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Business Outlook: Lafayette Economy Hasn't Hit Bottom Yet

Acadiana's prosperity remains inextricably linked to oil and gas, a leading Louisiana economist says. That's the old news.

Here's what new: The Lafayette area is nearing bottom of a multiyear economic slump, the result of a lingering energy prices tailspin, but may see some rebound in 2019.

The short story, according to Loren Scott, LSU professor emeritus in economics?

"Our forecast is Lafayette will continue to lose jobs in 2018, though at a much lower rate (minus 800 jobs or minus 0.4 percent) before starting up the other side of the hill in 2019 (plus 1,600 jobs or plus 0.8 percent)."

Scott revealed those findings and others Thursday from his 2018-19 Louisiana Economic Outlook. Here are some key points:

  • Lafayette's Metropolitan Statistical Area — it includes Lafayette, St. Martin, Vermilion, Acadia and Iberia parishes — may have lost some 23,500 jobs, 10.6 percent, between the August 2014 high oil price of $105.71 per barrel to its low price of $27.76 in January 2016. 
  • Four employers unrelated to oil and gas — Acadian Ambulance, Stuller Inc., Schumacher Clinical Partners and LHC — have provided job diversity that kept the region from precipitous job losses like those of the 1980s energy downturn, when almost 20 percent of Lafayette jobs disappeared.
  • High tech jobs — Scott cited CGI, which employs 300; Waitr, 200 jobs in Lafayette — have also helped Lafayette stay afloat. Some $350 million in state road projects in Lafayette have also boosted employment.

But for Lafayette to boom, it needs higher oil and gas prices. Those prices may linger in the $52 to $58 range in 2018, Scott suggested, which will limit exploration and production in the Gulf of Mexico, where companies are more closely aligned with Lafayette's service companies, fabricators and other businesses tied to offshore enterprises. For offshore to prosper — some 98 percent of U.S. offshore production is in the Gulf — Scott said prices must rise above $60 and perhaps to $70.

Drilling in the Gulf, he said, provides producers with break-even points and profit margins that cannot compete with exploration and production in shale plays like those in the western Texas and North Dakota. U.S. shale producers, he said, have been able to drive down their costs since prices dropped so that they can make money even when oil prices sink as low as $30 a barrel, he said. Gulf of Mexico producers need higher prices to make a profit.

Part of the reason they've cut costs: They've driven down profits for service companies like those in Acadiana, which have been forced to effect layoffs.

Energy prices may continue to improve, he suggested, because the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, have cut back their production to increase global oil prices. The Saudis seem intent on continuing that policy.

Scott said the new administration is helping the economy in general by loosening burdensome regulations and promising tax reform. President Trump may hamper Gulf of Mexico and Louisiana by hindering Mexican construction workers from entering the country.

He may also hamper recovering by limiting trade with Canada and Mexico. The U.S. trade deficit is more affected by China than our North American neighbors, he said.

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