potential to be a part of the solution that’s required to dig our economy out of the hole it’s in.
I’ll be honest and admit that these numbers paint a fairly bleak picture. Much of our GDP has been lost to an industry that seems unlikely to ever fully recover. And none of our industries are on pace to have the kind of billion-dollar growth our economy needs to get back on track.
But for me that doesn’t mean we should give up and accept our economy’s diminished circumstances. Instead, what this analysis proves is that our community needs an all-hands-on-deck effort to regain the ground we’ve lost, particularly by continuing to aggressively pursue any and all efforts to further diversify our economy.
The question now is: What can we do to get our economy headed in the right direction? We’ll explore that in the next installment of Currency.