A lot of smart people have been working hard of late to identify which economic sectors and communities will be hardest hit by the COVID-19 pandemic and concurrent oil-industry disturbance.
I’ve found one particular Brookings Institute analysis to be especially useful in considering how Wyoming might fare. It’s clear that, while nowhere will be entirely spared, the recessionary impacts will not hit every community with the same degree of intensity.
The Brookings analysts used inputs from a Moody’s study that isolated five particularly vulnerable sectors: mining/oil and gas, transportation, employment services, travel arrangements and leisure and hospitality. Transportation and travel arrangements are basically sub sectors of leisure and hospitality, so we can really think of these as three sectors. All three are important for Wyoming’s economy.
Next, they ranked metropolitan areas in the United States whose economies are most concentrated in these five sectors, as measured by private employment. Finally, the Brookings researchers identified other metropolitan areas whose economies are least concentrated in these sectors.
Among the cities the analysts identified as most vulnerable are Midland, Odessa and Laredo, Texas — all major oil producing areas. The balance of high-impact locations include metropolitan areas heavily based by leisure and hospitality businesses. Las Vegas, Orlando, Atlantic City and Myrtle Beach are examples. Employment among this heavily impacted group within these five identified sectors ranges from about 30% up to more than 40%, as is the case for Midland, Texas.
The metropolitan cities predicted to be least impacted during the near future are generally smaller and more diversified, often home to non-durable goods manufacturing. In contrast, the percentage of wage and salary workers employed in these five sectors that are most vulnerable is only from 9% to 10%.
Nationwide, about 19% of workers are employed by these sectors.
Where does Wyoming rank in this model? As of December of 2019, 9.5% of its private work force worked in mining and petroleum extraction, 6.7% in transportation and 16.7% in leisure and hospitality. That comes to 33% of Wyoming’s private workforce that draws a paycheck from industries identified as most vulnerable.
Of course, these are statewide averages. Some communities within Wyoming have a much lower percentage of their workforce in the five sectors, while others are clearly much higher. Yet, the overall vulnerability of the state is concerning from the standpoint of Wyoming economic vitality.
The economic disturbance we have just entered will reverse itself in time. They all do. But we’ve not yet begun to experience the full force of this economic quandary. The longer government restrictions on economic behavior persist, the more severe the short-term impacts will be. Policy makers have so far intimated that business activity on main streets must be tempered due to concerns related to the virus spread. It will get worse, economically, before it gets better.
When a point of potential recovery does emerge on the horizon, three separate issues will come into play.
First is the pace and vigor of consumers’ reentry into the marketplace. With the disruptions in employment that have and will continue to occur, restoring consumer markets cannot fully be accomplished until money reaches consumers. The $2.2 trillion federal relief bill, while passed, will not end up in consumer pockets for some weeks. Moreover, it is a temporary — rather than continuing — restoration of spending potential.
A resilient return of consumer activity can only emerge when critical economic sectors in the state have returned to some level of normalcy.
The leisure and hospitality sector could recover relatively quickly once public and governing decision makers are convinced that a significant health danger no longer exists both inside Wyoming and at vacationers’ points of origin. It is important that this perception among potential visitors is restored in time to make use of Wyoming’s popular travel seasons.
The most challenging issue, however, concerns the recovery of the mineral sector, specifically the crude oil market. The state’s mining and extraction sector was already softening before the current market conditions landed, as evidenced by reductions in employment over the past three months.
The reversing of this direction and the resumption of normal economic activity for crude oil remains an elusive goal. The restoration and stabilization of the oil sector will not occur with the abatement of the COVID virus alone.
The more monumental problem is that world players on the supply side of the crude oil market have demonstrated no propensity to stabilize crude oil output and price levels. Such stabilization is fundamental to a thriving United States oil production environment. Inland prices of crude oil, which includes Wyoming production, have experienced unprecedented lows during the last couple of weeks. In addition, world supply so outstrips demand that remaining United States crude oil storage capacity is now measured in days, rather than months. Another exacerbating factor is that funding to expand the United States petroleum reserve — and thus increase demand — was not included in the recently approved relief legislation. In short, there is currently no short-term solution for recovery of the crude oil market on the horizon.
The state of Wyoming has faced numerous economic challenges in its history. Some, like this one, have no doubt appeared insurmountable.
Although there is no clear path to a quick recovery once this current economic environment has bottomed out, a return to normalcy will happen. And when that recovery happens, it will depend on the same sectors that have sustained our economy for so many years.