Falling oil prices could slow Texas construction industry

A ConocoPhillips oil drilling rig in the Eagle Ford Shale.A ConocoPhillips oil drilling rig in the Eagle Ford Shale.

Construction equipment manufacturer Caterpillar has already taken a hit from falling oil prices and a new report from the Washington Post cautions that the Texas construction industry might soon see a slowdown for the same reason.

The Post reports that credit rating agency Fitch has said that the ongoing drop in oil prices could undo some of the income generated through “higher sales tax revenues, tax base valuations, construction and permit revenues,” sparked by the “recent rise in oil and gas drilling in the Eagle Ford Shale and Permian regions of Texas.”

Oil prices have fallen sharply in recent months as large reserves have been met with lower demand. The Post cites the Texas state comptroller projection that oil prices for fiscal year 2015 would hover around $64—down one-third from fiscal 2014.

“This slowdown will affect employment, hotels and restaurants, retail, and construction and other related businesses. Cities will feel the impact in reduced sales tax receipts, building permits and other economically sensitive revenues,” Fitch wrote in a note released Tuesday.

The good news is that the agency believes much of the impact should be limited to the “three major production areas of the state.”

Plus, Fitch notes that the state is actually better equipped for any economic slowdown caused by falling oil prices since its “economy is more diversified than it was decades ago and the fact that much of the revenue recovered from the recent spike in oil production was spent either on building up the state’s rainy-day reserves or on non-recurring investments, such as highway spending.”