IS THE BIG BOOM FINALLY STARTING?

Michael Kurth Thursday, March 5, 2015 Comments Off on IS THE BIG BOOM FINALLY STARTING?
IS THE BIG BOOM FINALLY STARTING?

I just took a look at the most recent sales tax report from the School Board and the numbers are pretty impressive.

The chart below shows our sales tax revenues over the past 10 years. It uses a 12-month rolling average of taxable sales to remove seasonal fluctuations so one can better see the long-term trend.

Is The Big Boom Finally Starting?

Is The Big Boom Finally Starting?

Thus, each point on the graph represents the average taxable sales for the previous 12 months. The numbers on the horizontal axis are indexed with 2005, the year Hurricane Rita hit; that year is equal to 1. For example, 1.5 on the graph represents a 50 percent increase over 2005 and 2.0 represents a 100 percent increase over that year.

Following Hurricane Rita, Southwest Louisiana experienced what’s referred to locally as “the Rita boom.” In the months following the hurricane, homes had to be repaired; automobiles, furniture and freezers had to be replaced; and many residents were flush with cash from insurance payments and FEMA paychecks.

This consumption boom slowly tapered off over the next two years, but our industries continued to do well because they took little damage from the storm and the national economy was strong.

But in the fall of 2008, the housing bubble burst and the ripple effect caused a global economic downturn some now refer to as “the Great Recession.” Home construction came to a grinding halt, home prices plunged and many homeowners found themselves “upside down” on the mortgages.  Some people lost their homes, and many lost their jobs, as buyers delayed the purchasing of durable goods, such as automobiles, furniture and appliances.

Lake Charles wasn’t hit as hard as many parts of the nation, including Beauregard and Allen Parishes, where lumber is a big industry. But we definitely took a hit.

I have tracked sales tax revenues in Calcasieu Parish for over a decade. But in early 2012, I noticed something strange in my industrial index (that’s the red line on the graph). It had taken a sharp turn upward.

My first thought was that there was an error in the numbers, so I called my friend Rufus Fruge, who was the tax revenue guy at the School Board. He told me the numbers were correct.

The industrial index (the red line) measures spending by local industry — not the output or production of the plants. Clearly something was going on.

When I looked into it further, people at the plants told me that some of this activity was “catch up” work, as maintenance and turnarounds had been put off during the recession. But I also learned that something more fundamental was at work — something called “hydrofracking.”

By injecting water into the ground at high pressure, drillers were able to crack through shale deposits and unlock vast amounts of oil and natural gas trapped beneath the rock. This was a revolution few people saw coming, and Southwest Louisiana was right in the middle of it. We had become the cheapest place in the world to produce natural gas, and the world was hungry for what we had.

I said back then that if industrial activity continued at that level, it would soon pull up all the other lines on the graph — food sales, retail sales, residential and commercial construction, and motor vehicle sales — and that is exactly what has happened. But what we have seen over the past two years is not the real boom — the “big boom”; the $100 billion in new plant construction boom that everyone is talking about. You might call it a “pre-boom boom.”

But if you look at the red line on the graph, you will see it has taken another sharp turn upward over the past three months. Could this be the start of the big boom we have all been waiting for?  If so, I can’t wait to see what this graph looks like a year from now.

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