This past week, I've been wandering, talking and writing, trying to give a feel for life on the ground in Southeast Louisiana as the oil spill approaches. For a moment, I want to look beyond the day-to-day and consider some possible near-term economic implications of the event.
The Gulf Employment Crash
If you thought President Obama's supporters could crow about good employment numbers, you surely weren't reading local press at April's end. Bragging rights? I'll show you some bragging rights.
New Orleans unemployment lowest in nation
The unemployment rate in New Orleans was the lowest among the nation's largest metropolitan statistical areas for the second consecutive month, according to the U.S. Bureau of Labor Statistics.
Houma had the lowest rate among all areas nationwide, at 4.6 percent.
All eight metro areas in Louisiana had unemployment rates that ranked among the 40 lowest in the country. Those areas have also recorded decreases in unemployment each month since January.
The construction boom after the flood, the effects of federal rebuilding dollars, stable real estate prices, an NFL championship season and lots of film and television production have brought the city and the river region an economic boost the rest of the nation could only envy.
Fun while it lasted. Now strike thousands of jobs from the rolls in two weeks' time and that picture looks as old and quaint as a daguerreotype.
As the spill spreads into Louisiana's western waters, make that tens of thousands of jobs. Just counting the fishers and the packers. Then add jobbers, drivers, distributors, retailers and restaurant workers and the seafood crash alone is going to drastically depress the state's economy.
The ripples will keep expanding. Vacation rentals are collapsing in Alabama and Florida, which threatens more than just perky agents in time-share rental offices. Charter fishing captains are already alarmed, and restaurants, nightclubs and retail outlets from Bay St. Louis to Appalachacola will soon have to cut staffs.
While Wall Street wizards ponder whether the Greece meltdown or Iceland's volcano could derail America's fragile recovery, they would do well to watch the coming employment crunch in the South.
The Real Oil Bullet
Another possible blow to the nation's stumbling recovery could be a sharp rise in the price of oil. Futures prices jumped last week with fears that the spill would interfere with production and shipping in the Gulf, then quickly subsided.
"There definitely was a Gulf of Mexico fear premium built into the price of oil today, but it didn't stay that way," said Phil Flynn, an analyst at PFGBest Research in Chicago. For the day, crude oil futures for June delivery climbed 4 cents to $86.19 a barrel. The price hit $87.15 during the trading day, topping the year's previous high of $87.09 last month.
Concerns eased after the Energy Department's Office of Electricity Delivery and Energy Reliability released a report saying seaports and shipping channels in the Gulf were open. "The oil spill has not affected petroleum refinery operations in the region," the report said.
But analysts said oil prices could quickly push to $90 to $100 a barrel if the worst happens; for example, if the leak continues unchecked for the 90 days it should take to drill a relief well to the spill site.
I'm beginning to wonder if futures traders are the same sort of graveyard-whistling optimists as fishermen, because few will admit that the greatest price variable in this disaster has nothing to do with Gulf oil production at all.
The Louisiana Offshore Oil Port, or LOOP, is an installation unique in the U.S. Built to accommodate supertankers too big to safely navigate the Mississippi ship channel to refineries inland, the LOOP consists of a group of buoys where tankers can moor and pump out their cargo to a central pumping platform and thence to a pipeline nearly five feet in diameter for transport to the pipeline system that supplies half the country's refineries.
The LOOP is a masterpiece of engineering, bringing more than a million barrels of imported oil to market without choking off river traffic. And it's right in the crosshairs of the Deepwater Horizon spill.
Current projections show the oil spill from the Deepwater Horizon disaster could reach the port next week, said Sale Sittig, director of the Louisiana Oil Terminal Authority, an oversight body for LOOP.
"It definitely could be shut down if the heavy oil gets in the vicinity of the platform," Sittig said.
The Coast Guard would determine whether LOOP would be shut down. The port has never closed for an extended period since its inception in the 1970s, though it has closed briefly for hurricanes.
Even if the LOOP can remain open, the price of gas and fuel oil is likely to be affected by a slowing of river traffic as ships are cleaned of spilled oil to prevent contamination of drinking water inlets. Traffic flowing out of the river's Southwest Pass consists not only of barges filled with grain and coal, but smaller tankers containing fuel from the refineries bound for other American ports.
Complicating the price futures picture is the spaghetti bowl network of feeder pipelines around the oil coast. Already vulnerable to breaks and leaks due to disappearing wetlands, the network will be that much harder to maintain in oily waters, especially with service boats tied up setting booms to keep the spill out of inland waters.
Unexpected Stimulus
A sudden dampening of employment growth or a spike in gas prices could quickly turn the country from a shaky rebound to a double-dip recession. I hope that much smarter people than I are watching these developments from Washington and already considering ameliorative measures.
A stimulus/jobs bill concentrating on conservation and renewable energy efforts might appeal in red Louisiana right now, particularly if it stimulated a jobs-heavy Gulf industry that can and will survive the current disruptions.
Shipbuilding immediately comes to mind. It is that rare species, a domestic manufacturing industry, providing union jobs to people with many of the skill sets shared by seafood fleet workers, primed for a natural short-term surge in demand as more service craft are needed to clean up the Gulf, service the rigs that haven't busted and better maintain the area's oil facilities. Perhaps the best thing about the industry: Half the country's shipbuilding (pdf) is done right here, where the jobs are needed most.
Some in the industry fear the current disaster will cool enthusiasm for offshore drilling and the number of vessels supplying oil platforms will actually decline. This need not be a problem for the shipbuilding sector, as there is another industry that will require nearly identical equipment.
As marine transport giant Otto Candies recently noted, the same boats will be needed to service wind platforms.