OKC's contribution to the statewide economy continues to grow

Editor's note: This is an excerpt from the recently released 2023 Greater Oklahoma City Economic Outlook. 

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LOOK BACK AT 2022'S BIGGEST RELOCATIONS AND EXPANSIONS

OKLAHOMA CITY MSA ECONOMIC OUTLOOK

Before looking forward to the year ahead for Oklahoma City, it is instructive to look back at the evolution of the metro economy and its role in the state’s economic fabric. The dual forces of economic geography pulling activity to the I-35 corridor and urbanization fueling density have propelled the economic success of Oklahoma City.

These natural forces are, of course, complemented by strategic and deliberate economic development efforts and investments. The result is a metro area that accounts for an increasing state economy share.

Oklahoma City’s share of the state’s real GDP was 35.2% in 2001 but has grown to 41.1% in 2021. Similarly, the city’s nonfarm payroll employment accounted for 36.3% of statewide employment in 2001 but 39.1% of statewide employment in 2021. The natural forces propelling the city to economic success are long-run and likely to carry into the next twenty years. As long as strategic economic development efforts complement these natural forces, the metro’s share of total economic activity is expected to increase again over the next decade.

The concentration of payroll employment in Oklahoma City has shifted in modest but important ways over the last twenty years. The figure on the next page compares major industry shares of total nonfarm employment in 2001 and again in 2021, sorted from the smallest to largest employment industries. The smallest employment industry is information and publishing, as consolidation has cannibalized local jobs. There is some expectation that Oklahoma City’s pending emergence as a motion picture and sound recording hub could grow employment in this industry.

On the other end of the spectrum is the government as the largest employment industry in the metro. This is not surprising given Oklahoma City is the state capital, county seat, the largest municipality in the state, and home to large federal employers in Tinker AFB and the Mike Monroney FAA Aeronautical Center. The share of public sector employment has fallen slightly over the twenty years, indicating that the city’s share of employment in the private sector has grown slightly over this time frame.

A few industries are worth noting individually. First is the mining (oil and natural gas) sector. Mining’s share of the metro’s nonfarm employment is just 1.4%. This share both emphasizes and overstates the city’s lack of economic reliance on the energy sector. On the one hand, it is certainly true that Oklahoma City’s economy is not solely or uniquely reliant on the energy industry for economic success, as some, especially outsiders, often assume. On the other hand, operations inside other industries like construction, manufacturing, financial services, wholesale trade, and warehousing are directly tied to the energy sector. So, while accounting for a small share of direct nonfarm employment, the city’s economy benefits indirectly from a strong energy sector through these channels.

More important to note from the shifting of shares is the move of the Oklahoma City economy from goods production to services production. Oklahoma City’s share of total employment in manufacturing fell from 8.8% in 2001 to 5.1% in 2021. The manufacturing sector remains important to the metro economy as the value of production and contribution to metro GDP remains strong. But the industry is less labor intensive as capital displaces labor in the sector. In contrast, two labor intensive service sectors, leisure and health services, have increased their share of Oklahoma City employment considerably. Leisure services, which include hotels, food services, and arts and recreation, have risen to 11% of nonfarm employment in 2021 from 9.2% in 2001. Even more pronounced are the gains from education and health services to 15.3% in 2021 from 12.2% in 2001.

Oklahoma City’s population growth was strongest in the heart of the shale revolution period, with annual growth near or above 1.5% per year for ten straight years. Population growth slowed considerably as the energy sector transitioned to slower growth and eventually outright contraction in 2015 and 2016. Population growth is expected to regain strength as a stronger local economy combines with the natural forces of geography to support the growth of 1.3% in 2023 and 1.2% in 2024.

Consistent with our national expectations, the baseline expectation for the year ahead is slow growth, or what Moody’s Analytics recently called a slow recession. In our current forecast, the Oklahoma City economy grows at about half the rate typically expected in strong economic growth years, with metro real GDP growing at 3.1% in 2023 and again in 2024. In this scenario, growth slows considerably (as is widely expected), but an outright recession is avoided.

It is worth emphasizing again that while this may be the baseline case currently in the data, we see considerable downside risk and encourage all readers to adjust expectations accordingly as coming data releases dictate.

Oklahoma City’s per capita personal income was strongly supported by pandemic relief policies that no longer fuel household income gains. Per capita income growth will slow in 2023 to 1.9% and 1.0% in 2024 as current labor market strength carries into 2023 before yielding to broader economic weakness by the end of the year.

The labor market’s strength will carry into 2023 even as households begin to shift consumer behavior. In time, the labor market will yield to a slowing economy, the pace of job gains will slow, and the unemployment rate will rise. We don’t expect either to be particularly pronounced. Headline nonfarm employment will grow in the fourth quarter of 2022 at a pace of 3.4% above the level a year ago. The pace will slow through 2023 as the metro ends the year with 691,000 nonfarm jobs or a 2% gain over the end of 2022. We expect 2024 to be a year of emergence from the weakness of 2023, and the timing of that emergence will determine the extent of job gains.

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