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Posted by lindsay on June 10, 2016

The recent drop in oil prices is good news for most people but is causing a few concerns in Texas, whose economy is reliant on oil.

Oil prices recently dropped below US$50 a barrel, down from US$107 in June.

American Bank Comerica reported that, after seven months of growth the Texas Economic Activity Index fell 0.2 per cent last November, the last month figures are available for.

However the bank said the index remained strong and a long way above the 72.6 it hit in June 2009.

“We expect to see more evidence of the economic drag on Texas from lower oil prices in the months ahead,” Robert Dye, chief economist at Comerica Bank, said in a written statement. “The Texas economy is large and diverse and it will not turn on a dime, but early indicators, including the weekly drilling rig count, are already showing the impact of the new oil price regime,” The Houston Chronicle reported.

The index consists of eight variables: nonfarm payrolls, exports, hotel occupancy rates, continuing claims for unemployment insurance, housing starts, sales tax revenues, home prices, and the Baker Hughes rotary rig count.

The effects of falling oil prices were already being seen in Houston’s property market with apartment construction predicted to scale back this year.

In the last two years, the multifamily market in Houston has been booming with sky-high occupancy rates and rents, hordes of new people moving to the city and thousands of brand-new apartment units under construction, website The Chron reported.

But the forecast for 2015 — in light of tumbling in oil prices –is far less rosy, a panel of industry leaders said at the annual Houston Apartment Association meeting recently.

Job growth was key to the last couple years increase in demand for apartments. Jesse Thompson, business economist with the Federal Reserve Bank of Dallas, Houston branch, predicted that job growth in Houston will shrink by about half of that in recent years and below the average to about 50,000 to 55,000 a year.

He did not predict Houston is heading toward a recession, however. He said while Houston is certainly affected by a dip in oil prices, the economy is much more diversified than it was in the mid-1980s during the oil bust.

The Houston Business Journal said apartment builder Hanover was scaling back their projects in the city due to falling oil prices.

Brandt Bowden, Hanover’s managing partner of capital markets said,”The free-flowing capital of the past several years gave rise to the current construction boom, which led to inflated prices and a market in fear of becoming overheated and overbuilt.

“We’ve started to back off Houston for a bit. Hopefully, the supply does check itself and we’ll bounce back by the end of 2016.”

The Texas economy was hit by an similar oil price drop in the 1980s sending it into recession, however this time around experts predict it is more robust.

The state’s economy has been one of the stars in America, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the US as a whole.

The Wall Street Journal reported recently that Texas’ banking system was more robust now than in the 1980s and able to withstand a drop int he economy. The paper also said Texas had a skilled workforce that was a lot wider than just oil and energy. It also had relatively cheap land and so was attractive to companies looking to relocate.

The state’s population grew 29% between 2000 and 2014, more than twice as fast as the U.S. as a whole, according to the Census Bureau. The median age in Texas was 34 last year, 3 1/2 years younger than the nation overall. Growth has come from a combination of migration from other states, immigration and a higher birthrate than the national average.

The U.S. economy has been restrained in recent years by slow labour-force growth. Texas, on the other hand, has more young people entering their prime working years and fewer elderly residents, as a percentage of the population, than does the nation overall. That has given its economy a solid foundation of available workers, The Wall Street Journal said.

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