The winds of economic change are sweeping down the plains of Oklahoma. Only a few short months ago, Forbes magazine proclaimed Oklahoma City as one of "America's Recession-Proof Cities."

At that time, Forbes listed Oklahoma City as the top-ranked city among the 50 largest metro areas based upon employment figures, median home prices and data related to the impact of foreclosures and falling home prices on the local productivity.

It was completely reasonable to write such an article at that time. The unemployment rate in Oklahoma in February and March 2008 was a scant 3.1%, down more than a full percentage point from the same period in 2007. Incomes were rising, demand was strong and our two leading industries - energy and agriculture - were booming.

Since that article appeared, however, there have been substantial changes, as we know, not only in the nation's financial markets, but also in the markets that most closely affect Oklahoma - namely, energy and agriculture. Whereas six months ago, high prices for wheat, corn and soybeans boosted farmers' incomes and land values, which, in turn, increased sales of farm equipment and helped the manufacturing sector, now these commodity prices have taken a sharp tumble, reversing the growth trend we saw earlier in the year.

Similarly, oil and natural gas prices peaked in the June/July 2008 time period (July 14, 2008, oil hit $145.16 per barrel; and the wellhead price of natural gas peaked in June at $10.82 per MMBtu3).

Since that time, one could compare it to falling off a cliff. For starters, preliminary numbers by the Bureau of Labor Statistics show the November 2008 unemployment rate for Oklahoma at 4.7%. To put a human perspective on an economic variable, this means we have moved from 53,037 unemployed in February 2008, to 82,391 unemployed in November - an increase of 55.35%. As to commodity prices, the Energy Information Administration reported the price of crude oil as of Dec. 26, 2008, at $30.28 per barrel, a decrease of 79% since its peak in July. The price of natural gas as of the NYMEX closing price on Dec. 29, 2008, for January delivery was $6.14 per MMBtu, a drop of 43.25%.

So what does all this mean? How do these dramatic changes affect the Oklahoma economy? On the unemployment side, there is good and bad news. The bad news, as stated above, is that the unemployment rate has increased from 3.1% to 4.7%, with 29,354 additional unemployed workers over the past eight months. The good news is that during that same time period, the Oklahoma labor force has grown by 53,856, from 1.716 million to 1.77 million; and the number of employed workers has increased by 24,500, from 1.66 million to 1.69 million.

There is also good and bad news relating to commodity prices. The bad news is that revenues for oil and gas producers, royalty owners and the State of Oklahoma are going to be substantially impacted by these falling prices. For example, according to the Oklahoma Tax Commission, gross production severance tax collections for September 2008 totaled $180.48 million. The November number was $79.18 million, a decrease of 56.13%. Data from the OTC just released suggest a rebound in severance tax collections in December, with receipts totaling $117.8 million. The chart (right) displays this precipitous change graphically. The volatility of energy prices and the magnitude of these swings in revenue pose a serious problem for state policy and budget makers for 2009-10.

Of course, some very good news for consumers is that the falling crude oil and natural gas prices mean lower costs for gasoline and for heating their homes this winter. This provides additional discretionary spending, which is certainly something the retail sector desperately needs.

The first two quarters of 2009 will be difficult with respect to employment and revenues. With a stabilization of prices, we should see signs of a rebound later this year.