Plunging Oil Prices Test Texas’ Economic Boom

Downturn Has Many Wondering How Lone Star State Will Weather a Bust.

Retired Southwest Airlines co-founder Herb Kelleher remembers a Texas bumper sticker from the late 1980s, when falling energy prices triggered an ugly regional downturn: “Dear Lord, give me another boom and I promise I won’t screw it up.”

Texas got its wish with another energy-driven boom, and now plunging oil prices are testing whether the state has held up its end of the bargain.

The Lone Star State’s economy has been a national growth engine since the recession ended, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the U.S. as a whole.

The downturn in energy prices now has triggered a debate over whether Texas simply got lucky in recent years, thanks to a hydraulic-fracturing oil-and-gas boom, or whether it hit on an economic playbook that other states, and the country as a whole, could emulate.

One in seven jobs created nationally during the 50-month expansion has been created in Texas, where the unemployment rate, at 4.9%, is nearly a percentage point lower than the national average.

But a big dose of the state’s good fortune comes from the oil-and-gas sector. Midland, which sits atop the oil-rich Permian Basin, had the fastest weekly wage growth in the country among large counties: 9% in the 12 months ending June 2014.

Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.

Mr. Kelleher is among the Texans predicting this won’t be a replay of the 1980s oil bust and banking crisis, which drove the state unemployment rate to 9.3%. As evidence, he and others cite a more cautious banking sector, a tax and regulatory environment favorable to business, and a state economy less dependent on energy and other resources.

“Texas has become a well-rounded state,” Mr. Kelleher said. “People did remember not to overextend themselves.”

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