The bursting of the US energy bubble is looking more and more like a replay of the sub-prime bubble in 2008.
As investor Warren Buffett has noted, “its only when the tide goes out, that you learn who has been swimming naked .” And nearly a year ago, former central banker William White warned the problems in the global economy were:
“Worse than 2007, because then it was a problem of the developed economies”
One area of major concern, for example, is the link between the energy bubble and US job creation. The Wall Street Journal research on the right, for example, supports the Manhattan analysis I discussed last week:
- The top chart shows there has been 70% growth in oil industry support jobs (red line) since 2009, 40% growth in pipeline construction jobs (orange), and 35% growth in oil/gas extraction jobs (green)
- Without this, there would likely have been no overall growth in the US job market (grey)
- The bottom chart confirms that real wage growth (adjusted for inflation) has also been highly focused on oil/gas
- All 3 oil/gas related sectors have seen a combination of high wages and wage growth; pipeline wages have risen over 20%
- But average wages in the total economy have hardly risen over the period, and are half those in extraction
So what happens now that the bubble is bursting?
As with the sub-prime bubble, we cannot yet know for certain how deep the problems run. But we do know the participation rate (the number of men and women working, as a proportion of the adult population), is already at its lowest level since 1978.
And we also know that jobs in the oil/gas industry are now starting to disappear quite quickly as the bubble bursts.
This will take time to appear in the official data, but by Q2 we will probably start to be able to make some sensible conclusions. We may also find job growth in other industries was more connected to oil/gas than first realised:
- The data suggests that the recent revival in housing starts has been largely focused in the South and West
- These, of course are also the regions where most oil/gas developments have been taking place
- 10,000 people per month have been moving to Houston, Texas – all needing somewhere to live
December’s near 1% fall in US retail sales is another worrying sign that all is not well in the wider economy – which is 70% dependent on consumer spending.
Of course, we also know that the wishful thinkers, as in 2008, will keep telling us that “everything is for the best, in this best of all possible worlds”.
And we all know how wrong they were, then.