PART 5: ‘Uncertain territory:’ Economists look ahead to NM’s future

Editor’s note: In this five-part series, Business Outlook took an in-depth look at New Mexico’s economy, its major drivers and obstacles. In Part 1, we focused on oil and gas, the national laboratories and the history of the state’s economy. Part 2 was about outdoor recreation, international trade and economic development challenges. In Part 3, we talked to business leaders about what they would like to see changed in the state. Part 4 focused on the struggles the state faces, like a lack of infrastructure and capital as well as the state’s poor education rankings. This week, in the final installment, Part 5 looks ahead at the state’s forecasted economic outlook and how it ties into federal uncertainties. Find all five parts at abqjournal.com.

What’s the future of New Mexico’s economy?

While forecasts are never definite, a massive clean energy transition, pandemic recovery and infrastructure challenges present obstacles to the state. Federal turmoil isn’t helping, either.

Still, the state’s top economic official remains positive about New Mexico’s economic future.

With the ongoing oil boom, New Mexico isn’t struggling for cash. The state has a massive savings account and continues to expect large revenues from its fossil fuel industry to keep ballooning the general budget.

Yet the oil and gas industry works in a cyclical nature, and state officials and economists are anticipating an inevitable bust in the future — though it’s difficult to determine when exactly that’ll happen.

In light of the industry’s finite resources and the environmental damage caused by oil and gas extraction, Gov. Michelle Lujan Grisham’s administration has been pushing more and more heavily for a clean energy transition, lessening the state’s reliance on a volatile industry.

Whether that’s the right move or not depends on whom you talk to. And whether the federal government will continue supporting this transition likely depends on the tense upcoming presidential election.

The state’s economy will be affected nonetheless, for better or worse.

Investing in infrastructure

Mark Roper is the acting secretary of the New Mexico Economic Development Department. In light of the oil boom, he said the state anticipates good revenues for the foreseeable future.

He said that gives officials “the resources to do the things necessary to address some of the needs that we have with the state.”

“It’s the first time that I really believe that opportunities and resources have collided in New Mexico, so our economy is still very strong,” Roper said.

One of the big challenges New Mexico’s business industry faces is infrastructure and site readiness.

Roper said in order to get any sector set up in the state, sites need to be shovel-ready.

“The greatest asset that we can give any business is time,” he said.

So how does New Mexico make that happen?

The state needs to properly plan and invest in site readiness, Roper said, and local and state officials need to further refine how the state makes strategic investments.

He said infrastructure — broadband, water, wastewater and electricity — needs to be prioritized.

Diversifying the economy

These priorities align with a goal to spur more income for the state beyond oil and gas.

“We can create the policies and the investments to spur the private investment that will then ultimately diversify the economy,” Roper said.

The secretary said New Mexico can advance industries like manufacturing, technology and renewable energy.

The state has nine target industries it wants to grow: aerospace, film and television, intelligent manufacturing, outdoor recreation, sustainable and green energy, biosciences, sustainable and value-added agriculture, cybersecurity and global trade.

“Yeah, energy’s leading, but we’re showing some good diversification in other industry sectors,” Roper said.

Manufacturing could be tough to advance.

Michael O’Donnell is the director of the University of New Mexico’s Bureau of Business and Economic Research. He said manufacturing isn’t expected to do very well in Albuquerque over the next five to seven years.

There was a bounce back in manufacturing in 2022 and 2023, he said, but the national expectation is for the industry not to do nearly as well in the coming years.

“The expectation is that even though we saw this kind of bounce back in the short term, we’re expecting over the longer term for that to be an industry that sort of loses jobs and, at best, kind of flatlines,” O’Donnell said.

He said there is a positive outlook for the professional and technical services industry, like national lab jobs in New Mexico. The state has outperformed the nation in that sector, he said, and likely will continue to do so.

As the advanced industry offers high-paying jobs and diverse occupations, O’Donnell said, “it’s a good one to see growth in.” It’s also an industry that’s heavily dependent on the federal government.

Nonetheless, Roper still wants to see New Mexico maintain its dominance in the energy industry. He said the state needs to look toward what the next major energy resource will be.

“So part of our focus needs to be on what’s the next energy, to make sure that we’re still one of the top two states in the United States in producing energy,” he said.

Larry Behrens is the communications director at Power the Future, a national energy organization. He said a transition to renewable energy resources will be disastrous for New Mexico’s economy and workforce. Behrens said the transition would force a move away from “affordable, reliable and stable” energy.

“It’s an absolute absolute failure of how economics works,” he said.

State government is continuing down a “failed road,” Behrens said, chasing ideology instead of reality.

He said the state’s argument to diversify its economy is really just a way for fossil fuel opponents to weaken the industry. He questioned why the state continues providing film tax credits when Hollywood strikes make the entertainment industry volatile as well.

“When they talk about diversification, they’re talking about killing part of our economy. It’s really that simple,” Behrens said.

Looking ahead

O’Donnell said New Mexico is doing better than expected after the economic hit caused by the COVID-19 pandemic.

Economists anticipated it would take longer than it did for the state to recover its employment levels, he said. O’Donnell said Albuquerque bounced back by 2022, and the state overall recovered job-wise by 2023.

“We seem to be doing fairly well,” he said.

Still, more than half the country, especially neighboring states like Arizona and Texas, is doing better than New Mexico in terms of economic and employment recovery from the pandemic, O’Donnell said.

“We’re not doing the worst. We’re also certainly not doing the best,” he said.

O’Donnell explained that forecasts for New Mexico’s economy are largely based on national forecasts, which aren’t looking very strong.

He said employment in the U.S. has grown tremendously in the past few years following the height of the pandemic, and though New Mexico hasn’t quite kept up, it’s doing OK.

That job growth is expected to take a turn in the near future.

O’Donnell said New Mexico’s forecasted job growth rate from 2024 to 2029 is a 0.6% increase per year, which is similar to the national forecast. He said it’s still difficult to find workers to fill positions.

“It’s a natural sort of return that is expected after this huge rate of growth,” he said.

He said not a lot of people have faith that the federal government can effectively address economic crises, and policymakers’ choices may affect the future of New Mexico’s economy.

“At the moment, we’re in tremendous uncertain territory because we have an election coming up,” he said.

Roper said the state has many opportunities to look forward to. With a great climate, relatively low risk of natural disasters, long-term sustainability and its clean energy transition, Roper said, New Mexico is a great place to do business.

“I think the future is bright for New Mexico,” he said.