New Mexico’s Economy:Current Situation and Outlook

PRESENTED TO THE RISK MANAGEMENT ASSOCIATIONJEFFREY MITCHELL, BBER DIRECTOR

DECEMBER 10, 2019

New Mexico Current Economic Situationo In 2019Q1, New Mexico added 11,000 jobs (1.4%), in line with 2018 growth.

o Nearly half of the jobs were in Eddy & Lea counties (5,250 jobs, 6.5%), tied to oil & gas.

o Metro areas (except Farmington) also added jobs, giving some balance.

o Preliminary CES data indicate faster growth in Q2 (1.7%) and Q3 (2.2%). FOR-UNM is more cautious (1.5% and 1.6%).

o Total personal income playing catch up +5.9% in Q2 (9th among states).

o State government recurring revenues +16.3% in FY19 (35% since FY17); more than 60% of the increase is directly due to oil & gas boom.

o Yet, data indicates growth in oil production is slowing – Q2 up just 0.4% (QoQ).

o Next phase of the oil boom shifts from production to State government.

Labor Force by Region, 2012 – 2019Q3

Source: BLS Local Area Unemployment Statistics (LAUS)

o Lea & Eddy account for 7% of NM labor force, but much of the year-over-year volatility.

o FOR-UNM expects significant downward revisions for 2019 – note change in ‘Rest’.

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

(15,000)

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

25,000

30,000

Year

-ove

r-Ye

ar S

tate

wid

e G

row

th

Gai

n / L

oss i

n La

bor F

orce

Albuquerque MSA Santa Fe MSA Farmington MSALas Cruces MSA Lea & Eddy Counties RestStatewide (Right)

Net State-to-State Migration (In-Out), 2007-2018

Source: US Census Public Use Micro Statistics (PUMS)

o New Mexico had large net out-migration between 2011 and 2017.

o Out-migration has been greatest among BA and ‘Some college/Associate’.

o But in 2018, migration was positive, especially 18-29 y/o and 30-44 y/o; but among all educational groups.

o Temporary oil & gas workers?

699

(9,228)

(18,789)

(1,227)

(12,662)

(776)

(10,041)

8,503

1 to 17 yrs 18 to 29 yrs 30 to 44 yrs

45 to 64 yrs 65 yrs and over

(190)

(5,542)

(13,398)

(1,015)(5,693)

290

(5,777)

5,057

(20,000)

(15,000)

(10,000)

(5,000)

0

5,000

10,000

< HS HS GraduateSome college or AS Bachelor's degreeGrad or Prof

Age Cohort Educational Attainment (25 y/o +)

NM Consensus Revenue Estimation Group (CREG)

Gain/Loss in General Fund Accruals, FY 2019 (preliminary)

$290

$23

$11

$125

$17

($69)

($9)

$140

$603

$9

$5

($100) $0 $100 $200 $300 $400 $500 $600 $700

Gross Receipts

Compensating Tax

Selective Sales *

Personal Income Tax

Corporate Income Tax

Mineral Production Taxes

License Fees

Investment Income

Rents & Royalties

Tribal Revenue Sharing

Misc. Receipts

Millions $

12%

40%

2%

8%

16%

-14%

-15%

18%

89%

13%

11%

-25% 0% 25% 50% 75% 100%

Change YoY %

NM TRD

Gain/Loss in Gross Taxes by County, FY19 v FY18($25) $0 $25 $50 $75 $100 $125

Bernalillo (ABQ)ChavesCurryDona AnaEddyLeaLos AlamosMcKinleyOteroSan JuanSandoval (ABQ)Santa FeTaosValencia (ABQ)UnclassifiedOthers (20 Counties)

Millions $

-10% 0% 10% 20% 30% 40% 50%

% Change

New Mexico’s Share of US Oil Production & Active Rigs

EIA, Baker Hughes

0%1%2%3%4%5%6%7%8%9%

10%11%12%13%14%

2011 2012 2013 2014 2015 2016 2017 2018 2019$0

$20

$40

$60

$80

$100

$120

New

Mex

ico

shar

e of

US

Tota

l

$/Ba

rrel

Oil Price (WTI) Drill Rigs (NM/US) Oil Production (NM/US)

Housing Sales by Region + Building Permits (January-September)

NM Realtors Association, BBER

o Sales boomed in 2018, and remain above trend.

o New homebuilding remains flat, regardless of values & sales.

-

500

1,000

1,500

2,000

2,500

3,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Resid

entia

l Uni

ts P

erm

itted

for C

onst

ruct

ion

Hous

ing

Uni

ts S

old

Bernalillo Co Santa Fe Co Dona Ana Co San Juan Co

Oil Patch Other Permits (Right)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

Santa Fe Co

Median Residential Sales Values by Region, 2010-2019

NM Realtors Association, BBER

$0

$50,000

$100,000

$150,000

$200,000

$250,000

Statewide Bernalillo Co Dona Ana Co San Juan Co Lea Co

2019=7.5% 7.7%

2.0% 11.8%3.0%

7.5%

Sales values are increasing more rapidly –increased sales with little growth to stock.

New Mexico Outlook

New Mexico Economic Outlook 2020-2024o Forecast 12,100 jobs (1.5%) in 2019, 13,850 jobs (1.7%) in 2020; 9,600 (1.1%); average 6,850 jobs

(1.0%) thereafter. Forecast is mostly unchanged through 2021 but slightly weaker thereafter.

o Growth dynamic begins to shift in 2020 and slows beginning 2021 –

o Investments in oil & gas in Eddy & Lea Counties slow.

o FY20 & 21 State spending supports growth statewide – construction, schools, and State government.

o Sustained and broader metro growth will depend more on PBS and leisure & hospitality.

o Personal income growth takes a hit in 2020 (3.8%) due to final shift of ACA-Medicaid obligations to State.

o Growth of oil production slows – after 120% in 3 years (147 mb in 2016 to estimated 323 mb in 2019), production growth slows to 11% in 2020 and average of 4% thereafter; reaching 415 million in 2024.

o Probability and impact of pessimistic scenario (35%) substantially outweighs optimistic scenario (10%).

Forecast Job Growth by Sector, 2020

BBER FOR-UNM, October 2019

(1,000) (500) 0 500 1,000 1,500 2,000 2,500 3,000 3,500

Federal GovernmentState GovernmentLocal Government

Accom. & Food Svs.Arts & RecreationHealthcare & Soc. Asst.Educ. Svs.Admin. & Waste Mgmt.Prof.& Tech. Svs.Real Estate & LeasingFinance & InsuranceInformationTransport. & Warehsng.Retail TradeWholesale TradeManufacturingConstructionMining

-2% 0% 2% 4% 6% 8%

Forecast Job Growth by Sector, 2021-2024

BBER FOR-UNM, October 2019

(2,000) (1,000) 0 1,000 2,000 3,000

Federal GovernmentState GovernmentLocal Government

Accom. & Food Svs.Arts & RecreationHealthcare & Soc. Asst.Educ. Svs.Admin. & Waste Mgmt.Prof.& Tech. Svs.Real Estate & LeasingFinance & InsuranceInformationTransport. & Warehsng.Retail TradeWholesale TradeManufacturingConstructionMining

-4% -2% 0% 2% 4%

FOR-UNM Forecast Oil + Natural Gas Revenues

BBER FOR-UNM, IHS Global Insight, October 2019

$0

$20

$40

$60

$80

$100

$120

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

$ / B

arre

l

Mill

ions

$

NM Oil Reveues NM Natural Gas Revenues WTI Spot Oil Price -- Right

History Forecast

Job Gains/Losses by Region, 2019-2024

BBER FOR-UNM, October 2019

(2,000)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2019 2020 2021 2022 2023 2024

Albuquerque MSA Farmington MSA Las Cruces MSA Santa Fe MSA NonMetro

NM Employment Forecast, Alternative Scenarios

BBER FOR-UNM, October 2019

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2018Q1 2019Q1 2020Q1 2021Q1 2022Q1 2023Q1 2024Q1

Baseline Scenario Pessimistic Scenario Optimistic Scenario

-8,600 jobs

+2,550 jobs

ECONOMIC FORECAST DATA DASHBOARDS RESEARCH DATA BANK