Maybe it’s a coincidence, but we don’t think so: Oil prices dropped. And consumer confidence among Louisiana consumers fell in late 2014 and early 2015.
The state’s relationship with oil prices is multifaceted, and while falling prices have been a significant shock to oilfield service firms in Lafayette and Houma, Louisiana refineries along the Mississippi and Calcasieu rivers are winners because of lower prices for their commodity purchases.
Still, the Louisiana Consumer Sentiment Index tracks consumers’ economic attitudes and expectations. As measured by LSU’s Public Policy Research Lab, Louisiana’s index fell by six points from the end of the third quarter of 2014 to the end of the first quarter of this year.
Over the same period, consumer confidence grew nationally by nearly 10 points.
Until this year, the Louisiana index was slightly ahead of the nation, although within surveys’ margins of error. At nearly 10 points below the nation statewide, that’s well beyond margin of error now.
Regionally, Baton Rouge remains about at the national level, but its 95.2 rating was well ahead of other areas of the state.
It’s not difficult to see a correlation with oil prices and their fall, although many factors can buffet consumer attitudes.
Lafayette is a national center for oilfield services, and major companies have cut back by laying off staff or reducing benefits or hours. That is a bit of a pulling back for a regional economy that has been growing steadily in recent years, but the area is diversifying from its energy production base; national companies in computer services and digital media are locating or expanding in the region, and there is a new Bell helicopter assembly facility.
The overall prospects are similarly bright for the greater New Orleans region, as an economy recovering from the impacts of 2005 hurricanes and flooding also diversifies in technology businesses. Tourism remains a mainstay and, in fact, is setting records.
All that is not to downplay the impact of oil prices, because they continue to affect Louisiana. The state budget was hurt, in part, by declining oil and gas prices in the same period as the LSU survey saw a hit in consumer confidence.
And oil remains a worldwide market: This week, negotiations on a nuclear weapons ban in Iran caused another steep fall in crude prices. Why?
The deal could put 700,000 barrels of Iranian crude back into international commerce daily over about six months to a year, according to analysts consulted by the Houston Chronicle. About 40 million barrels of Iranian crude stored in offshore vessels could be sold off. “Iran is a looming reality, and we firmly believe that an according is going to be struck,” Bill Herbert, an analyst at Simmons & Co. in Houston, told the Chronicle.
Ironically, if an Iranian deal does avoid the menace of nuclear weapons in the hands of the mullahs, it’s a great step for the world. But more normal relations with yet another oil-producing nation could add to the glut that has hurt consumer confidence in households across Louisiana.