Oklahoma's economy begins 2022 in a strong position. Dr. Robert Dauffenbach, Senior Associate Dean for Economic Development and Impact at the University of Oklahoma Price College of Business, says economic conditions are largely positive to start the year, but uncertainty over inflation, unemployment and interest rates are cause for concern.
Transcript
Dick Pryor: This is Capitol Insider, your weekly look inside Oklahoma politics, policy and government. I'm Dick Pryor with Quorum Call publisher Shawn Ashley. Our guest is Dr. Robert Dauffenbach, Senior Associate Dean for Economic Development and Impact at the University of Oklahoma Price College of Business. We like to start every year hearing from Dr. Dauffenbach about the state of the economy. So, Bob, thanks for joining us.
Dr. Robert Dauffenbach: Glad to be here.
Shawn Ashley: Dr. Dauffenbach, as we head into 2022, how do you evaluate the health of the Oklahoma economy?
Dr. Robert Dauffenbach: The health of Oklahoma’s economy is good. People are returning to work, energy markets are rebounding in big ways. And one of the lowest unemployment rates in the nation is where Oklahoma stands. And Oklahoma City has been, was the leader among all cities besides one million or more last year. Employment is up two and a half percent from a year ago. Mining employment is up twelve percent in leisure and hospitality up five point-one percent. So, we're definitely on the mend.
Dick Pryor: Sounds like a lot of reasons to be encouraged. What are you concerned about?
Dr. Robert Dauffenbach: Well, I…most concerned about energy markets, their ability to sustain the plusses that we've had in price increases, that we've gone from a negative price in futures markets in March of 2020 to $83.00 today. That's quite a journey. And I don't think it's over yet. Fossil fuels will be needed in the long run, and that's certainly something that we can be encouraged about. Natural gas as a bridge fuel, more people are sick with COVID, but that's coming off. Inflation is a concern, and I think it's not likely that we'll see any kind of retrenchment and inflation concerns anytime soon. We're in for a rough spring. The Fed is behind the curve, and they know it, and not sure just how they're going to tackle this situation. But it's, it's not good.
Shawn Ashley: Throughout the COVID-19 pandemic, a significant number of people have retired or resigned, yet as you mentioned, unemployment in Oklahoma and nationally remains very low. What are we to make of the labor market and where it will go in the year ahead?
Dr. Robert Dauffenbach: Well, we're certainly seeing as a consequence of the COVID experience a lot of adaptation working from home that is likely to continue. We've had a tremendous amount of largesse by the federal government, and people's bank accounts have been pretty full. That largesse is likely to wane right away, scheduled to go down, and I think people will come back to work. But certainly there will be long-run changes as a consequence of COVID.
Dick Pryor: Bob, you mentioned inflation. How concerned should we be about the inflation rate increase?
Dr. Robert Dauffenbach: We should be very concerned. We had a CPI that's up seven percent from a year ago. Nationally, the median selling price of the house has gone up twenty-five percent in one year. I'm really happy that I own the house, and…
Dick Pryor: That’s nice.
Dr. Robert Dauffenbach: …but it's shocking. It's shocking how much inflation we're seeing there. Now, much is made of gasoline prices being up fifty percent, but that's not a big deal as far as I'm concerned. Prices we've certainly seen around the $3.00 level. Supply chains are reforming. That should help. And we certainly are looking for interest rate increases, and the Fed is very much behind the curve. But we have to recognize as well that our long run inflation rate since the mid-70’s has been three point-eight percent annually. So, there's been a lot of inflation. And certainly, we're looking at double that right now, but I think we'll settle back down to that three percent range late in the year.
Shawn Ashley: You also mentioned earlier the wild swings in energy prices that have taken place over the last year. What's causing the current increase and what do you see for the oil and gas economy, which is very important in Oklahoma, in 2022?
Dr. Robert Dauffenbach: Well, certainly recovery from the pandemic. I can't believe how crowded the roads seem now. Certainly, we've had reduced supply and we've had a lack of a willingness of financial institutions to support loans. We've seen a commitment by the industry to return capital to stockholders. OPEC plus Russia have exerted new discipline on the market and possibly OPEC and Russia do not have the excess capacity that they claim to have. So, there are a lot of reasons why prices are rising, and I think there is a very much a likelihood that we're not seeing the end of this. There's been a lot of years of not very heavy investment in a declining resource that’s likely to catch up with us in the longer run. Still.
Dick Pryor: For the first time, in 2022 the legislature and governor will have more than $10 billion to appropriate. Often, at this time of year we're talking about how the state has to climb out of a revenue hole, but that's not the case now. Has the state solved all of its budget problems and what challenges still lie ahead in the state's fiscal policy?
Dr. Robert Dauffenbach: Well, total collections at the state level for the first six months of the year, and in comparison with the previous fiscal year, in that six month period, are up six hundred and sixty-three million dollars. That change is largely dominated by severance taxes on oil and gas – up 400 million. And, the sales tax is up 200 million. So just those alone account for the change. Income taxes are actually down, which is very surprising to me. So, no, we haven't solved all the state fiscal issues. We're so highly dependent on energy. But I do see energy prices stabilizing. I think we can be a little more bold as we look to the future in how we use our revenues to start attending to the many funding issues we face in the state. Higher education being among them.
Shawn Ashley: You mentioned earlier federal fiscal policy. How do you see federal fiscal policy addressing inflation, unemployment and interest rate concerns?
Dr. Robert Dauffenbach: Well, Congress did pass a $550 billion infrastructure program, that's a multi-year program, and it's likely to do good things, but it's not anywhere near the one point-three trillion that I think the Biden administration was looking for. I don't see much potential for cooperation, compromise going forward in Congress. I think it's going to ultimately bite us in terms of economic growth and progress of our country. So, the political economy, aspects of the national scene are very, very troubling to me. Plus, we certainly had the Fed – it has a dual mandate where three point-eight percent unemployment nationally and certainly the quest will be to fight inflation, and because the supply side has been a big part of the problem on inflation, I don't think they have a lot of tools to deal with it.
Dick Pryor: Dr. Robert Dauffenbach, from the Price College of Business at the University of Oklahoma, thanks for joining us.
Dr. Robert Dauffenbach: Glad to be here.
Dick Pryor: And, we'd like to hear from you. Email your questions to news@kgou.org or contact us on Twitter @kgounews and @QuorumCallShawn. Until next time with Shawn Ashley, I'm Dick Pryor.
