Lafayette’s economy is on the rise, or at least that’s what the latest numbers suggest. Gross domestic product, personal income, employment, retail and real estate have all made gains over the last couple of years.
But a closer examination uncovers a deeper truth — even though Lafayette’s economy is on the upswing, its recovery trends toward a mediocre plateau rather than regaining what’s been lost, particularly in terms of GDP and personal income.
The reason is simple: The oil and gas industry hit another bust and appears unlikely to boom again. Those boom cycles have been extraordinarily important to the overall health of our economy. Historically, when oil and gas booms, Lafayette’s economy performs above average, but when it busts, it’s average or worse.
Rather than being at the midpoint of the typical boom and bust cycle of an energy-based economy, Lafayette’s facing a new normal, and one that suggests our best economic years are behind us unless we do something more about it.
To start this analysis, we turn to GDP, which measures an area’s total economic output.
Lafayette Parish’s GDP peaked in 2014 at $15.4 billion. The subsequent crash over the next two years sent the economy into a nosedive, reducing GDP by almost $2 billion. It was during this time period that Lafayette led the nation in job losses.
Since 2016, the Lafayette economy has clawed back $1 billion in GDP, hitting $14.6 billion in 2018, which is the most recent data we have. That’s undoubtedly a positive development, as it suggests the crash is over and recovery has begun.
But this story gets more complicated when we compare the compound annual growth rate — which measures how much GDP has increased or decreased on an annual basis over a period of time — of Lafayette’s economy vs. the U.S. as a whole.
From 2001 to 2018, the period for which we have parish-level GDP data to work with, Lafayette’s compound annual growth rate was 3.3%, but the national average was 4%. So on average over the last 18 years, Lafayette Parish’s economy grew more than 17% slower than the national economy.
By breaking this data down further we see four distinct periods of time:
From 2001 to 2005, Lafayette’s economy grew slower than the national average. Then from 2005 to 2014, we had what was arguably a golden decade, as parish GDP grew almost 50% faster than the national average. But from 2014 to 2016, the bottom fell out as the local economy shrank more than 6% while the national economy continued growing.
Thankfully, that crash only lasted two years, and from 2016 to 2018, Lafayette’s economy started growing again, albeit slower than the national average. The situation has continued to improve since then. From 2017 to 2018, Lafayette’s growth hit 5.2%, which almost matched the 5.4% growth of the U.S. economy
So if the numbers are improving, what’s the problem? Lafayette’s oil and gas industry is a shadow of its former self and showing limited signs of recovery.
In 2014, Lafayette’s oil and gas sector accounted for $2.6 billion of parish GDP. In 2018 that number was $1.3 billion. Put another way, the contraction of this industry has blown a billion-dollar-plus hole in Lafayette’s GDP.
What’s arguably more worrisome than the fall, though, is the lack of recovery, especially when you compare the performance of Lafayette’s oil and gas industry to the nation at large.
Historically, the rise and fall of oil and gas in Lafayette has matched whatever was happening nationally. When oil and gas was up nationally, it was up in Lafayette. When it was down nationally, it was down in Lafayette. But that’s changed over the last couple of years, as evidenced by the year-over-year change in GDP for that sector.
What we see here is that while oil and gas in both Lafayette and the U.S. crashed in 2014, the rate of recovery over the last couple of years has been significantly different.
In fact, Lafayette’s recovery was five times slower than the U.S. as a whole from 2016 to 2017 and 10 times slower from 2017 to 2018. So while nationally oil and gas is booming — hitting all-time production highs in the fall — in Lafayette it isn’t. So the connection between the national oil and gas industry and Lafayette’s has been broken.
Looking at Lafayette’s economy through the lens of GDP can be a bit distant, so let’s now turn our attention to a metric that hits closer to home, namely how much money the residents of Lafayette are making.
Per capita personal income
Per capita personal income takes all the personal income earned by all the residents of an area and divides it by the total number of people.
The first thing you might notice about the graph below is that, like GDP, Lafayette Parish’s per capita personal income peaked in 2014, fell hard for the next two years, and then recovered some of the ground that was lost over the last two years.
Where things get more interesting is when we look at Lafayette Parish’s performance vs. the national average.
What you’ll see is that from 1979 to 1985 and from 2006 to 2015, Lafayette Parish’s per capita personal income was higher than the national average. So there was more money in people’s pockets in our community than the national average, in some cases significantly more, like in 2014 when Lafayette’s income was at $53,215 while the national average was at $47,058.
When you multiply that $6,157 gap by our parish’s population at that time, we discover that our parish was generating $1.45 billion more in total personal income than the national average.
But for every other period of time over the last 50 years, Lafayette has lagged the national average. In 2018, while Lafayette was at $50,273, the national average was $54,446. That $4,173 gap multiplied by our parish’s population means our parish generated more than $1 billion less in total personal income last year than the national average.
The new normal
These numbers raise an interesting question: Does Lafayette have a good economy that occasionally busts, or a mediocre economy that occasionally booms?
Given the evidence, it appears that mediocrity is the norm rather than the exception. Because when oil and gas isn’t booming, Lafayette’s GDP grows slower and its personal income is lower than the national averages.
So if our local oil and gas industry is stagnant and no longer booming in lockstep with the national oil and gas industry, what does Lafayette’s new economic normal look like?
Decoupling and diversifying our economy from its reliance on oil and gas isn’t necessarily a bad thing. While we may no longer be able to count on the booms to drive the growth of our economy, we should also face less risk of the busts that tank it too.
And efforts made in recent years to diversify Lafayette’s economy have made a difference, helping turn what could have been a decade-long depression into a much shorter recession.
But we have not yet seen any single industry, or collection of industries, prove ready to replace the billions of dollars of GDP and personal income we lost from the fall of oil and gas over the last five years.
And moving forward we face some significant handicaps given chronic underinvestment in infrastructure critical to economic development, like our schools, roads, drainage systems and beyond.
That doesn’t mean all hope is lost.
Lafayette is still a wealthy community with access to capital that could be reinvested in growing new companies.
The fall of one industry creates opportunities for the rise of new industries that can leverage low-cost stranded assets like facilities and equipment.
Our oil and gas industry has proven itself innovative in the past, and there’s always a chance it finds new ways to be more competitive in the new normal it finds itself in.
Lafayette is home to some of the most successful healthcare companies in the country that are still growing.
We have a vibrant university in UL that’s bringing in more than $100 million per year in funding for research that could be commercialized.
We continue to offer a quality of life that should be attractive to the kinds of entrepreneurs and remote workers who can choose to live wherever they want to.
But we need to acknowledge that just because our economy is on the rise doesn’t mean we’re automatically going to recover what we lost. Instead, we need to embrace the idea that if we want Lafayette to ever be above average again, we need to redouble efforts to invest in a better future for our economy.