Nonplussed by Payrolls? Try the Oil Business
Friday's U.S. payroll numbers were a damp squib -- but not in the oil business.
The number of people employed in oil and gas extraction (as the Bureau of Labor Statistics classifies them) went up in March, racking up the first back-to-back monthly job gain since October 2014, just before the oil crash began in earnest.
Factoring in the other half of the equation, oil and gas support workers, means looking back further, as those data are lagged by one month. Still, they suggest the industry's recovery continues apace. More than 4,000 support jobs were added in February, the fourth increase in a row and the biggest since September 2014.
What follows are updates to my sort-of-regular charts of the state of employment in the oilpatch. First, the change in year-over-year payrolls for the sector:
Total payrolls are now about 381,000. That's still more than 150,000 below the peak reached in September 2014. However, with payrolls having stood at 383,000 in May 2016, I am guessing that year-over-year change chart will edge into positive territory once data for next month come out (in July).
The optimism in the industry is tempered with some concern that renewed drilling, well-completion and hiring will cause costs to rise even as oil prices, while higher, are still only around $50 a barrel and natural gas prices remain stuck around $3 per million BTU. Productivity is the balancing factor, and this seemed to dip in February -- which is a concern until you realize it always dips in that month due to a seasonal drop in output:
Meanwhile, the rally in oil and gas prices earlier in the year means that, even with increases in employment, average hours and wages, the estimated check cut by the industry to its workers still looks manageable compared to revenue: 1
Oil prices have dropped since February, although gas prices have rallied due to a late-winter cold snap. Net net, the wage burden probably ticked up in March.
Even so, hiring has likely stayed strong and perhaps even accelerated. Only two weeks ago, Halliburton Co., which cut 30,000 jobs over the past two years, announced it was hiring again in order to meet surging demand for its services in the U.S.
Barring a sustained drop in oil prices, the recovery in oil and gas payrolls should keep going. As a corollary, we are about to find out how quickly and easily the workers who were shed can be hired back.
I estimate this by multiplying U.S. oil and gas production by average spot prices for WTI crude oil and Henry Hub natural gas to get a revenue figure. Wages are simply a product of employees multiplied by average hours multiplied by average hourly earnings. It's a bit simplistic but provides some sense of how the wage burden on the industry has changed over time.
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