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Wells Fargo Reports: Regional Effects of the Oil Price Slump

Wells_Fargo_Securities_logoOil- and gas-related businesses are cutting capital budgets and implementing layoffs in the face of the continued slide in oil prices. The bulk of the burden is falling on just a handful of states.

The ongoing fall in oil prices will hurt domestic producers squeeze their profits and reduce their capital spending and exploration efforts. Producers are not the only ones who will feel the squeeze. The decline in capital spending and exploration will also hurt support businesses, manufacturers of related equipment, and possibly spill over to firms that build pipelines, transport oil and sell the commodity. Weakness in the domestic oil and gas industry has contributed to a downward adjustment of our forecast for business fixed investment for the first quarter of 2015. The sharp pullback in oil- and gas-related investment and employment will largely be concentrated in energy producing states, while the benefits of cheaper gas will be more equitably divided among the entire nation.

In dollar terms, Texas is likely to suffer the largest loss. The Lone Star State has by far the largest number of workers in each of the oil- and gas-related industries. However, it does not have the highest concentration of those workers as the state is relatively large and diverse economically. In Texas, only 2.6 percent of workers are employed in oil and gas extraction, drilling oil and gas wells and support activities for oil and gas wells. By contrast, 6.0 percent of North Dakota’s workers are employed in those three industries, while 5.8 percent of workers in Wyoming are concentrated there. Moreover, Alaska, Oklahoma, New Mexico and Louisiana all have a higher concentration of oil and gas workers than Texas. Support for oil and gas operations has been the largest and the fastest growing oil-related industry in the U.S. by employment. As spending cuts become more evident in the data, this industry will significantly restrain job growth in many of these states.

The pain of capital spending cuts will reach beyond those in the business of extracting oil. Oil and gas machinery manufacturers will feel the squeeze of reduced demand. Employment data on this industry are not available for several states, including Wyoming, North Dakota, Louisiana and Alaska; however, nearly 80 percent of all workers in the industry are employed in either Texas or Oklahoma.

The construction of oil and gas pipelines, pipeline transportation and petroleum wholesalers could also be at risk, though cuts to these industries are unlikely to be severe if the momentum in oil production does not slow this year. Pipeline construction is most heavily concentrated in Wyoming and North Dakota, with a slightly smaller concentration in Louisiana. Wholesalers and pipeline transportation are relatively small employers, but still account for a sizable share of the workforce in Wyoming, North Dakota and Oklahoma.

 

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AEM statement on Senate’s Keystone XL Pipeline vote

Secretary is Dennis Slater, AEM’s full-time President, Milwaukee, Wisconsin.

Secretary is Dennis Slater, AEM’s full-time President, Milwaukee, Wisconsin.

Dennis Slater, president of the Association of Equipment Manufacturers (AEM), released the following statement following the Senate’s vote on Monday to take up legislation to approve construction of the Keystone XL Pipeline:

“I want to thank members of Congress – again – for their bipartisan vote in favor of finally building the Keystone XL Pipeline. President Obama, it’s time to stop being an obstacle to this commonsense, job-creating project.

“Today’s Senate vote shows that the debate over Keystone is over everywhere but 1600 Pennsylvania Avenue. Both the American public and their elected representatives resoundingly support this important piece of energy infrastructure, and any remaining legal obstacles to the pipeline’s construction fell with last week’s decision by Nebraska’s Supreme Court.

“President Obama should reconsider his ill-conceived threat to veto the legislation that will soon be sent to him by Congress, and stop playing politics with our nation’s energy infrastructure.”

Wells Fargo Reports: Dodge Momentum Index Ends 2014 on Good Note

Wells_Fargo_Securities_logoThe Dodge Momentum Index increased 4.0 percent in December from a downwardly-revised November reading. The increase was broadly based, with both commercial and institutional seeing gains in the month.

Investment and Spending Growth

1 The Dodge Momentum Index (DMI) rose 4.0 percent to 128.7 in December, despite November’s downward revision to 123.8. With this month’s positive reading, the DMI ended 2014 up 17 percent year-over-year.

 The gain in
DMI suggests structure investment will continue to grow this year. We expect structure investment to increase 5.1 percent in 2015 and continue to strengthen in 2016. However, the drop in oil prices poses a downside risk to our forecast.

Broad-Based Growth Across Sectors

2 DMI’s December increase was a result of broadly-based gains in both sectors. Commercial building planning saw a 4.1 percent increase, while institutional increased by 3.8 percent. On a year ago basis, they are up 31.4 percent and 1.5 percent, respectively.

 During the month, commercial building planning saw a pickup in notable projects, which included the Google Campus in Boulder, CO, the Monarch Hotel in Black Hawk, CO and four phases of the Cannon House office renewal in Washington, D.C.

 

 

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Wells Fargo Reports — Employment: Broad-based Gains, Wages a Lagging Indicator

Wells_Fargo_Securities_logoDecember registered another solid gain in jobs of 252,000, with growth across the board. The unemployment rate declined to 5.6 percent in part due to lower participation. Average hourly wages continue to lag.

Broad-Based Job Gains A Plus for the Economy

In another solid gain, nonfarm payrolls rose by 252,000 in December. Over the past year, job growth averaged 246,000 jobs per month (top graph). This marks the 1 2 3strongest annual increase in jobs since 1999, although the pace has picked up notably in the final months of the year, averaging 289,000 jobs per month in the fourth quarter. Job gains were recorded in a broad set of sectors including professional & business services, education & health services, leisure & hospitality and even the mining sector. The unemployment rate declined to 5.6 percent, reflecting the combination of better hiring and a drop in participation.

Average Hourly Earnings: Not the Whole Picture

Following the substantial pickup in hiring this year, attention has shifted to wage growth. In December, average hourly wages continued to struggle, falling 0.2 percent and November’s 0.4 percent increase was cut in half. Wages were cut across all industries, with the exception of leisure & hospitality (flat) and other services (up 0.1 percent). Although the mining industry continued to add jobs last month, efforts to rein in costs were evident in the 1.0 percent drop in average hourly earnings. On a year-ago basis, average hourly wage growth has slowed to just 1.7 percent, the weakest rate in more than two years. However, as we have discussed before, average hourly earnings are only part of the picture for consumer spending. With 3 million jobs added over the past year, the income proxy, which factors in the aggregate earnings of workers, continues to signal a decent pace of wages & salaries income growth. While an increase in average hourly earnings of course adds to consumers’ spending power, average hourly earnings tends to be a lagging indicator of changes in real consumer spending (as well as labor market tightness). As illustrated in the bottom graph, the average hourly earnings series clearly lags the wages & salaries series at critical turning points of the economic cycle. Moreover, the wages & salaries series is far more correlated to consumer spending than average hourly earnings.

Aggregate Hours Worked: Continued Gains for Growth

The average workweek was unchanged in December, but, after last month’s gain and solid job growth, the aggregate hours index rose a solid 3.5 percent over the past three months. Broad-based gains in jobs and average weekly hours in the private sector indicate continued improvement in overall economic growth (bottom graph). This supports our outlook for continued strengthening in the economy. Our expectation is for economic growth for the next four quarters at a pace near potential growth of 2.75 percent and, thereby, we also see a further decline in the unemployment rate.

The World’s Largest Diggers – An Infographic

“The increasing demand for basic commodities has driven up prices and spurred a global mining boom, but it is not an easy task to get them from mines because big layers of rock have to be moved first. Our infographic contains detail of some heavy machines around the world that can make task easy because they are fast, efficient, and reliable.” Tom Neville     http://www.mwhire.com/teleporters-for-sale-or-hire/

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