Patrick Jankowski 2017-01-24 04:04:46
HOUSTON’S ECONOMIC DOWNTURN IS OVER AND A SLOW RECOVERY HAS BEGUN. JOB GROWTH WON’T RETURN TO NORMAL FOR AT LEAST ANOTHER YEAR OR SO, AND THE AFTEREFFECTS WILL LINGER FOR A FEW MORE YEARS. Houston’s economic downturn is over and a slow recovery has begun. What signals that the downturn is over? • West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, now trades above $50 per barrel. WTI traded as low as $26 in mid-February. • The number of rigs drilling for oil in the U.S. surpassed 600 in late December. Only 404, the fewest in recent history, were in the field in mid-May. • The region created 16,100 jobs in the 12 months ending November ’16. Annualized growth had sunk as low 3,200 jobs in May. One might compare the recent downturn to a tropical storm, the damage done depended on where one stood as the system passed over Houston. Those businesses and individuals with close ties to the energy industry felt the full fury of the storm. Those distant from oil and gas, to extend the metaphor a bit further—on the dry side of the storm—were buffeted but not blown away. That said, Houston weathered Hurricane Oil better than one might have expected. The unemployment rate never rose above 5.8 percent. The bulk of the bankruptcies were confined to the energy sector. Various sectors suffered job losses but Houston never had a 12-month period in which growth dipped below zero. And even though thousands of Houstonians were laid off, stories of evictions and foreclosures were rare. Throughout the downturn, Houstonians never sank into despair. Some even remained upbeat. In the most recent Kinder Houston Area Survey, respondents were asked to rate job opportunities in Houston. Sixty-two percent classified them as “good” or “excellent.” It warrants note that the survey was conducted in Q1/16, the lowest point of the downturn, and 62 percent was among the highest ratings in the survey’s 35-year history. Going Forward A recovery is clearly underway, but what shape will it take? A checkmark? A hockey stick? A bathtub? A checkmark recovery suggests a sharp bottom and a quick rebound. For this to occur, oil prices would need to double, the rig count would need to triple, and all furloughed workers would need to be recalled. That’s not likely to happen, so rule out the checkmark. A hockey stick recovery suggests a deep plunge then a recovery characterized by steady, uninterrupted growth. For the economy to follow that path, oil prices need to rise at a predictable pace, construction activity needs to remain elevated, and layoffs need to stop. All are unlikely, so rule out the hockey stick. Houston won’t enjoy robust growth until all the excess capacity—apartments, office space, factories, drilling rigs, fracking equipment, labor— has been drained from the system. Given the size of the glut, this may take several years, which suggests a wide, flat growth curve, a shape that looks somewhat like a bathtub. In a nutshell Recovery for the energy industry won’t occur until crude prices approach $60. The recovery in manufacturing depends on a steady rise in the rig count. The petrochemical construction boom, which offset weakness in upstream energy, starts winding down and becomes a drag on employment growth. Houston has too many apartments and too much empty office space to warrant starting many new projects. The transportation sector awaits growth in energy, manufacturing and wholesale trade. Wholesale trade needs to see growth in energy and manufacturing before it flourishes again. Retail, health care, restaurants and bars will do well as long as population continues to grow. And the government sector, which is dominated by public education, still needs to catch up to the growth of the past several years. The forecast cal ls for employment growth in manufacturing, wholesale trade, retail trade, finance and insurance, real estate, business, professional and technical services, educational services, health care, administrative services, arts and entertainment, accommodation and food services, other services, and government. Jobs losses will continue in exploration and production, oil field services, construction and information. The Partnership’s forecast calls for Houston to create 29,700 jobs net in ’17. Conclusion In mid-’14, when oil prices started to slide, Houstonians reassured themselves that things would be different this time. “Houston is more diverse,” we told ourselves. “The region has other sectors that will keep our economy afloat.” But as we said this, we may have crossed our fingers, knocked on wood, or spat over our left shoulder—any gesture to help “guarantee” the outcome. Over the next 24 months, as oil prices fell, the rig count dropped, and the layoffs came quicker than in any prior downturn. Houston’s economy struggled but didn’t collapse. Developers soon found themselves with too much vacant office space and landlords with too many empty apartments. Vehicle sales slipped. Sales tax revenues fell. But homes sales maintained their pace. The region continued to create jobs, though they didn’t pay as well as those lost in the energy industry. Thousands of people continued to move here from around the United States and overseas. The worst is over. Houston never cried “uncle.” Everyone can uncross their fingers now: ’17 isn’t likely to be a banner year for the region’s economy, but it should be a further step on the road back to robust growth.
Published by EMMIS Communications. View All Articles.
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