Dan Rickman

      While U.S. employment is forecast to dramatically reverse fortunes from 2002 to 2003, Oklahoma employment growth is forecast to increase only slightly from 0.65 percent to 0.73 percent (Figure 2). As was true for the recession of 1990-1991, Oklahoma employment growth remained positive during 2001-2002, while the U.S. experienced a decline in employment. In fact, Oklahoma has not experienced an employment decline since the energy bust of the 1980s. The U.S. economy subsequently rebounds more briskly during the initial recovery phase than does Oklahoma.

State Labor Market Performance Comparisons

      Based on preliminary data for September 2002 by the U.S. Bureau of Labor Statistics, Oklahoma's total nonagricultural employment growth of 0.57 percent from September 2001-2002 was the fifth highest rate of growth among states nationally (Table 1). Nevada, Alaska, Kentucky and Montana were the only states to exceed Oklahoma in nonagricultural employment growth. The five states with the largest declines are Utah, Colorado, Georgia, Missouri and Washington. As shown in Figure 3, among Oklahoma's neighbors, employment growth ranged from 0.57 percent in Oklahoma to -2.01 percent in Missouri.

      The sources of relative employment growth also are given in Table 1. The highest ranked sector is Construction, which posted over 5 percent employment growth during September 2001-2002. Although suffering employment losses in Manufacturing, Oklahoma had the twelfth smallest rate of job loss. Only Nevada, with its small manufacturing base, avoided manufacturing job losses, holding steady over the period at no change. In relative terms, Oklahoma's worst performance was in Transportation, Communications and Public Utilities (TCPU).

      Oklahoma's 4.2 percent unemployment rate in September 2002 was thirteen lowest (tied with Hawaii) in the nation. In addition, the 0.2 percentage point unemployment rate increase in Oklahoma to 4.2 percent, from 4.0 percent one-year earlier, ranked as the 17th lowest increase nationally. Only fourteen states had no change, or reductions, in their unemployment rate. West Virginia had the largest percentage point increase in unemployment (1.4). Among neighboring states (Figure 4), only Arkansas saw a reduction in their unemployment rate from the previous year.

Current Oklahoma Industry Trends

      Based on Bureau of Labor Statistics employment data through the second quarter of this year (i.e., the third and fourth quarters are forecasted), average annual growth of 0.65 percent is expected for Oklahoma total nonagricultural wage and salary employment in 2002 (Figure 1). This compares favorably to the expected average annual growth of -0.83 percent for the nation. The better performance of employment growth in Oklahoma mirrors that of the 1990-1991 recession, in which U.S. employment growth declined, while Oklahoma's growth slowed but did not turn negative.

      The favorable relative employment growth in Oklahoma is broad-based. Except federal government employment, the Oklahoma economy is outperforming the U.S. economy in all employment sectors in 2002. Growth in excess of 1 percent is expected in Mining, Construction, FIRE, Services and State and Local Government. Oklahoma employment is expected to have declined in Durable Goods Manufacturing, TCPU, Wholesale Trade and Federal Government. A dramatic difference between the nation and Oklahoma is in Nondurable Goods Manufacturing, in which U.S. employment is expected to have declined over 6 percent, while Oklahoma employment is expected to have increased slightly.

      The housing sector has been a source of strength for both the national and Oklahoma economies in recent years. Although DRI-WEFA forecasts that the housing sector will cool off, the building permit data have yet to reflect any weakness. U.S. new privately owned residential housing building permits for both total units and single-family units are up nicely for 2002 (Figure 5). Correspondingly, Oklahoma building permits rose sharply in 2002, exceeding 11 percent. Although not all permits that are issued become new housing, they are an indicator of builders' expectations.

      Regarding the distribution of activity across the state, Figure 6 shows that, the state as a whole, experienced greater growth than most of its metropolitan areas over the first nine months of 2002 compared to the same period in 2001. The metro areas were apparently more connected to the U.S. business cycle. However, the metro areas should then benefit the most from a rebound in the national economy. Among the metropolitan areas, Lawton had the largest rate of employment growth. Services and Government were the largest contributors to Lawton's growth.

Forecast for 2003

      Forecasts for calendar year 2003 are displayed in Table 2. Total nonagricultural employment growth is forecast to increase from 0.65 percent in 2002, to 0.73 percent in 2003. As shown in Figure 7, this lags behind forecasted growth in the nation by DRI-WEFA. The U.S. economy is forecast to have experienced relatively stronger growth (or less decline) in Mining, Construction, TCPU, FIRE, Trade, Services, and Government. Should the U.S. experience this growth, it would represent a dramatic reversal of fortunes experienced in 2002. The Oklahoma economy is forecast to only outperform the nation in Manufacturing. Compared to 2002, Oklahoma employment growth for 2003 is expected to be greater in Manufacturing, TCPU, Services, and Federal Government. Less growth is forecast for Mining, Construction, FIRE, Trade, and State and Local Government (Figure 8).

      The improvement in Oklahoma manufacturing employment growth corresponds to the improved outlook for the national and world economies. Despite anticipated gains in manufacturing production, manufacturing employment growth is limited by the continued march of productivity growth in the sector. In addition, increases in manufacturing activity in the second generation of newly industrializing countries in Asia will likely continue (i.e., China, India, Malaysia, the Philippines and Thailand), limiting growth of manufacturing in Oklahoma and the nation.

      Following recent years of growth, Mining employment is forecast to decrease slightly. Natural gas prices and oil prices are forecast by DRI-WEFA to soften in 2003 after peaking in the latter half of 2002 (Figure 9). Currently, higher oil prices are not driven by market fundamentals, but by a so-called war premium. Prices could go higher in the event of war and any destruction of the energy production and delivery system. This is not in the baseline forecast, however. Corresponding to the energy price (oil and natural gas) fluctuations, the Baker-Hughes drilling rig count for Oklahoma increased in 2002, reaching 92 in October, after bottoming out at 72 in January. However, the October rig count lies well below the peak of 157 in June 2001. In addition, the merger of CONOCO and Phillips Petroleum will result in a relocation of an unknown number of energy headquarter jobs from Oklahoma to Houston.

      Although low mortgage interest rates are forecast to continue, the housing sector is forecast to decline slightly. Yet, construction employment also is influenced by numerous other construction activities unrelated to housing activity. To be sure, regression analysis of historical changes in residential housing building permits and construction employment in Oklahoma reveal only a weak relationship (not shown). Road construction and construction of other large capital projects will continue, supporting substantial employment in construction.

      The airline industry continues to suffer in 2002 from reduced air travel, but it should stabilize in 2003. Part of the reduction air travel has been due to reduced business travel that accompanied corporate-cost-cutting. As the business sector recovers, this segment of the travel market should start to return.

      Although expected to rebound sharply at the national level, Wholesale and Retail Trade employment is forecast to post only modest gains in 2003. This is driven by the expectation that the overall Oklahoma economy is forecast to experience only slight acceleration in its growth. Federal government employment is forecast to hold steady for the year. Because of dramatic budget shortfalls, state and local government growth is predicted to drop to near zero for 2003. Accompanying the slowdown in the housing sector, Finance, Insurance and Real Estate is forecast to decelerate in 2003. Continuing recent trends, Health Services will be the strongest growth component of Services.

      Personal income growth is forecast to slow from a rate of growth of 4.2 percent in 2002 to 3.5 percent in 2003 (Table 2). Wage and salary income is forecast to hold steady at around 3.6 percent, so the slowing of personal income growth is attributable to slower growth in other components of income (e.g., dividends, interest and rent). Growth in Real Gross State Product (GSP) (the state analog to national GDP), is forecast to increase slightly in 2003.