New Mexico’s lost decade: State mired in economic problems since Great Recession

When it comes to New Mexico’s economy, 2006 seems like a lifetime ago.

Job growth that year was its fastest in more than a decade. The unemployment rate dropped to 3.6 percent. The price of oil was at record levels. State government was awash with cash.

Then, with stunning speed, came the Great Recession in December 2007, and New Mexico still hasn’t recovered.

In a state where the economy is based in large part on government dollars, it’s government numbers that paint the picture.

The state’s jobless rate was 6 percent in December 2017, according to preliminary estimates. Alaska is the only state doing worse. The nation’s rate was 4.1 percent, a 17-year low.

Of New Mexico’s 33 counties, all but tiny Mora County have higher unemployment rates than they did before the recession.

The state hasn’t yet gotten back the more than 50,000 jobs it lost during the recession, making New Mexico one of only a few states that have yet to recover their jobs.

And there’s more:

• Wages haven’t kept pace with inflation, and the middle class has shrunk — both part of national trends.

• There are more people living in poverty in New Mexico than in late 2007, and there are more on food stamps. More children are in families that receive public assistance.

• Some of New Mexico’s youngest and best-educated workers are moving to states with better prospects — not just Colorado, but Texas, Utah, Washington and more.

The 10 years since the start of the recession have been dubbed by economists as New Mexico’s lost decade, and those who watch and worry about the economy say it will be difficult to make up ground.

“It’s been a train wreck,” said state Sen. Michael Padilla, D-Albuquerque, a leader in the Legislature on economic development issues.

There is some good news for the state’s economy, but with it come plenty of ifs, ands and buts:

• Sometime this year or next, the number of jobs in New Mexico could finally reach what the state had at the start of the recession. But while job growth is expected to be better than it has been in recent years, economic experts say the growth is forecast to remain well below that of neighboring states.

• The oil patch in the southeastern part of the state is booming, with production at record levels. The resulting tax revenues have swelled the coffers of state government, where spending on payroll, goods and services ripples throughout the New Mexico economy.

But the energy economy in northwestern New Mexico is in a tailspin. Natural gas production is well below prerecession levels because of depressed prices. Area jobs also are being lost because of the phased shutdown of the coal-fired San Juan Generating Station. San Juan County, once seen as a center for economic potential, is bleeding population.

• The number of private-sector jobs in New Mexico is rising, but government jobs — with their above-average wages and benefits — continue to disappear.

• The numbers of jobs in construction, financial activities, and professional and business services are increasing, but jobs in those sectors remain below prerecession levels.

• There has been substantial growth since the start of the recession in the number of jobs in education and health services, but that growth was due in large part to expansion of the Medicaid health care program for low-income people. Growth in the number of health care jobs is expected to continue but not at the same rapid pace caused by the Medicaid expansion.

• New Mexico has seen growth in the number of jobs in leisure and hospitality, but average wages in lodging and food services are lower than in any other industry.

• The state is doing well at creating jobs through business startups but decidedly less so in growing the number of jobs by helping existing businesses expand.

“Our current situation is better right now, but the broader structural problems that the state faces are unchanged,” said Jeff Mitchell, director of the Bureau of Business and Economic Research at The University of New Mexico.

Boom and bust

When you talk about the oil and gas industry in New Mexico, you’re talking about an industry with a dichotomy: a boom in the southeast and a thud in the northwest.

A rebound in oil prices since a 2014 crash means the good times have returned in southeastern New Mexico. The number of active drilling rigs has more than doubled, to 82, in a year.

“You can’t get into a restaurant without a wait. You can’t just pull up to a gas pump and fill up. You have to wait. You can’t go into a convenience store and not have a wait in line. Our grocery stores, our Wal-Mart, 8, 9 in the morning, they’re having to restock because they’re out of water, bread, lunch meat, things like that. It’s a great problem to have,” said Susan Crockett, president of the Carlsbad Department of Development and chairwoman of the Eddy County Commission.

And, Crockett said, oil companies are projecting 5,000 more industry jobs could be added in the Permian Basin in New Mexico in the next few months.

“The largest boom that Eddy County’s ever seen is yet to come,” she said.

But across the state in northwestern New Mexico — home of the state’s other big regional energy economy — times are much different because the nation’s supply of natural gas is outstripping demand. San Juan County has just two active gas drilling rigs. There is little oil production in the Four Corners region.

There are 5,500 fewer people employed in San Juan County than at the start of the recession. From December 2007 to June 2017, the county lost more than 7,000 jobs in mining, which includes the oil and gas industry.

Many of the lost jobs in the gas fields aren’t coming back because the industry has become more efficient with fewer workers, said Tom Taylor, chairman of Four Corners Economic Development and former Republican leader in the state House of Representatives.

In another blow to the area, Public Service Company of New Mexico shut down two of the four units at the San Juan Generating Station in December and plans to idle the plant altogether by the end of 2022. That will mean hundreds of job losses at the plant and the mine that supplies coal to it.

As jobs have disappeared in San Juan County, the county’s population has shrunk. Census data show the county’s population decreased by 6,000 people from 2012-16. Taylor estimates 15,000 residents have now left because of a lack of jobs.

Taylor calls the state of the region’s economy the new normal.

“Getting back to where we were certainly won’t happen in my lifetime,” he said.

Slight growth

Gov. Susana Martinez has made diversifying the state’s economy by increasing the number of private-sector jobs a priority for her administration.

Martinez has successfully sought additional money for incentives to attract businesses to New Mexico and more funds to help businesses train workers.

“We must realize that economic diversification is our state’s path out of poverty,” the governor said in her State of the State address to the Legislature last month. “And though it won’t happen overnight, there is no question that our trajectory has changed, and we are building a broader private sector than ever before.”

As of December, the state had 658,600 private-sector, nonfarm jobs — up 2,700, or less than 1 percent, from the start of the recession. That is far short of the 6,300 government jobs lost since 2007.

A Martinez administration spokesman declined a New Mexican request to interview state Economic Development Secretary Matt Geisel. No reason was provided.

The picture when it comes to private-sector employment is mixed.

There are fewer jobs today in New Mexico than there were at the recession’s start in not only government, but natural resources and mining, construction, and professional and business services.

The big job gains in New Mexico over the past decade have been in education and health services, largely due to Medicaid expansion, and in leisure and hospitality, in large measure because of tourism.

The expansion of Medicare to cover 200,000 more New Mexicans — many of whom had been without health care coverage — helped lead to the creation of more than 19,000 jobs in education and health services over the past four years.

As for the improvement in the number of jobs in leisure and hospitality, Martinez has called the New Mexico True tourism advertising campaign the most successful state marketing brand in the country.

“Communities across New Mexico are feeling the positive impact of record-shattering visitors five years in a row,” the governor said in her State of the State address.

But to continue the job growth in leisure and hospitality, New Mexico needs to spend more money to improve its state parks, museums and particularly roadside rest areas, said Jim Peach, an economist at New Mexico State University.

“We need to do more than advertise,” Peach said.

Human capital

Data from UNM’s Bureau of Business and Economic Research show a rise in professional and business services has driven job growth in surrounding states and much of the rest of the country since the recession.

But not in New Mexico.

“We missed out on the national recovery,” Mitchell said.

Part of the reason for the missed opportunity, he said, is a lack of workers educated in professional and business services. Other factors: a lack of investment capital and a lack of support services for professional and business service companies.

At the same time, census data show thousands of college-educated young people have left New Mexico, according to the Bureau of Business and Economic Research.

“Even if we educate them here, we’re losing them because we have no jobs for them,” said state Sen. Clemente Sanchez, D-Grants, who works on economic development issues in the Legislature.

Mitchell calls it a sort of chicken-and-egg problem.

“People are leaving because they are not finding jobs. But on the other hand, when people leave, you lose the ability to create jobs,” he said.

Data from the Bureau of Business and Economic Research also show the state compares favorably to surrounding states when it comes to creating jobs through business startups but fares poorly when it comes to growing the number of jobs through business expansions and preventing the loss of jobs from business contractions.

Mitchell said he believes the reasons behind that mixed performance are the same that hinder growth in professional and business services — a lack of skilled workers, investment capital and support services.

New Mexico can ill-afford to lose college-educated residents to other states. It ranked 39th among all states in 2016 when it came to higher education degrees, according to the Bureau of Business and Economic Research.

“We’re in a situation where the key factor is human capital, is skills,” Mitchell said. “That is the scarce resource that drives economic growth globally, nationally and locally.”

Said Peach of New Mexico State, “If you’re a high school dropout in this economy, you’re done. You are condemned to stay at minimum wage.”

Needed change

There is no disputing that New Mexico’s economy — with increased job growth and an oil boom — is in much better shape than it has been at any time since the recession rocked the state. But the economy remains fragile because of the heavy reliance on oil and gas, economists say. A drop in oil prices could send the state reeling again.

“We are more dependent on oil and gas than we ever have been, and it’s getting worse,” Jon Clark, an economist for the Legislative Finance Committee, told lawmakers last week.

In large measure because of its heavy reliance on oil and gas, New Mexico’s economy has been going boom and bust for decades. To break that pattern, the state needs to diversify its economy — to grow the number of jobs in industries where it is now doing poorly, economists say. One those industries is the high-wage area of professional and business services, which requires well-educated workers.

Mitchell, Peach and Sens. Padilla and Sanchez agree the state needs to do a better job of educating its residents to prepare them for the kind of jobs needed to diversify the economy.

“Education and economic development and the economy go hand in hand,” Sanchez said.

Peach said other places also have made investments in hiking and biking trails, parks, and infrastructure such as roads and high-speed internet.

“We’ve never really taken a long-term perspective,” he said. “Some of the policymakers, but not all, have been asleep at the wheel.”

Padilla is sponsoring legislation aimed at expanding high-speed internet throughout the state.

“We are now identifying what are those three to five critical areas that help turn the economy around,” he said.

There would be costs in making the investments needed to change the structure of the state’s economy. Fully funding early childhood education, for example, would take tens of millions of dollars a year, advocates say.

And that’s just the start. To really put new muscle in New Mexico’s economy, Peach said hundreds of millions of dollars in investment are needed.

Mitchell said he doesn’t speculate on the cost of meaningful education changes, but it will take a generation — 20 or so years — to feel the full effects of the type of investments that New Mexico needs to make to change its economy.

“Absent doing something different, we are just going to remain on this boom-and-bust cycle,” he said. “If you’re going to get out of that, you have to do something. … It’s a question of leadership.”

Contact Thom Cole at 505-986-3022 or tcole@sfnewmexican.com.

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