Oklahoma’s economy performed strongly throughout 2022 as consumer spending and employment have shown resilience despite inflation and higher interest rates.
However, a tight job market, with more vacancies than job seekers, has squeezed many Oklahoma industries and served as a profit margin for some companies. Workers are now making more money, but rent increases and groceries have outpaced their increases.
The strong economy has brought record tax revenues to the state, with trailing 12-month revenues up 18% over the previous 12-month period.
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“Oklahoma’s economy is doing reasonably well, despite challenges from inflation,” Oklahoma State Treasurer Randy McDaniel said last week.
“Personal income is rising, leading to strong individual income tax collections. Consumer spending is also increasing, although rising prices are diluting purchasing power.”
In August, Oklahoma’s unemployment rate was 3.1%, up from 2.9% in July but down 3.5% a year earlier, according to figures released Friday by the US Bureau of Labor Statistics. The US unemployment rate was 3.7% in August
The seasonally adjusted civilian workforce in Oklahoma was 1.88 million in August. That was a slight increase from July and almost 30,000 more than a year ago. The latest numbers show big year-over-year job gains in oil and gas exploration, leisure and hospitality, and financial activities.
Employment in construction was nearly 79,000 in August, the same as in June and July and up from 77,000 in August 2021. Employment in manufacturing was 133,600 in August, unchanged from June and July and up from 129,000 in August 2021.
In July, Oklahoma had 130,000 nonfarm job openings, more than double the number of jobseekers, according to figures released Friday.
In Greater Oklahoma City, nonfarm payrolls increased 4.5% from July 2021 to July 2022.
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Sales and use tax receipts — a reflection of consumer spending — totaled $590 million for both July and August. That’s higher than any month in 2022 except January and higher than any month in 2021.
The possibility of a recession looms as the Fed hikes interest rates
The Federal Reserve Board is expected to hike interest rates this week for the fifth time in 2022 to bring down inflation. Board members have acknowledged that the rate hikes could push the economy into recession.
“A potential national recession is a growing concern, but state gross receipts are showing no signs of slowing down at this time,” McDaniel said. “We are closely monitoring all sectors and revenue streams for signs of weakness.”
The Oklahoma Business Conditions Index, part of the Creighton University Mid-America Business Conditions Index, fell to 60.7 in August from 63.2 in July, but the reading still reflected healthy growth.
A recent survey of business leaders conducted by the State Chamber of Oklahoma, its research foundation, and the Oklahoma Business Roundtable found that 63% believe the state economy is moving in the right direction relative to the national economy, and 79% said that their companies will make investments next year.
Recession fears have already contributed to a fall in oil and gas prices, which started rising last year and skyrocketed after Russia invaded Ukraine in February.
Major energy companies in Oklahoma have reported quarterly earnings in excess of $1 billion this year as oil and gas prices have soared, contributing to high inflation. Those companies are themselves facing higher costs for supplies and labor, executives said in phone calls last month.
Inflation hits some industries harder than others
James Leewright, president and CEO of the Oklahoma Restaurant Association, said people have been searching for a post-pandemic normalcy this year and have returned to restaurants.
However, he said, inflation has had “an enormous impact on sales and even more so on profits”.
“With rising food costs and supply chain issues, restaurants must constantly adapt their menus to what can be sourced and priced reasonably. Restaurant margins have been declining for years, but after the impact of the pandemic, it’s very difficult for a restaurant to remain profitable, even if it has a strong clientele.”
Leewright said the tight labor market is forcing some restaurants to limit capacity “simply because they don’t have the staff to meet demand. This exacerbates the reduction in profit margins and in some cases wipes out profits altogether.”
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Looking ahead, he said, “Everything indicates that supply chains, shortages and food costs – along with labor costs and shortages – will be an issue for the industry.”
A recent report by Chad Wilkerson, head of the Oklahoma City branch of the Kansas City Fed, showed that service sector growth in the region, which includes Oklahoma, has slowed somewhat.
“In August, 50% of firms reported adjusting employee salaries during the year for inflation, primarily through wage increases, but also through additional benefits, more flexible working hours, and one-time inflation or cost-of-living premiums,” Wilkerson reported.
In terms of tax revenue, the impact of inflation is mostly reflected in sales and use tax revenue, McDaniel said
“When prices rise, expenditure must also keep up,” said the State Treasurer. “But with those collections up more than 12 percent over the past year, consumer spending is outpacing inflation. Adding to the supply issues, the sluggish development of vehicle receipts suggests consumers are reluctant to make some large ticket purchases.”
Jobs in Oklahoma are shifting from energy to warehousing
Wilkerson, along with the Federal Reserve, released a report on Oklahoma employment trends this month. The report shows continued job losses in oil and gas exploration and oilfield services, as well as losses in manufacturing, heavy construction, health and home care, information services and local government.
The biggest gains have been in transportation and warehousing — Amazon has invested heavily in central Oklahoma — employment services, retail, fast food, and Native American tribes.
According to the report, employment in the oil and gas sector fell by 42% between July 2019 and July 2022. Employment in nursing and residential care facilities fell by 10% during this period. Employment in transportation and warehousing is up 47% and employment services have increased their payrolls by 17%.
“The change in energy jobs — even with this increase over the past year — is still a much bigger change than, say, in the seven years prior to energy,” Wilkerson said last week. “So it’s accelerated some of the efficiencies in this industry by doing more with less. Difficulties getting people into manufacturing – these have continued to accelerate. The same applies to nursing/care facilities. They have a hard time finding workers. Now it’s on a whole different level.”
State lawmakers have made workforce development a priority, recently channeling pandemic aid funds to the state’s career tech system for training health workers.
Employment in accounting, tax preparation, bookkeeping and payroll jobs is up 16% since July 2019, while food manufacturing is up 10% and tribal employment is up 8%.
In the most recent State Chamber/Oklahoma Business Roundtable survey, 62% of business leaders cited workforce challenges as their top concern. More than half said skilled labour, including those with qualifications, was the most difficult to find and the challenge extended to the technical and soft skills required.
Leewright, head of the state restaurant association, noted that the industry plays an important role in workforce development and offers career paths that could start at the dishwasher and progress to manager or owner.
“A successful restaurant industry is critical to a strong Oklahoma economy,” he said.
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