The Economic Weight Of Oil Explained

When an industry as large as U.S. oil gets hit as hard as it has in recent years, the struggles can weigh on parts of the economy that have nothing to do with energy.

According to the Houston Chronicle’s Lydia DePillis, areas of the country losing a lot of oil-related “base” jobs are likely also losing “non-base” jobs as well.

A region’s economic base is typically the industry and/or manufacturing jobs in a region that extend to markets outside of the local area. For example, London’s financial services industry provides services throughout Europe, which is one of the reasons why there is so much uncertainty about the U.K. economy following the Brexit vote.

Related Link: How One Russian Oil Tycoon Has Added $3.5 Billion To His Net Worth During The Oil Market Collapse

Houston is known for its oil industry, but the non-base jobs the city was relying on to help build the its 21st-century economy are already getting dragged down by the oil market. These non-base jobs include restaurants, retail, hospitality, real estate and professional services. While no single segment has a larger presence in Houston than the oil & gas industry, all the non-base jobs combined far outnumber the local oil & gas jobs.

The end result can be seen in the graph below.

Once a region’s base economy starts to falter, those base employees are no longer contributing as much to the rest of the local economy and it’s only a matter of time before the entire local economy starts to suffer.

Houston residents are hopeful that the 5.5 percent surge in the United States Oil Fund LP (ETF) (NYSE: USO) so far in 2016 is a sign that the worst of the downturn could finally be over.

Disclosure: The author holds no position in the stocks mentioned.