Economic Forecasts / Elements Which Damaged Okc in '86 Will Help City or Disappear in '87

By Knutson, Craig R. | THE JOURNAL RECORD, January 1, 1987 | Go to article overview

Economic Forecasts / Elements Which Damaged Okc in '86 Will Help City or Disappear in '87


Knutson, Craig R., THE JOURNAL RECORD


I'd like to begin this article with a quote that all forecasters, be they economic or otherwise, must live with and our readers must realize: "Predictions can be unreliable, especially when they are about the future!"

While forecasting is not an exact science, there must be a statistical basis upon which a forecast is made. As Ralph Waldo Emerson once said: "Numbers serve to discipline rhetoric. Without them, it is too easy to follow flights of fancy, to ignore the world as it is, and to remold it nearer to the heart's desire."

That is not to say that intuition does not play an important part in forecasting, for it does. My forecast for 1987 incorporates both, and its ultimate success is a function of how well the statistics and intuition are blended.

There are many different approaches to forecasting, but the two most divergent views are:

- When you get the urge to predict the future, you'd better lie down till the feeling goes away.

- You cannot expect to make an accurate forecast unitl you get a better grip on where we've been and where we are right now.

While the first approach is definitely more humorous, the latter is more defendable. I have used the latter approach in formulating this forecast.

Oklahoma City was an unfortunate participant in what clearly has to be the most important economic phenomenon in 1986 - a decline in crude oil prices more steep than the price rises of the late 70's. The impact was more severe because it took only four months for the price of Oklahoma "Sweet" to drop from $27.42 a barrel to $11.83 a barrel (down 57 percent). Three months later, the price had fallen to a monthly average $11.12 a barrel!

As the year ends, local crude is selling for around $14. Natural gas prices, now the greatest contributor to our declining gross production tax collections, have followed a similar path.

Manufacturing has suffered a similar fate, primarily due to the energy-related manufacturing jobs located in the metro area. The losses have been concentrated more in the durable goods category, meaning equipment with a useful life of greater than three years (e.g., rigs, transportation and electrical equipment).

When active rotary rig activity reached the upper-800 levels in 1981, employment in the area of oil field machinery flourished. Rig totals for the state are now around 140, or 84 percent below 1981's levels.

Needless to say, stacked rotary rigs do not generate increased energy manufacturing jobs.

Nondurable manufacturing employment has likewise declined, much of that tied to international monetary trends that have caused losses across the nation, not just here in OKC.

Construction is in its second of, what most likely will be, a six year drought. In fact, had this metro area not been blessed with the large number of nonbuilding projects currently under construction (e.g., interstate highways, airport expansions, and municipal infrastructure improvements), the employment totals would have dropped even more dramatically than they already have.

The state's new promotional logo says that Oklahoma is "Positioned for Profit;" in the real estate market, any investor with limited debt and/or "deep pockets" is positioned to make a very healthy profit in this area!

Residential and nonresidential construction and permit activity are at their lowest levels in this decade and, quite honestly, that is one of the healthiest long-term signs for both the construction industry and property owners in OKC (see Figures 1 and 2). Until vacancy rates decline and property values increase, new developments are neither desirable nor justifiable.

That is a capsulized look at this metro's "Goods Producing" industries. Their importance to our economy cannot be underestimated. As table 1 reveals, the wage structure within this group as a whole is the highest among all industries.

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