A publication of the Greater Houston Partnership Volume 27 ...Houston’s growth, it could delay Houston overtaking Chicago further into the future. 4 4 “lack swan” describes an
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
The City of Houston added 8,235 residents last year, the smallest increase for the city since ’07. Houston’s popu-lation growth peaked in ’15 and has trended down since. Slower growth for the city was expected, given the per-sistent weakness in the local economy. Population esti-mates for the metro area, discussed in April’s Houston: The Economy at a Glance, display a similar trend. 1
The media quickly pounced when the U.S. Census Bureau released the data in May, reporters proclaiming the date Houston overtakes Chicago as the nation’s third most populous city had been pushed into the distant future. They were right, but for the wrong reason.
As recently as ’15, when momentum from the recent boom carried Houston forward, the city added over 43,000 residents. Chicago lost about 1,400 that year. The math seemed simple enough. With a gap of only 442,000 residents separating the Bayou City from the Windy City, Houston would overtake Chicago in less than 10 years, which at the time placed the transition around ’25.
The gap has narrowed since then. Only 404,000 residents separate the two cities today. Houston’s growth, however, has slowed to a trickle, and Chicago’s population continues to leak away. The home of the Bears, Bulls, Cubs and Blackhawks lost 3,800 residents in ’17, about 0.1 percent of the city’s population. Houston’s growth fell to about one-fifth its previous peak.2 Again, the math seems simple.
1 The U.S. Census Bureau’s population estimates are for the 12 months ending July 1, 2017. 2 Houston Mayor Sylvester Turner disagrees with the Census’ estimate for Houston and intends to challenge the Bureau.
Based on last year’s growth, Houston will overtake Chicago, but not for another 34 years. In ’52, when the Class of ’18 reaches middle age, Houston will become the nation’s third most populous city.
CITY POPULATION GROWTH Houston Chicago
Pop as of 7/1/10 2,099,256 2,697,661
Gap, Hou v Chi 598,405
Year Net Population Change
’11 26,194 9,009
’12 34,374 11,319
’13 38,420 6,493
’14 40,551 2,051
’15 43,440 -1,379
’16 22,247 -4,879
’17 8,235 -3,825
Pop as of 7/1/17 2,312,717 2,716,450
Gap, Hou v Chi 403,733
Source: Partnership calculations based on U.S. Census Bureau data
No Better Than a Ouija Board
But there’s a problem with the prognostications to ’25 and to ’52. They are what economists refer to as a “naïve forecasts,” i.e., using current data to extrapolate the future without establishing what drives growth and then adjusting accordingly. A Ouija board would produce the same result.
To use a sports example, predicting Houston’s future growth based on a few data points is like using the first four games of the Texans ’17 season (2 wins, 2 losses) or the Astros record in August (10 wins, 17 losses) to predict how each team would finish the year. For those who don’t recall, the Texans finished 4-12, the Astros won the Major League Baseball’s World Series.
Table of Contents
Houston vs Chicago ................................................. 1
A Few Words About Our Neighbors ......................... 3
Demographers separate population growth into two components, the net natural rate of increase (i.e., resident births minus resident deaths) and net migration, (i.e., movers into the region minus movers out of the region). A more informed forecast takes into account all factors and events that might impact those components.
Yay! The Natural Increase!
The city has nearly 600,000 female residents between the ages of 15 and 50―what the Census Bureau considers to be childbearing years. In ’16, the latest year for which data are available, nearly 39,000 women gave birth to at least one child. The Bureau doesn’t provide data on deaths at the city level, but at the metro level deaths offset births by about 40 percent, which suggests a rate of natural increase for the city of about 24,000 residents per year. Houston added fewer than 9,000 residents in ’17, suggesting more people moved out of the city than moved into the city last year. That’s not surprising given the lack of job growth through July of last year, which coincides with the time frame for the Bureau’s estimates.
The city’s population gains in ’08, ’10 and ’16 also fell well below what one would expect based on the natural rate of increase, suggesting more residents moved out of Houston than into Houston in those years.
While the female population continues to grow, fertility rates (i.e., the number of births per 1,000 women of child-bearing age) have slipped over time. A natural increase of 24,000 may be the norm for Houston for the near future.
Good, Good, Good, Good Migrations
While net natural increase is important, infants and toddlers aren’t ideal consumers. They don’t buy vehicles, purchase homes, order furniture or dine out (unless they’re with their parents). Nor do they participate in the workforce. But their parents do, which is why migration is so important to Houston.
What spurs someone to pack a U-Haul and head for Houston? The desire to live closer to one’s family. The desire to escape harsh winters. Access to quality health care. A cool restaurant and bar scene. A chance to start over in a new city known for welcoming newcomers. But two factors—job growth and affordability—tend to have the greatest influence.
3 C2ER is a Washington-based organization, that among other things, gathers data and reports on living costs in the nation’s major metro areas.
The Importance of Job Growth
From July ’10 to July ’15, the recent peak of the city’s population boom, metro Houston created more than 420,000 jobs. Through migration and net natural increase, the region added about 720,000 residents, of whom 183,000 settled in the city. That suggests for every 2.3 jobs the region created, the city gained one new resident. Those jobs didn’t need to be inside the city to add to Houston’s population. Data from the Census Bureau indicate that about a third of all job holders who reside in the city work outside the city.
METRO HOUSTON GROWTH
Year Jobs
(Dec – Dec) Population (Jul – Jul)
'10 49,800 95,225
'11 83,000 110,528
'12 118,800 125,779
'13 90,000 145,827
'14 116,700 167,309
'15 -2,500 167,325
'16 -2,200 133,823
'17 62,900 94,417
Sources: U.S. Census Bureau and Texas Workforce Commission
If the regional-jobs-to-city-population ratio holds true, metro Houston needs to create 920,000 jobs for the city to add another 400,000 residents, the gap Houston must close if it’s to overtake Chicago. That’s the equivalent to two decades of growth for the region. Admittedly, the formula is an oversimplification, but it underscores the importance of regional job growth to the city’s population growth.
No Longer a Bargain
It’s no coincidence that states with the highest living costs—California, New York and Illinois—send a large number of residents to Houston each year. And cities with some of the lowest living costs (and a healthy job market) enjoyed strong population gains last year.
Houston, however, is not as affordable as it once was. According to the Council for Community and Economic Research (C2ER), the cost of living in Houston (excluding taxes) was 12.3 percent below the national average in ’07 but only 1.8 percent below in ’17. 3 Incidentally, the rise in
the cost of living in Houston coincides with years of robust economic growth.
Escalating housing costs, which account for about 28 percent of an average household budget, have driven the increase. According to the Federal Housing Finance Agency, the purchase price of a single-family home in metro Houston has risen 59.4 percent since Q1/07. And according to C2ER, Houston apartment rents are up 53.0 percent over the same period. By comparison, average wages in metro Houston are up only 27.1 percent over the same period, according to the Texas Workforce Commission.
A Series of Assumptions
So, when might Houston overtake Chicago to become the nation’s third most populous city? That depends on several factors aligning:
• Assuming the region’s job growth returns to its long-term annual average of 2.0 percent, the region should add approximately 60,000 jobs per year.
• Assuming job growth holds steady at 60,000 per year, the region should add 100,000 to 125,000 residents per year.
• Assuming the city captures about one-fourth of the region’s population gains (its share over the past decade), Houston should add 25,000 to 30,000 resi-dents per year.
• Assuming Houston maintains that pace of population growth uninterrupted, and
• Assuming that Chicago’s population remains flat . . .
The City of Houston would reach 2.7 million residents, Chicago’s population today, sometime around ’32. However, a number of factors are likely to push out that date.
• If Chicago experiences any growth—the city added 4,000 residents per year in the early part of this decade―that could push the date out to the late ‘30s.
• If population growth in the city slows precipitously—in seven of the past 20 years the city of Houston has added fewer than 10,000 residents—the date would be pushed into the early ’40s.
• If a “black swan” event occurs that precipitously slows Houston’s growth, it could delay Houston overtaking Chicago further into the future. 4
4 “Black swan” describes an event that comes as a surprise, has a major effect, and is rationalized afterwards with the benefit of hindsight. The global financial collapse which brought on the Great Recession or the flooding associated with Hurricane Harvey are examples of such events.
What Needs to Happen
Growth won’t occur without significant investments in the city. To accommodate an additional 400,000 residents, the city will need to:
• Develop an additional 160,000 housing units,
• Upgrade the streets to carry another 200,000 vehicles,
• Build enough campuses to educate an additional 80,000 school-age children,
• Expand utilities, including water, sewer, gas and electricity,
• And nurture a business climate that entices new firms to relocate in the region and existing firms to expand their current operations, creating the jobs needed to drive population growth.
Houston also needs to deal with issues of flooding, image, restructuring of the oil industry, Washington’s efforts to limit immigration, and threats to international trade. Inevitably, the U.S. will suffer another economic downturn in the next 10 years, impeding the city’s growth. To sum it up, Houstonians have a host of challenges to deal with before the Bayou City overtakes the Windy City as the nation’s third most populous in the U.S., and that’s not likely to occur for at least another 20 years.
An Addendum to the Above
The Chicago Metropolitan Agency for Planning (CMAP) forecasts population, households and employment for the Chicago metro area. CMAP expects the city of Chicago’s population to reach 3,092,262 in ’40. The Houston-Galveston Area Council (HGAC), the planning agency for this region, forecasts population, employment, and household growth for the Texas Gulf Coast. HGAC projects Houston’s population to reach 3,045,030 by that year. Based on those two forecasts, in ’40 Houston still fails to overtake Chicago as the nation’s third most populous city.
A FEW WORDS ABOUT OUR NEIGHBORS
Of the 123 cities in the nine-county metro Houston area, 104 gained population last year, according to the U.S. Census Bureau. Houston led the way, followed by Pearland, League City and Conroe.
Pearland and Pasadena have a race of their own, with the city off State Highway 288 fast approaching the city off State Highway 225 in population. Fewer than 34,000 residents separate the two, with Pearland logging healthy
population gains over the past seven years and Pasadena’s population growing only marginally.
The U.S. Census Bureau estimates are for populations as of July 1, 2017, so they don’t reflect the impact Hurricane Harvey had on the region. The surge in out-of-state workers helping with recovery efforts may add to the population, while the exodus of people whose homes were destroyed may pull down the numbers. Houstonians won’t know for another year the impact of Harvey on the region’s population, and we won’t know for another 20 years if Houston will really overtake Chicago.
EMPLOYMENT UPDATE
Metro Houston created 22,600 jobs in April, according to the Texas Workforce Commission (TWC). That’s the best April on record.
Houston always experiences significant job losses the first month of each year as employees hired for the holiday season, contracted to assist with year-end deadlines, or subject to corporate restructuring in the new year are laid off. The most recent report places year-to-date job growth
at 24,100. February, March and April job growth have more than offset the 41,300 jobs lost in January.
Year to date, the bulk of Houston’s job growth has occurred in a handful of categories: construction (6,500 jobs), employment services (e.g., contract workers) (4,700 jobs), services to buildings (e.g., janitorial and landscaping) (3,800 jobs), health care (3,500 jobs), fabricated metal products manufacturing (3,000 jobs) and other services (3,000 jobs).
Through April, mining machinery manufacturing (i.e., oil field equipment) has added 1,600 jobs and support activities for mining (i.e., oil field services) has added 900 . Engineering services has cut 400 jobs and oil and gas extraction (i.e., exploration and production) has shed. A number of sectors have experienced year-to-date losses, the most significant being 12,000 jobs in retail.
Readers are cautioned, however, that the data for April have a few anomalies. TWC reports that leisure and hospitality (i.e., hotels, restaurants and bars) added 6,900 jobs in April. A typical April would see only 2,000 to 2,500 jobs added. Administrative support added 3,200. Over the past 25 years, this category has averaged 1,600 jobs in April.
April’s report pushed Houston’s employment numbers to a new record, 3,097,500. When TWC releases data for May, the region will likely top 3.1 million.
Houston's unemployment rate was 4.2 percent in April, down from 4.6 percent in March and 4.8 percent in April ’17. Texas’ unemployment rate was 3.8 percent in April, down from 4.1 percent in March and 4.1 percent in April ’17. The U.S. rate was 3.7 percent in April, down from 4.1 percent in March and 4.1 percent in April ’17.
HOUSTON METRO AREA POPULATION GROWTH, By 20 LARGEST CITIES
Ranked by Current Population Population as of Change Since '10
City 7/1/2010 7/1/2017 # %
Houston 2,099,256 2,312,717 218,284 10.4
Pasadena 149,527 153,520 4,213 2.8
Pearland 94,075 119,940 26,820 28.8
League City 84,077 104,903 21,340 25.5
Sugar Land 79,096 88,485 9,885 12.6
Conroe 65,265 84,378 19,448 30.0
Baytown 71,865 76,804 5,095 7.1
Missouri City 67,065 74,497 7,809 11.7
Galveston 47,795 50,497 2,754 5.8
Texas 45,292 48,558 3,467 7.7
Friendswood 36,006 39,839 3,945 11.0
Rosenberg 32,048 37,661 5,785 18.1
La Porte 33,872 35,371 1,565 4.6
Deer Park 32,106 33,891 1,881 5.9
Lake Jackson 26,818 27,473 641 2.4
Alvin 24,314 26,474 2,235 9.2
Dickinson 18,751 20,359 1,682 9.0
Angleton 18,821 19,544 718 3.8
Bellaire 16,957 18,797 1,886 11.2
Stafford 17,781 18,315 593 3.3
Source: U.S. Census Bureau
4.8
4.1 4.14.6
4.1 4.1
Houston Texas U.S.
Note: The rates are not seasonally adjusted.Source: Texas Workforce Commission
% Workforce UnemployedApril '17 March '18 April '18
Aviation — The Houston Airport System handled 18.0 million passengers through April of this year, up 4.0 percent from the 17.3 million
handled during the same period in ’17. Year to date, international passenger volume totaled 3.7 million, up 2.9 percent from 3.6 million the previous year. Domestic volume totaled 14.3 million, a 4.3 percent increase from 13.7 million in ’17.
Building Permits — City of Houston building permits totaled $468.2 million in April ’18, down 3.5 percent from $485.0 million in April ’17.
Commercial permit values decreased 27.4 percent to $190.8 million and residential permit values increased 24.9 percent to $277.4 million.
Business-Cycle Index — Growth in the Houston Business-Cycle Index was a roaring 7.6 percent during the three months ending in April ’18,
above its longer-run average of 3.2 percent. Annualized growth in the index since September ’17 has been a robust 7.5 percent, likely buoyed in part by a strong post-Harvey stimulus and higher oil prices.
Construction — Construction starts in Houston totaled $1.575 billion in April, a 45.0 percent increase from $1.086 billion in April ’17. Through the first four months of ’18, starts totaled $6.001
billion, down 2.1 percent from $6.130 billion for the corresponding period in ’17.
Crude Oil — West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, traded between $66.80 and $72.86 a barrel in May ’18
versus $45.55 to $51.12 per barrel in May ’17. The U.S. Energy Information Administration (EIA) forecasts WTI to average $65.58 this year and $60.86 next year.
Home Sales — In April, Houston’s residential real estate market rebounded from a sluggish March. Single-family home sales, average price paid and pending sales rose both month-to-month and
year-to-year. Total sales volume topped $26.6 billion in the 12 months ending April ’18, a record for the region. Foreclosure sales continue to trend downward and now account for less than 2.0 percent of all transactions.
Inflation — Consumer prices in the Houston-The Woodlands- Sugar Land metro area grew 2.4 percent from April ’17 to April ’18. In the 12
months ending April ’18, the energy index rose 9.5 percent. Food prices rose 1.3 percent over the same period.
Natural Gas — The spot price for Henry Hub natural gas averaged $2.80 per million BTUs in May, down 12.5 percent from the average of
$3.15 in April ’17. EIA forecasts the Henry Hub spot price to average $3.01 this year and $3.11 in ’19.
Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short-term leading indicator for regional production,
registered 56.6 in April, up slightly from 56.5 in March. Readings above 50 signal economic expansion in Houston over the next three to four months. Readings below 50 signal contraction.
Rig Count — Baker Hughes reports 1,059 drilling rigs were working in the U.S. during the last week of May. That’s up 151 rigs, or 16.6 percent, from
the 908 the same week in May last year. The rig count has trended upward since early November.
Trade — Through March of this year, $52.6 billion in goods and commodities passed through the Houston/Galveston Customs District, up 12.9
percent from $46.6 billion over the same period in ’17. Exports totaled $31.4 billion, up 17.7 percent. Imports totaled $21.3 billion, up 6.6 percent.
Vehicle Sales Houston-area auto dealers sold 26,980 new vehicles in April ’18, up 19.9 percent from the 22,504 sold in April ’17. Used vehicle
sales rose 10.9 percent from 67,657 in April.
STAY UP TO DATE!
For past issues of Economy at a Glance, please click here.
If you are a not a member of the Greater Houston Partnership and would like to subscribe to Economy at a Glance, please click here and enter your email address. For information about joining the Greater Houston Part-nership, call Member Engagement at 713-844-3683.
The Key Economic Indicators table is updated whenever any data change — typically, six or so times per month. If you would like to receive these updates by e-mail, usually accompanied by commentary, please click here.
Editor’s Note: What follows is a summary of the Greater Houston Partnership’s ’18 employment forecast released on December 8, 2017. For the full forecast, along with Houston Economic Highlights, an analysis of economic and demographic trends over the past 10 years, see www.houston.org/economy.
JOB GROWTH TO PICK UP IN ’18
The Partnership’s employment forecast for this year calls for the region to create approximately 45,500 jobs. Growth will be driven primarily by the strength of the U.S. and global economies and Houston’s links to them. While turmoil in the energy industry has for the most part sub-sided, the forecast doesn’t anticipate the sector con-tributing to job growth in ’18, but neither does it detract from overall expansion. Only two sectors, construction and information, are forecast to finish the year with fewer jobs than they started with. All remaining sectors are expected to expand, some robustly, others modestly, in ’18.
U.S. GROWTH
Though Houstonians often hate to admit it, Texas is part of the U.S., and when the nation prospers, that’s good for Houston. Why? Because the nation buys more of what Houston sells. A few examples:
• Detroit produced more than 18 million light-duty automobiles and trucks in ’16. A typical family car contains 150 pounds of rubber, 200 pounds of fluids, and 250 pounds of plastics. These components likely
come from the plastics and chemical plants along the Houston Ship Channel.
• The value of U.S. manufacturing output exceeded $6.1 trillion in ’14, and more than 6.2 trillion cubic feet of natural gas was consumed in the process. Much of that gas is found, produced and delivered by companies based in Houston.
• Americans drove more than 3.2 trillion miles in ’16. One-fourth of the nation’s refining capacity is located on the Texas Gulf Coast.
The consensus among economists is that U.S. GDP, ad-justed for inflation, will grow 2.4 percent or more in ’18, and that’s good for Houston.
GLOBAL TIES
Global trade is important to Houston because the region’s international ties are as strong as its domestic ties.
• Metro Houston ranks second only to New York in value of exports.
• Nearly 5,000 Houston-area companies are engaged in global commerce.
• Global trade supports nearly 450,000 jobs in the re-gion.
• The Port of Houston ranks first in the U.S. in foreign tonnage.
• Many of Houston’s public companies derive a sig-nificant portion of their revenues from their overseas operations. The average is 30 percent, but companies such as Halliburton and Oceaneering receive more than half their revenues from international sales and operations.
Oxford Economics forecasts world GDP to grow 3.0 percent in ’18, and that’s good for Houston.
ENERGY
Approximately one-third of Houston’s GDP is tied directly to oil and gas. This figure doesn’t include energy’s impact on wholesale trade, transportation, and professional ser-vices. Nor does it account for the spending of energy
A publication of the Greater Houston Partnership Volume 27 Number 1 – January 2018
A publication of the Greater Houston Partnership Volume 26 Number 12 – December 2017 Table of Contents
Job Growth to Pick up in ’18 ..................................... 1
Mixed Year for Real Estate ....................................... 2
Energy Outlook Improves ......................................... 3
workers at the grocers, in local restaurants or at the drug store. Factor in those expenditures, and energy’s impact on local GDP is significantly higher. The U.S. Energy Infor-mation Administration (EIA) forecasts West Texas Inter-mediate to trade on the spot market in the low $50s most of the year, not reaching the mid-$50s until Q4/18. That’s not much improvement over ’17, when crude averaged $49 per barrel much of the year. Houston needs oil at $60 or better for several quarters if the energy sector is to spur additional economic growth for Houston.
The forecast is based on several assumptions:
• U.S. GDP grows 2.4 percent or more, adjusted for in-flation.
• U.S. job creation averages 200,000 jobs per month, sustaining domestic demand for what Houston pro-duces.
• Any unrest in oil-exporting countries has a minimal impact on prices.
• The Federal Reserve’s increases in interest rates have no detrimental effect on the economy.
• The global economy grows at its current pace or better.
• The ongoing political turmoil in Washington has mini-mal impact, if any, on business or consumer confi-dence.
• Any appreciation in the dollar against other currencies has a negligible impact on exports.
• The price of WTI generally holds above $50 per barrel, and any dip below $50 proves transitory.
• Houston continues to attract residents from other cities, states and countries.
If any of these assumptions prove wrong, the Partnership’s forecast would need to be revisited.
FORECAST IN A NUTSHELL
The Partnership’s forecast calls for job growth in 14 sec-tors: oil field services, manufacturing, wholesale trade, re-tail trade, finance and insurance, real estate, business, professional and technical services, educational services, health care, administrative services, arts and entertain-ment, accommodation and food services, other services, and government. Job losses will continue in two sectors:
1 WTI traded between $55 and $58 in the weeks leading up to the forecast. Few analysts expected crude to breach $60 per barrel. The forecast initially assumed WTI would hold above $50 per barrel and was more concerned with the price dipping below $50. The current $60-plus price for WTI may prove transitory, but if the price holds for several quarters, the region may see growth in energy employment again.
construction and information. Employment growth will be flat in upstream energy. 1
COMMERCIAL REAL ESTATE: A MIXED YEAR
Houston’s office market finished ’18 with 2.0 million square feet of negative absorption, according to CBRE. JLL places the figure slightly higher, at 2.7 million; NAI, slightly lower at 1.6 million. The Central Business District, Uptown/Galleria, Greenspoint, Energy Corridor and Southwest submarkets were the worst hit, accounting for the bulk of the space thrown back on the market, according to data reported by JLL. Fortunately, office construction remains subdued, with only 1.6 million to 2.2 million square feet under construction. Sublease leasing activity ticked up as well, notes JLL, helping reduce sublease in-ventory by 2.3 million square feet. Total available sublease space stood at 9.3 million square feet at the end of ’17. Both CBRE and NAI reported positive absorption in Q4/17. Taken together, construction, Q4 absorption, and the drop in sublease space suggest the worst may be over for the office market. The effective vacancy rate is still between 20 and 25 percent, and given current leasing activity, the market will remain soft for some time.
The industrial market fared better, absorbing 7.0 million square feet of space, according to CBRE. JLL places ab-sorption at 7.6 million square feet. The vacancy rate has inched up from 4.9 percent at year-end ’15 and 5.1 percent at year-end ’16 to 5.5 percent year-end ’17. JLL estimates that 4.6 million square feet of space was under
construction in Q4/17. CBRE places the amount much higher, at 8.5 million. Given the current pace of leasing activity, JLL’s construction data suggest a continuing tight market, while CBRE’s suggest industrial vacancy rates may tick up this year.
The retail sector absorbed 2.0 million square feet of space in ’17, well below the 4.0 million absorbed in ’16 but above the 10-year average, reports CBRE. The overall occupancy rate of 94.1 percent slipped from 94.3 percent in ’16. Average asking rates ticked up, from $23.81 per square foot in ’16 to $25.30 in ’17 on a triple-net basis.2
HOUSING MARKET HOLDS COURSE
John Burns Real Estate Consulting forecasts single-family home sales, new and existing, to tick up in ’18 as the local economy moves closer to full recovery. Home values will continue to appreciate modestly, but housing affordability remains a concern as moderate appreciation continues to outpace recent wage growth in the region.
The market currently has a 3.9-month supply of resale homes, meaning the number of months it would take to deplete current active inventory for the single-family market based on the prior 12 months’ sales activity. The typical home is on the market 55 days before closing, notes the firm. The 10-year average is 47 days. Currently, about 12 percent of all closings are above list price. The 10-year average is 15 percent.
METRO HOUSTON SINGLE-FAMILY HOUSING OUTLOOK (December to December)
New Homes Appreciation 0.6% 2.1% 2.4% Sales 27,590 28,000 30,500
Affordability Housing Cost to Income Ratio3 29.9% 31.7% 32.7% Source: John Burns Real Estate Consulting
2 Tenant agrees to pay all real estate taxes, building insurance, and maintenance on the property in addition to normal fees expected under the agreement (rent, utilities, etc.).
3 “Housing Cost to Income Ratio” assumes the purchase of a home at 80 percent of the market’s median-priced existing home with a
five percent down payment and a 30-year, fixed-rate mortgage. Payment includes PITI plus mortgage insurance. The annual payment is then divided by the market’s median income.
4 The Organisation for Economic Co-operation and Development is an intergovernmental economic organization with 35 member countries, founded in 1961 to stimulate economic progress and world trade. Its members include all the developed countries plus several of the larger emerging markets.
ENERGY OUTLOOK IMPROVES
Prospects for the energy industry look better in ’18 than it has in several years.
The global economy remains healthy. All 45 countries monitored by the OECD4 are growing, a phenomenon that has occurred only three times in the past 50 years. The OECD forecasts global GDP to grow 3.6 percent in ’17, strengthening to almost 3.8 percent in ’18.
Demand for crude continues to rise. The International Energy Agency estimates that oil demand rose by 1.5 million barrels a day in ’17 and will increase another 1.3 million barrels in ’18. The U.S. Energy Information Administration (EIA) expects demand to grow by more than 1.6 million barrels this year.
Crude inventories have begun to shrink, albeit slowly. Since reaching a record high of 3.09 billion barrels in July ’16, total OECD liquid fuels inventories have fallen to 2.95 billion barrels in November ’17. In the U.S., about 100 million barrels have been pulled from storage tanks since the end of Q1/17.
The November ’17 agreement between OPEC, Russia and other non-OPEC producers to extend production cuts is holding. A December Reuters survey found that OPEC members have so far exceeded adherence to the curbs. Declines in Venezuelan output helped OPEC maintain its target, but additional cuts by Gulf exporters indicate a strong commitment to the deal.
Oil prices continue to trend upward. West Texas Inter-mediate, the U.S. benchmark for light, sweet crude, aver-aged $55.26 per barrel in Q4/17, up 12.4 percent from $49.14 in Q4/16.
Expectations are for crude prices to continue rising. Though unlikely to soar above $100 per barrel, they’re also unlikely to plunge below $30. A Wall Street Journal survey of 15 investment banks suggests that Brent crude, the international oil-price gauge, will average $58 a barrel in
’18, up from an average of $54 in ’17. The banks expect WTI to average $54 a barrel in ’18, up from $51 in ’17.
Judging by their capital spending plans, U.S. producers are now more optimistic. The Federal Reserve Bank of Dallas Q4/17 survey of U.S. energy firms found 51 percent of re-spondents expect their firm’s capital spending to slightly increase in ’18 compared with ’17, 19 percent expect sig-nificant increases, and 23 percent expect spending to be near ’17 levels for ’18. Only seven percent expect to decrease spending in 2018 compared with 2017.
U.S. producers are benefiting from both higher prices and higher production. The EIA forecasts domestic production to average 10.3 million b/d in ’18, up from 9.3 million in ’17. That level would surpass the previous record of 9.6 million b/d set in ’70.
And energy stocks, which had fallen out of favor with the investing community, have begun to recover. The S&P Energy Index, which includes shares of 35 energy com-
panies, 32 with significant operations in Houston, has risen 42.7 percent since its January ’16 trough.
POST-HARVEY JOB GROWTH
Metro Houston created 15,700 jobs in November, according to the Texas Workforce Commission. That’s slightly above the 25-year average of 11,700 jobs for a November. When recession years are removed from the long-term average, November’s job growth is typical for the month. Over the 12 months ending November, the Houston region added 48,500 jobs, a 1.6 percent increase.
Retail trade recorded the strongest gains in November, adding 7,900 jobs. The increase is expected, given seasonal hiring for the holidays plus shopping related to the
replacement of goods damaged in Hurricane Harvey. Transportation, warehousing and utilities grew by 2,600 jobs, the largest November job gain for the sector since 1990, the earliest data are available. The rise of online retailers has increased demand for workers to package and deliver goods. Several distribution centers recently opened in Houston, including Amazon’s 855,000 square foot facility.
Professional and business services also experienced strong growth in November, adding 3,400 jobs. Architectural and engineering services accounted for 1,300 of that increase. An area of concern is in employment services, which lost 2,200 jobs. It is yet to be seen if that decline is due to contract workers being converted to full-time workers or contracts being terminated.
Health care posted a loss of 1,700 jobs, with ambulatory health care centers shedding 1,600 jobs. After an explosion of ambulatory care centers over the past few years, the sector is undergoing a period of contraction. Also, TWC estimated ambulatory care centers added 4,200 jobs in October, the strongest one-month gain on record, so November’s data may reflect an attempt to correct for an overestimation.
After the disruption from Hurricane Harvey, the region’s job market has rebounded. From September ’17 to November ’17, Houston gained 40,500 jobs, more than the 37,300 jobs added in the same period a year earlier. Some sectors still have not fully regained their footing. In particular, leisure and hospitality lost 11,400 jobs from September to November this year, when typically, the sector loses only 5,600 jobs during these months.
Houston’s unemployment rate was 4.3 percent in No-vember, up from 4.1 percent in October but down from 5.2 percent in November ’16. Unemployed persons must be actively seeking work to be counted as unemployed. Houston’s unemployment rate fell from 4.8 percent in September to 4.1 percent in October, the region’s largest September to October drop on record. The sharp drop in the rate in October and the subsequent uptick in November most likely reflect people whose job searches were interrupted in the wake of Harvey but were resumed a month later.
Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance.
Aviation — The Houston Airport System handled 49.2 million passengers through November of ’17, down 1.2 percent from 49.9 million over the
same period in ’16. HAS handled 393,738 metric tons of air freight, up 3.9 percent from 379,054 metric tons handled over the same period in ’16.
Building Permits — For the 12 months ending November ’17, City of Houston building permits totaled $6.0 billion, down 12.4 percent from $6.8
billion in the 12 months ending November ’16. Residential permits were up slightly by 0.8 percent to $2.3 billion and commercial permits dropped 18.9 percent to $3.7 billion.
Business-Cycle Index —The Houston Business-Cycle Index ticked up in November, employment totals surpassed pre-hurricane levels, and
energy employment increased. Taken together, these data buttress a positive outlook for Houston.
Construction — Construction starts in the metro area totaled $16.83 billion through November ’17, up 10.1 percent from $15.28 billion over the
same period in ’16, as reported by Dodge Data and Analytics. All the growth occurred in the nonresidential sector, which rose 25.9 percent.
Crude Oil — West Texas Intermediate, the U.S. benchmark for light, sweet crude, traded be-tween $55.79 and $60.46 a barrel in December
’17, versus $49.85 to $54.01 per barrel in December ’16. The U.S. Energy Information Administration (EIA) forecasts WTI to average $52.77 next year.
Home Sales — Houston-area home sales totaled 7,270 in November ’17, up 4.9 percent from November ’16, according to the Houston Association of Realtors®. For the 12 months
ending November ’17, total property sales rose to 94,301, up 3.4 percent from the same span last year.
Inflation — Consumer prices in the Houston-Galveston-Brazoria metro area (Brazoria, Cham-bers, Fort Bend, Galveston, Harris, Liberty,
Montgomery, and Waller Counties) grew 2.3 percent from October ’16 to October ’17. Core inflation rose 1.6 percent.
Natural Gas — The spot price for Henry Hub natural gas averaged $2.81 per million BTUs in December, down 21.6 percent from the average
of $3.59 in December ’16. EIA forecasts the Henry Hub spot price to average $3.12 next year.
Purchasing Managers Index — The Houston Purchasing Managers Index, a short-term lead-ing indicator for regional production, registered
52.8 in November, up from 49.3 in October. Readings above 50 signal economic expansion in Houston over the next three to four months. Readings below 50 signal contraction. The region’s PMI finally pushed above 50 after three consecutive months pointing to contraction.
Rig Count — Baker Hughes reports 924 drilling rigs were working in the U.S. during the first week of January. That’s up 259 rigs, or 38.9
percent, from the 665 in early January last year. The rig count peaked at 958 in late July, then briefly declined, but has trended upward since early November.
Sales Tax Collections — City of Houston sales tax allocations were $56.2 million in December ’17, up significantly from $47.8 million in December
’16. For the full year, the city collected $638.7 million in sales and use taxes, up from $630.2 million in ’16.
Trade — Through October ’17, $157.3 billion in goods and commodities passed through the Houston/Galveston Customs District, up 18.6
percent from $132.7 billion over the comparable period in ’16. Exports totaled $88.0 billion, up 17.3 percent. Imports totaled $69.3 billion, up 20.2 percent
Vehicle Sales — Local auto dealers sold 30,670 vehicles in November ’17, a 35.3 percent jump from November ’16, according to TexAuto Facts,
published by InfoNation, Inc. of Sugar Land. Strong demand for replacement vehicles from Harvey continues to bolster
STAY UP TO DATE!
For past issues of Economy at a Glance, please click here.
If you are a not a member of the Greater Houston Partnership and would like to subscribe to Economy at a Glance, please click here and enter your email address. For information about joining the Greater Houston Part-nership, call Member Engagement at 713-844-3683.
The Key Economic Indicators table is updated whenever any data change — typically, six or so times per month. If you would like to receive these updates by e-mail, usually accompanied by commentary, please click here.
a balanced market. For perspective, housing inventory across the U.S. stands at a 3.6-month
supply according to the National Association of Realtors.
The time it takes for the average home to sell continues to creep up, from 45 days during
summer ’15, the peak of the buying frenzy, to 66 days in February.
MetroStudy forecasts Houston builders will start 26,500 single-family homes this year, down
about 2,500 from the 25-year average. Though starts will dip, Houston should still rank second
in total housing starts. Dallas-Fort Worth will likely rank first.
We’re Different — Houstonians are more likely to live in larger homes and have lower hous-
ing costs than their counterparts in competing metros, but they also tend be somewhat less
satisfied with their neighborhood, perceive their neighbors as having more petty crime, rate
local transit services poorly, and be more concerned about potential natural disasters.
That’s according to the U.S. Census Bureau’s 2015 American Housing Survey, the agency’s
biennial review of the nation’s housing characteristics. The survey gathers data on housing
quality, neighborhood characteristics, ownership and rentals costs, moving trends and food
insecurities. The bureau conducts the survey to provide a better understanding of housing con-
ditions to policy makers, academics and economists. The survey looks at 15 of the nation’s
largest metro areas plus a handful of smaller metros.
Details on how Houston compares with several peer metros and across several categories ap-
pear below. The full survey can be found here.
4 Again, based on a 12-month average. 5 Reflects he number of months it will take to deplete current inventory for the single-family homes market based on the prior 12
The only category where Houston failed to rank among the top 10 was under inclusion, where
it ranked 64th. Inclusion indicators measure how the benefits of growth and prosperity are
distributed among individuals. While Houston’s employment rate increased by 3.1 percent and
median wages increased by 7.5 percent, the relative poverty rate also increased by 5.3 per-
cent—the fifth worst rate among all metros.
The good news is that the employment rate in-
creased for all racial/ethnic groups and for
those in all educational attainment levels (e.g.,
high school diploma only, some college/asso-
ciate degree or bachelor’s degree or higher).
The bad news is that the relative poverty rate
increased for all racial/ethnic groups except
Asians, and for those whose highest level of ed-
ucation is a high school diploma, some college,
or an associate degree.
Overall, Brookings found that metros with a fo-
cus on advanced industries and research/tech-
nology, such as energy, tended to fare better than others. And even though Houston showed
strong performance in GMP, job growth, wage increases, productivity and employment rates,
some groups were left behind.
Patrick Jankowski, Jenny Philip, and Nadia Valliani contributed to the March issue of Houston: The Economy at a Glance.
BROOKINGS INSTITUTION GROWTH RANKINGS
Metro Area Rankings
Growth Prosperity Inclusion Houston 5 2 64 Dallas 11 15 55 Atlanta 20 59 40 Miami 21 71 23 Boston 36 29 57 New York 41 65 67 Chicago 49 41 41 Los Angeles 52 25 36 Washington, DC 65 93 86 Philadelphia 75 54 74 Source: Brookings, Metro Monitor
Aviation City of Houston Department of Aviation Building Construction Contracts Dodge Data & Analytics Car and Truck Sales TexAuto Facts Report, InfoNation, Inc., Sugar Land TX City of Houston Building Permits Public Works & Engineering Planning & Development, City of Houston Consumer Price Index U.S. Bureau of Labor Statistics Electricity CenterPoint Energy Employment, Unemployment Texas Workforce Commission Hotels CBRE
Houston Purchasing Managers Index Institute for Supply Management-Houston MLS Data Houston Association of Realtors Port Shipments Port of Houston Authority Retail Sales Texas Comptroller’s Office Rig Count Baker Hughes Incorporated
Houston Economic Indicators
A Service of the Greater Houston Partnership
Most Year % Most Year %Month Recent Earlier Change Recent Earlier Change
ENERGY
U.S. Active Rotary Rigs Feb '17 744 532 39.8 713 * 600 * 18.8Spot Crude Oil Price ($/bbl, West Texas Intermediate) Jan '17 52.49 32.64 60.8 52.49 * 32.64 * 60.8Spot Natural Gas ($/MMBtu, Henry Hub) Jan '17 3.32 2.12 56.6 3.32 * 2.12 * 56.6
UTILITIES AND PRODUCTION
Houston Purchasing Managers Index Feb '17 54.2 44.4 22.1 54.2 * 45.1 * 20.2Nonresidential Electric Current Sales (Mwh, CNP Service Area) Jan '17 4,620,455 4,416,725 4.6 4,620,455 4,416,725 4.6
CONSTRUCTION
Total Building Contracts ($, Houston MSA) Jan '17 1,274,751,000 1,724,123,000 -26.1 1,274,751,000 1,724,123,000 -26.1Nonresidential Jan '17 580,082,000 1,048,372,000 -44.7 580,082,000 1,048,372,000 -44.7Residential Jan '17 694,669,000 675,751,000 2.8 694,669,000 675,751,000 2.8Building Permits ($, City of Houston) Jan '17 637,896,584 400,092,629 59.4 637,896,584 400,092,629 59.4Nonresidential Jan '17 452,090,627 259,425,039 74.3 452,090,627 259,425,039 74.3New Nonresidential Jan '17 187,679,619 100,643,691 86.5 187,679,619 100,643,691 86.5
Nonresidential Additions/Alterations/Conversions Jan '17 264,411,008 158,781,348 66.5 264,411,008 158,781,348 66.5
Residential Jan '17 185,805,957 140,667,590 32.1 185,805,957 140,667,590 32.1New Residential Jan '17 164,404,366 112,232,345 46.5 164,404,366 112,232,345 46.5
Residential Additions/Alterations/Conversions Jan '17 21,401,591 28,435,245 -24.7 21,401,591 28,435,245 -24.7
Multiple Listing Service (MLS) ActivityProperty Sales Feb '17 6,111 5,707 7.1 11,127 10,660 4.4Median Sales Price - SF Detached Feb '17 220,000 204,990 7.3 215,000 0 203,495 * 5.7Active Listings Feb '17 35,685 33,159 7.6 35,322 * 32,710 * 8.0
EMPLOYMENT (Houston-Sugar Land-Baytown MSA)
Nonfarm Payroll Employment Dec '16 3,036,000 3,017,300 0.6 3,000,600 * 2,995,900 * 0.2Goods Producing (Natural Resources/Mining/Const/Mfg) Dec '16 523,300 547,900 -4.5 530,317 0 566,883 * -6.5Service Providing Dec '16 2,512,700 2,469,400 1.8 2,470,283 0 2,429,017 * 1.7Unemployment Rate (%) - Not Seasonally AdjustedHouston-Sugar Land-Baytown MSA Dec '16 5.3 4.6 5.2 * 4.6 *Texas Dec '16 4.5 4.2 4.6 * 4.5 *U.S. Dec '16 4.5 4.8 4.9 * 5.3 *
TRANSPORTATION
Port of Houston Authority Shipments (Short Tons) Jan '17 3,579,186 3,504,028 2.1 3,579,186 3,504,028 2.1Air Passengers (Houston Airport System) Jan '17 4,333,025 4,438,219 -2.4 4,333,025 4,438,219 -2.4Domestic Passengers Jan '17 3,367,911 3,435,688 -2.0 3,367,911 3,435,688 -2.0International Passengers Jan '17 965,114 1,002,531 -3.7 965,114 1,002,531 -3.7Air Freight (metric tons) Jan '17 34,987 31,852 9.8 34,987 31,852 9.8
CONSUMERS
New Car and Truck Sales (Units, Houston MSA) Jan '17 27,568 27,410 0.6 27,568 27,410 0.6Cars Jan '17 9,426 9,887 -4.7 9,426 9,887 -4.7Trucks, SUVs and Commercials Jan '17 18,142 17,523 3.5 18,142 17,523 3.5Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Q1/16 25,146 25,980 -3.2 25,146 25,980 -3.2Consumer Price Index for All Urban Consumers ('82-'84=100)Houston-Galveston-Brazoria CMSA Jan '16 217.753 212.936 2.3 216.443 * 213.097 * 1.6United States Jan '16 242.839 236.916 2.5 242.839 * 236.916 * 2.5Hotel Performance (Houston MSA)Occupancy (%) Q4/16 57.2 64.3 62.3 * 68.6 *Average Room Rate ($) Q4/16 99.05 106.37 -6.9 104.45 * 108.51 * -3.7Revenue Per Available Room ($) Q4/16 56.67 68.41 -17.2 65.32 * 74.47 * -12.3
Most Year % Most Year %Month Recent Earlier Change Recent Earlier Change
ENERGY
U.S. Active Rotary Rigs Aug '16 481 883 -45.5 484 * 1,083 * -55.3Spot Crude Oil Price ($/bbl, West Texas Intermediate) July '16 44.65 50.90 -12.3 40.06 * 52.86 * -24.2Spot Natural Gas ($/MMBtu, Henry Hub) July '16 2.82 2.84 -0.7 2.18 * 2.82 * -22.7
UTILITIES AND PRODUCTION
Houston Purchasing Managers Index July '16 43.8 49.1 -10.8 44.8 * 46.8 * -4.3Nonresidential Electric Current Sales (Mwh, CNP Service Area) June '16 5,046,097 4,958,740 1.8 27,570,315 26,869,840 2.6
CONSTRUCTION
Total Building Contracts ($, Houston MSA) July '16 1,240,479,000 1,389,281,000 -10.7 8,662,113,000 10,680,251,000 -18.9Nonresidential July '16 521,259,000 401,250,000 29.9 3,310,248,000 4,317,345,000 -23.3Residential July '16 719,220,000 988,031,000 -27.2 5,351,865,000 6,362,906,000 -15.9Building Permits ($, City of Houston) July '16 962,304,924 978,344,959 -1.6 4,427,353,634 4,844,251,694 -8.6Nonresidential July '16 801,108,877 570,456,196 40.4 2,983,371,816 3,090,776,711 -3.5New Nonresidential July '16 315,413,926 202,629,354 55.7 1,193,018,731 1,559,371,335 -23.5
Nonresidential Additions/Alterations/Conversions July '16 485,694,951 367,826,842 32.0 1,790,353,085 1,531,405,376 16.9
Residential July '16 161,196,047 407,888,763 -60.5 1,443,981,818 1,753,474,983 -17.7New Residential July '16 131,409,468 377,218,072 -65.2 1,083,708,078 1,600,220,087 -32.3
Residential Additions/Alterations/Conversions July '16 29,786,579 30,670,691 -2.9 360,273,740 153,254,896 135.1
Multiple Listing Service (MLS) ActivityProperty Sales July '16 8,571 9,374 -8.6 52,456 52,355 0.2Median Sales Price - SF Detached July '16 230,000 221,000 4.1 218,284 * 211,543 * 3.2Active Listings July '16 37,952 33,670 12.7 34,758 * 29,884 * 16.3
EMPLOYMENT (Houston-Sugar Land-Baytown MSA)
Nonfarm Payroll Employment July '16 2,993,300 2,980,000 0.4 2,989,671 * 2,979,400 * 0.3Goods Producing (Natural Resources/Mining/Const/Mfg) July '16 535,700 562,700 -4.8 540,971 0 570,529 * -5.2Service Providing July '16 2,457,600 2,417,300 1.7 2,448,700 0 2,408,871 * 1.7Unemployment Rate (%) - Not Seasonally AdjustedHouston-Sugar Land-Baytown MSA July '16 5.8 5.0 5.0 * 4.5 *Texas July '16 5.1 4.8 4.5 * 4.5 *U.S. July '16 5.1 5.6 5.0 * 5.6 *
TRANSPORTATION
Port of Houston Authority Shipments (Short Tons) July '16 3,893,616 3,654,829 6.5 26,096,412 28,222,939 -7.5Air Passengers (Houston Airport System) July '16 5,058,396 5,334,399 -5.2 32,105,884 31,981,906 0.4Domestic Passengers July '16 3,839,401 4,180,674 -8.2 25,092,403 25,697,028 -2.4International Passengers July '16 1,218,995 1,153,725 5.7 7,013,481 6,284,878 11.6Landings and Takeoffs July '16 68,987 71,607 -3.7 456,833 468,746 -2.5Air Freight (metric tons) July '16 32,421 33,790 -4.1 233,230 242,979 -4.0Enplaned July '16 15,183 17,468 -13.1 113,511 126,395 -10.2Deplaned July '16 17,237 16,322 5.6 119,719 116,583 2.7
CONSUMERS
New Car and Truck Sales (Units, Houston MSA) July '16 22,145 35,748 -38.1 175,908 224,566 -21.7Cars July '16 7,843 14,433 -45.7 64,470 92,185 -30.1Trucks, SUVs and Commercials July '16 14,302 21,315 -32.9 111,438 132,381 -15.8Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Q4/15 31,941 35,393 -9.8 112,143 125,047 -10.3Consumer Price Index for All Urban Consumers ('82-'84=100)Houston-Galveston-Brazoria CMSA July '16 217.305 213.896 1.6 215.410 * 212.062 * 1.6United States July '16 240.647 238.654 0.8 239.049 * 236.606 * 1.0Hotel Performance (Houston MSA)Occupancy (%) Q1/16 65.8 71.6 68.6 * 72.0 *Average Room Rate ($) Q1/16 109.87 111.50 -1.5 108.56 * 106.88 * 1.6Revenue Per Available Room ($) Q1/16 72.26 79.87 -9.5 74.51 * 76.98 * -3.2
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
Location, Location, Location2 — More than 10 million square feet of sublease office space
is now in the Houston market. An additional 1 million square feet is expected in Q3/16. The
additional sublease space will push Houston’s effective office vacancy rate above 21 percent.
Sublease rates are increasingly aggressive, notes CBRE, including some instances of market-
ing a $0.0 net rate (operating expenses only), as sublessors try to recoup any costs.
Total absorption remains barely positive for the year,
with 147,000 square feet leased. This time last year, 1.4
million square feet had been leased. Nine of region’s 20
submarkets report year-to-date negative net absorption.
Though the 20 largest sublease listings are offered by
energy companies, the Energy Corridor has absorbed
nearly 300,000 square feet year to date.
Office construction continues to wind down, with only
4.2 million square feet underway in Q2/16 compared
to 11.8 million square feet in Q2/15 and 16.3 million
in Q2/14. Only half of the space under construction is
preleased, potentially throwing another 2 million
square feet of empty space onto the market. Developers
by and large have tabled plans for new office buildings.
Population growth, high retail demand, and port activity continue to drive industrial leasing
activity. Despite a few big-box leases, 84 percent of deals in Q2/16 were for less than 100,000
square feet. Developers delivered 1.6 million square feet of industrial space in Q2/16 and 4
million year to date, but the vacancy rate has held steady at 5.5 percent. Of the 11.2 million
square feet of space under construction, 8.4 million square feet is preleased.
Houston absorbed 1.5 million square feet of retail
space in Q2/16, the most in any quarter since
Q4/07. Average occupancy grew 0.4 points to
94.2 percent. More than 3 million square feet is
under construction, equivalent to 1 percent of the
current inventory. Sites once slated for multifam-
ily projects are now available for retail develop-
ment, giving rise to more mixed-use develop-
ments.
The multi-family market absorbed 1,694 units in
June and 8,436 over the past 12 months. Inventory has grown by 21,600 units over the past 12
months. Overall occupancy stands at 89.7 percent, down from 91.4 percent in June ’15. On a
square foot basis, average rental rates have grown 1.5 percent since last June. Class B, C and
2 CBRE, Colliers JLL and Transwestern provided the data included in this section of Economy at a Glance.
Occupancy – Houston Apartment Market Property Type Avg. Occupancy % Class A Stable 90.8 Class A Lease Up 22.7 Class B Stable 93.3 Class B Lease Up 45.3 Class C 93.5 Class D 91.2 Note: “Stable” means the property has been operating more than 13 months; “lease up” means less than 13 months. Source: Apartment Data Services
Office Submarkets YTD Positive Absorption: Allen Parkway, Clear Lake, Energy Corridor, Far West, Greater Pearland, Katy Free-way, Kingwood, Med Center/South Main, Southwest Freeway, West Belt, Westchase Negative Absorption: Downtown, East, FM 1960, Greenspoint/North Belt, Greenway Plaza, North, North Loop, West Loop/Galleria, The Woodlands
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
SourcesRig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
plants.) The shelter component of the CPI continues to rise, however, up 5.1 percent since
August ’14 and 19.2 percent since January ’10.
The CPI suggests local housing costs have increased nearly one-fifth during the recent
economic boom. Based on anecdotal evidence, that figure seems to understate the escala-
tion in housing costs. This apparent underestimate may result from the method BLS uses
to measure housing inflation.2 In the following pages, the Partnership offers alternative
views of housing appreciation and affordability in Houston.
The Home Price Index — The Federal Housing Finance Agency (FHFA) publishes a
quarterly Home Price Index (HPI) that measures appreciation in single-family values over
time. The index is based on the repeated sale or refinancing of the same homes as they are
resold multiple times with the mortgages on those homes having been purchased or secu-
ritized by the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation.3 The FHFA publishes the index for all 50 states, the District of Columbia, and
all U.S. metro areas.4
Not surprisingly, the index shows Houston home prices rose 37.9 percent from Q1/10 to
Q3/15. Several factors fed the increase, among them a shortage of lots on which to build
new homes (which pushes buyers into the resale market), the influx of newcomers to the
region boosting housing demand (both rental and purchase), and the tendency of buyers to
bid above a home’s list
price to trump other buy-
ers vying for the same
house.
This run-up in home
prices begs the question:
Has Houston forfeited its
claim to being one of the
most affordable regions
in which to live? The an-
swer depends on one’s
perspective.
Metro Comparisons — In the broadest sense, Houston’s cost of living is still below the
nation as a whole. Three times a year the Council for Community and Economic Research
(C2ER) conducts a cost of living survey in the nation’s urban areas.5 Like the BLS survey,
2 BLS uses a method known as “owners’ equivalent rent”―the amount a homeowner would pay to rent or would earn from
renting his or her home in a competitive market―to track increases in shelter costs over time. 3 Also known as Fannie Mae and Freddie Mac. 4 More information in the FHFA Home Price Index can be found at http://www.fhfa.gov/. 5 As a matter of full disclosure, the Research Department at the Greater Houston Partnership gathers and submits the Houston
market data that go into calculating the C2ER Cost of Living Index.
150
170
190
210
230
250
270
290
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Source: Federal Housing Finance Agency, seasonally adjusted data
Monthly Payments on the Median-Priced Home Sold Through HAR
Median Home
Price 1 Mortgage In-terest Rate 2
Monthly Mort-gage Note 3
Monthly Taxes & Ins 4
Total Monthly Payment
'10 $155,000 4.35 $1,116 $376 $1,492
'11 $155,530 4.11 $1,101 $378 $1,479
'12 $164,800 3.50 $1,123 $402 $1,525
'13 $182,000 4.49 $1,322 $448 $1,770
'14 $199,000 4.16 $1,415 $493 $1,908
'15 $208,000 3.89 $1,454 $516 $1,970 1 Median single-family home, sold in August of that year. 2 Average rate for conventional mortgage in August of that year; 3 Calculated using the mortgage rate calculator available at the Freddie Mac website; 4 Accounts for all available homestead exemptions and assumes insurance premium would be equal to 1.0 percent of the value of the home. Sources (in order): Houston Association of Realtors, Federal Reserve Bank of St. Louis, Federal Home Loan Mortgage Corporation, Harris County Appraisal District, and Texas Department of Insurance
A Different Perspective — What Houstonians actually face is a limited supply of afford-
able housing in close-in neighborhoods, not a dearth of affordable housing altogether. Take
the Heights, for example, one of Houston’s trendiest neighborhoods. In ’97, the typical
Heights home sold for $81.73 per square foot. Last year, home prices averaged $285.22
per square foot. A search of HAR’s MLS database found 79 homes in the Heights listed at
$1 million or more, 11 between $200,000 and $250,000, and only one below $200,000. On
the other hand, Jersey Village has 28 homes listed between $150,000 and $250,000;
1960/Cypress Creek South, 112 in that range.
The disparity between the Heights, Jersey Village, and 1960/Cypress neighborhoods un-
derscores an old Houston adage—you drive until you can afford. The Heights is inside the
Loop, Jersey Village and Cypress outside Beltway 8. The adage also acknowledges the
tradeoff between convenience and price. Even with a weakened economy, Houston’s pop-
ulation growth will continue: conservative projections expect the region to add another
million residents over the next 10 years.9 Those new residents will need both apartments
and single-family homes. Houston won’t lose its affordable neighborhoods, but residents
may have to drive farther to reach them.
Commercial Real Estate Beginning to Turn — Houston’s commercial real estate market
has begun to feel the consequences of energy companies adjusting to a “lower for longer”
oil price outlook. After 19 consecutive quarters of positive net absorption, the Houston
office market recorded negative net absorption of 87,904 square feet in the Q3/15, accord-
ing to JLL’s quarterly Office Insight. Although Class A properties experienced positive net
absorption of 135,108 square feet, Class B properties saw a loss of 225,000 square feet.
9 Long-time readers of Glance will recall that slightly less than half of Houston’s population growth comes from natural increase
(births minus deaths) and slightly more than half comes from net in-migration (more residents moving in than out).
SourcesRig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
added 25,000 residents over the past four years, or
approximately of 6,250 residents per year. The city
of Houston added approximately 137,000 residents
over the same period, an average of 34,250 resi-
dents per year. If both cities maintain those growth
rates, Houston would overtake Chicago in ’32, or
17 years from now.
But one shouldn’t expect Houston to maintain the
recent pace indefinitely. The metro area boomed
from ’10 to ’14, adding $125 billion to GDP and
creating nearly 370,000 jobs. That economic ex-
pansion brought 300,000 newcomers to the region,
many settling inside the city. Beginning late in ’14, the region’s economy entered a slower
growth phase and will likely create significantly fewer jobs, perhaps none at all, in coming
years. That change translates into fewer people moving here. As a result, Houston will gain
ground more slowly on Chicago. The day the home of Sam Houston overtakes the home
of Rahm Emanuel will be pushed still further into the future.
Scenario II: Growth based on separate histories.
From ’00 to ’10, the city of Houston added about
130,000 residents, or 13,000 per year.4 That was a
decade in which the region completed a full busi-
ness cycle—slow growth, rapid growth, a peak, a
recession, a trough and then growth again. That
mixture of ups and downs suggests that population
growth in the decade was closer to what should be
normal for Houston. If Chicago’s population grows
by 6,000 residents per year (Scenario I above) and
Houston grows by 13,000 residents per year (a
more normal average), the Bayou City wouldn’t
overtake the Windy City until ’82, or 67 years from
now.
3 Data are for the period from July 1, 2010 through July 1, 2014. 4 That the city of Houston’s population growth from ’10 to ’14 nearly matched that from ’00 to ’10 underscores how the pace
of the past few years is unstainable and should not be used to extrapolate the city’s population growth.
The Houston-Galveston Area Council (HGAC) forecasts population, employment, and
land use for the cities and counties on the Texas Gulf Coast. The Chicago Metropolitan
Agency for Planning (CMAP) forecasts population, households and employment for its
respective metro area. CMAP expects Chicago’s population to reach 3,092,262 in ’40.
HGAC projects Houston’s population to reach 2,939,131 by then. In other words, 25 years
from now Houston’s population still falls 150,000 short of Chicago’s. The Windy City’s
forecast doesn’t extend past ’40, but if one extrapolates, Houston would overtake Chicago
in ’52, or 37 years from now.
To summarize, in Scenario I, Houston won’t overtake Chicago until today’s kindergarten-
ers have graduated from college, in Scenario III, not until they’re in their 30s, and Scenario
II, not until they’re well into retirement. To put it bluntly, the city of Houston is unlikely
to overtake the city of Chicago any time soon.
Half a Trillion Dollars — The U.S. Bu-reau of Economic Analysis (BEA) esti-mates Houston’s gross domestic product (GDP) reached $525.4 billion in ’14, ranking it as the nation’s fourth largest metro economy. If Houston were an inde-pendent nation, the region would have the 26th largest economy in the world, placing it behind Belgium ($527.8 billion) and ahead of Norway ($511.6 billion).5
Sectors accounting for the largest share of GDP were mining ($101.1 billion; 19.2 percent), manufacturing ($80.5 billion; 15.3 percent), and professional and busi-ness services ($64.4 billion; 12.3 per-cent). Mining’s share of GDP has ranged from 24.2 percent in ’08 to 15.1 percent in ’03, averaging 18.0 percent from ’03 to ’14.6
5 BEA’s estimates are for the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area, which includes Austin, Bra-
zoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller counties. The comparison of Houston’s econ-
omy to global economies is based on International Monetary Fund reports of national GDP. 6 The BEA began releasing detailed data for the mining industry in ’03. Therefore, we are unable to assess mining’s contribu-
tion to Houston GDP prior to ’03.
INDUSTRY SHARES OF HOUSTON GDP – ’14
Sector $ Billions % GDP Agriculture, Forestry, Fishing 0.452 0.1 Mining 101.068 19.2 Construction 27.789 5.3 Manufacturing 80.495 15.3
Durable goods 28.810 5.5
Nondurable goods 51.684 9.8
Wholesale Trade D D Retail Trade 22.728 4.3 Utilities 18.173 3.5
Transportation and Warehousing D D Information D D Finance, Insurance, Real Estate 62.738 11.9
Finance and insurance 17.292 3.3
Real estate and rental and leasing 45.445 8.6
Professional, Business Services 64.360 12.3 Educational Services, Health Care 23.425 4.5
Educational services 3.230 0.6
Health care and social assistance 20.195 3.8 Arts, Entertainment, Recreation, Accommodation and Food Services 12.888 2.5 Other Services 9.790 1.9 Government 31.841 6.1 Total All Sectors $525.397 100.0 D = Not reported to avoid the disclosure of confidential information. Source: U.S. Bureau of Economic Analysis
Houston’s economy grew 1.8 percent (net of inflation) in ’14, a slowdown from the 6.5 percent growth recorded in ’13. That was also the smallest increase since ’10, when GDP grew 1.1 percent. The slow growth reported for ’14 is surprising, given that the drop in oil prices did not oc-cur until the latter half of ’14 and job losses were not posted until early in ’15. The BEA also revised Houston’s ’13 GDP down $2.2 billion from $517.4 billion
In contrast, the BEA revised the Dallas metro’s ’13 GDP up $13.7 billion to $461.3 billion. Of the top 20 metro econ-omies, Dallas posted the fastest growth in ’14, 8.5 percent, and overtook Washing-ton, D.C. to become the fifth largest metro economy. The reasons for the revisions were not explained in the September data release, but the BEA stated that more in-formation would be available in the Octo-ber issue of its monthly journal, the Sur-vey of Current Business.
Partnership to Host Annual Economic Out-
look — Plan to attend the Greater Houston
Partnership’s 2016 Economic Outlook, sched-
uled for Monday, December 7, at the Hyatt
Regency Houston, 1200 Louisiana. The event
features a panel of experts discussing the out-
look for energy, health care, real estate, construction and professional services in the com-
ing year. The Partnership’s employment forecast for 2016 will be presented. And Anthony
Chan, chief economist for JP Morgan Chase, will be the luncheon keynote speaker. He
will provide the U.S. and global outlooks. Two publications, the 2016 Employment Fore-
cast and Houston Economic Highlights, a 10-year review of local economic and demo-
graphic trends, will also be distributed at the event. Tickets go on sale October 15. Addi-
tional details about the event and how to purchase tickets will be posted at the Partner-
ship’s website, www.houston.org, starting October 15.
SourcesRig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
turn in oil prices is not likely to derail economic performance for an extended period of
time.” The report also notes the importance of growth in non-energy sectors to compen-
sate for the negative impact from lower energy prices.
Over the next quarter-century, the metro area is expected to add 3.4 million residents―an
average annual growth rate of 1.7 percent. Wage and salary employment is forecasted to
gain 1.5 million jobs―an average annual rate of 1.6 percent. The region is expected to
account for one-fourth of Texas’ job growth during this period.
Employment Update — The Houston metro area gained 55,700 jobs in the 12 months
ending June ’15, according to the Texas Workforce Commission (TWC). The corre-
sponding 1.9 percent 12-month growth rate is the slowest since November ’11. The em-
ployment numbers are somewhat misleading, since all the job gains occurred in the latter
half of ’14. Since December, the region has posted a net loss of 5,600 jobs. Employment
gains in the service sectors so far this year have not been able to offset losses in the goods
producing sectors. Some of the losses date back to the fall of last year. The employment
numbers reflect the weakness in the oil patch. The sectors still adding jobs are those
which depend heavily on population growth, activity outside the energy sectors, or are
benefiting from the momentum built up over the past five years of robust economic ex-
pansion.
RECENT CHANGES IN HOUSTON EMPLOYMENT
Sector Peak Gains/Losses1
Leisure and Hospitality Still Growing +22,900
Business Services Still Growing +7,300
Health Care Still Growing +4,200
Other Services Still Growing +1,800
Information Still Growing +1,300
Manufacturing December ’14 -11,700
Government2 April ’15 -7,700
Mining and Logging December ’14 -6,600
Retail December ’14 -6,600
Construction October ’14 -5,200
Transportation, Warehousing Utilities December ’14 -3,700
Finance & Real Estate October ’14 -2,900
Wholesale Trade December ’14 -2,300 1 Gains measured from December ’14; losses measured from previous peak 2 Primarily includes local education Source: Partnership calculations based on Texas Workforce Commission data.
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
The number of jobs Houston created in the recovery and expansion was revised
upward for December ’14 but slipped in January due to seasonal factors. Houston has
created 445,400 jobs since the bottom of the recession―nearly three for every one
lost.
The revisions also show that local employment growth in ’12 and ’13 was stronger than
originally reported.
Revisions to Metro Houston Payroll Employment Growth Year Original Estimate Revised Estimate Net Change ’12 115,400 118,500 +3,100 ’13 76,200 89,900 +13,700 ’14 120,600 104,700 -15,900
Source: Texas Workforce Commission
TWC places total nonfarm payroll employment at 2,946,500 in January ’15. If the region
experiences moderate growth in coming months, Houston could approach 3.0 million
jobs by the end of the year.
The Recent Past — The benchmark revisions provide a clearer picture of employment in
’14. The construction, wholesale, retail, and administrative support sectors performed bet-
ter than previously reported; energy, manufacturing, health care, engineering, air transpor-
tation and clothing stores performed worse.
A handful of sectors accounted for half of all jobs
created—construction (16,700), professional and
business services (15,600), restaurants (13,100),
health care (10,400), wholesale (8,200) and retail
(6,100). Construction benefited from the $8.7 bil-
lion in permits the City of Houston issued in ’14
and the tens of billons in chemical plant construc-
tion occurring in the region. Growth in population,
income and consumer confidence drove wholesale,
retail, health care and restaurant employment. The
expansion of the energy sector supported job gains
in professional services.
A handful of industries reported job losses of 2.0 percent or more—clothing stores (-5.6
percent), computer manufacturing (-3.8 percent), information (-3.6 percent), air transporta-
tion (-3.3 percent), and credit intermediation (-2.2 percent). Most of the losses resulted
from ongoing restructuring in their sectors.
2 Though mining and logging was revised downward, the sector still added 7,900 jobs in ’14, the third best year in the past ten.
Significant Revisions by Sector Upward Revisions Jobs Wholesale Trade +15,000 Administration Support Service +14,900 Retail Trade +5,400 Construction +5,000 Downward Revisions Jobs Manufacturing -5,100 Health Care -4,900 Architecture & Engineering -3,400 Mining and Logging2 -3,100 Air Transportation -2,900 Clothing Stores -2,200 Source: Texas Workforce Commission
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
A publication of the Greater Houston Partnership Volume 24 Number 1 • January 2015
Here We Go Again — For the third time in as many decades, Houston faces a period of low oil prices and high economic uncertainty. The first episode occurred in the mid-’80s when Saudi Arabia flooded the world with crude, thus driving down prices. The second episode coincided with the Great Recession. Energy demand fell, taking oil prices with it. The most recent drop began in mid-’14 and traces its roots to U.S. overproduction, weak global growth, and the Saudis deciding to put a greater priority on market share than price. On June 23, 2014, West Texas Intermediate (WTI) traded at $107.95 per bar-rel. At market open on January 13, 2015, the price had fallen to $44.91.
When will prices re-bound? The consen-sus is that they won’t recover this year. Per-haps in ’16, if two events transpire—cur-rent low oil prices drive a significant a-mount of production from the market and global economic growth heats up, stimulating demand for energy. Given the weakness of the European and Asian economies, the restructuring of the Chi-nese economy, and slower growth in Latin America, production cutbacks are likely to play a larger role in boosting oil prices. How low will oil prices fall before they recover? That’s anyone’s guess. However, the NYMEX futures strip suggests that WTI will trade between $46 and $54 through the end of the year.1 CitiGroup expects WTI to average in the mid-$50s much of the year. BNP Paribas forecasts WTI to average $55 for the year. The Saudi oil minister, however, has said OPEC will not cut production to prop up prices, even if oil falls to $20 per barrel. Will Houston see a repeat of the ’80s? Not likely. The region’s economy has matured since then. Factors that exacerbated the ’80s collapse are not present today. And there’s enough impetus from other sectors to support growth, albeit at a much slower pace than
1 NYMEX stands for New York Mercantile Exchange, the commodity futures market where fuels, metals and agricultural products are traded.
SPOT PRICES WEST TEXAS INTERMEDIATE, $/BBL
Event Oil Peak Oil Trough % Change
‘80s Recession
Aug ’80 $39.50 Mar ’86 $11.98 69.9
Great Recession Jul ’08 145.31 Dec ’08 30.28 79.2
Current Downturn Jun ’14 107.95 Jan ’15 44.91* 58.4
* Not the trough but the price as of 8 a.m. January 13 Source: U.S. Energy Information Administration
in recent years. Houston’s economy this year and next will probably look more like a melding of ’04 and ’05, when oil traded at $40 to $60 a barrel and the region still found a way to add 57,000 jobs. The heady growth of ’12, ’13 and ’14 is behind us for now. Then vs. Now — The differences between Houston today and in the ’80s were discussed in the November’ 14 issue of Glance, but they’re worth revisiting here. Office and housing are not overbuilt, banking is better regulated and better capitalized, and Houstonians with memories of the ’80s knew high oil prices wouldn’t last forever and planned accordingly. A few examples of the differences:
• From ’82 to ’86, developers built more than 100,000 single-family homes, most on “spec,” i.e., without a signed contract from a purchaser. And they continued to build homes while the region lost more than 200,000 jobs. Today, few homes are built on spec, the resale market has half the inventory needed to meet demand, and the region is still creating jobs, just not in energy.
• In the early ’80s, developers added more than 71.7 million square feet of office space at the same time companies were laying off staff and declaring bankruptcy. The office market is much tighter now. JLL reports only 16.2 million square feet under construction at the end of ’14, of which 56.0 percent is preleased. Overall vacancy rates may rise from 14.6 percent (Q4/14), but they won’t approach any-where near the 30.0 percent rate of July ’87.
• In the mid-’80s, many Texas banks made questionable real estate and energy loans that quickly turned sour and led to the institutions’ demise. Texas banks are now part of the banking networks of JP Morgan Chase, Wells Fargo, Bank of America, Comerica and BB&T, thus providing a larger cushion for any nonperforming loans that may emerge. The banks are also more closely supervised now than they were in the ’80s, and thus less likely to overstretch on loan commitments.
• In the ’80s, corporate functions included champagne and caviar. Businessmen crossed town via helicopter. “Drive 90 and freeze a Yankee” appeared on bumper stickers around town. Oilman Eddie Chiles appeared on television shouting, “If you don’t have an oil well, get one.” The world saw John Travolta in Urban Cow-boy as the image of the typical Houstonian. Many of today’s business leaders be-gan their careers in the ’80s, remembered the excesses, and didn’t let things get out of hand during the recent boom. The image Houston now projects to the world is the work ethic of J.J. Watt and the humility of Craig Biggio.
That’s not to say Houston won’t face challenges in the coming months. Even if crude stabilizes at $50 a barrel, energy companies will face severe restrictions on cash flow. Exploration budgets have already been slashed, sources of outside capital are drying up,
Additional insights into the drop in oil prices and the impact on Houston can be found in the
Partnership’s 2015 Employment Forecast available on the econ-omy tab at www.houston.org/
banks are starting to audit reserves, orders for oil field equipment have fallen off, and service companies have begun quietly handing out pink slips. Don’t expect to see a flood of press releases announcing the layoffs. One’s more likely to hear of them at the soccer field, in the checkout line, or on the church parking lot before the trend appears in the data reported by the Texas Workforce Commission. As of early January, more than 40 energy companies have released their exploration budgets for ’15, according to Tudor Pickering Holt. Overall, spending will be down ap-proximately 40 percent from last year. Exploration firms are trying to stretch those budgets by demanding price concessions from service firms. The requested cuts range from 10 to 50 percent, reports Tudor Pickering Holt. Agreeing to the cuts will compress margins for some firms and result in outright losses for others. A few will accept short-term losses, hoping to keep crews together until oil prices rebound and margins improve, but most are likely to release their crews, hoping to rehire them later. A drop of 40 percent in exploration spending suggests 9,000 to 12,000 fewer wells will be drilled this year than last. Fewer new wells will lead to slower production growth and eventually an outright decline in crude output. The recent surge in U.S. production comes from oil shale formations tapped by horizontal drilling and hydraulic fracturing. Seventy percent of their production occurs in the first year, so any slowdown in U.S. drilling will impact the global oil glut. It’s not just U.S. production that’s under pressure, but high-cost production throughout the world. Production in Canada (oil sands) and Russia (older fields) is thought to be especially vulnerable. With exploration tapering off, Houston will need to look to other sectors for growth.
• The U.S. economy should expand at 4.0 percent or better this year. Houston’s economy benefits whenever U.S. economic growth exceeds 3.0 percent.
• Dodge Data & Analytics reports that $28.7 billion in construction contracts was awarded in the metro area in the first 11 months of ’14, more than double the con-tract value awarded during the same period the previous year. Much of that work is concentrated in chemicals plants along the Houston Ship Channel, across Gal-veston Bay, and in Brazoria County. This should continue to provide opportunities for blue collar workers.
• Houston’s expanding population (via births and relocations) and aging population (via baby boomers) continues to drive the need for health care.
The Partnership’s employment forecast calls for growth in all sectors except oil field services, oil field equipment manufacturing, and oil field exploration. Losses may be a bit steeper in energy (a net loss of 9,200 jobs), and growth may be a bit slower (net gain of 62,900 total jobs) than originally forecast, but the Partnership still expects to see em-ployment growth in ’15―just not at the pace of recent years.
Employment Update — The Houston-Sugar Land-Baytown metro area led the state in employment growth, creating 125,300 jobs in the 12 months ending November, according to the Texas Workforce Commission (TWC). The Dallas-Fort Worth-Arlington metro ranked second, adding 111,500 jobs, followed by San Antonio-New Braunfels with 29,100 jobs, Austin-Round Rock-San Marcos with 28,600 jobs, and McAllen-Edinburg-Mission with 7,200 jobs. Since the bottom of the recession, the Houston metro area has added 480,200 net new jobs, or more than three times the 153,800 jobs lost during the recession. With the November employment report, Houston reached a milestone, surpassing 2.95 million jobs.
Houston's November unemployment rate was 4.5 percent, down from 4.7 percent in Octo-ber and 5.7 percent in November ’13. Texas’ unemployment rate was 4.6 percent in No-vember, down from 4.8 percent in October and 5.8 percent in November ’13. The U.S. rate was 5.5 percent in November, unchanged from October and down from 6.6 percent in November ’13. The rates are not seasonally adjusted.
SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
3,000
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Jobs (Thousands)
Source: Texas Workforce Commission
Total Nonfarm Payroll Employment Houston Metro Area
Building Permits — Construction permitting in the City of Houston totaled $8.7 billion for the 12 months ending November ’14, a 47.7 percent increase from the $5.9 billion is-sued during the same period in ’13. For the 12 months ending November, residential permit values rose 42.9 percent―from $2.1 billion to $3.1 billion. Nonresidential permits grew from $3.7 billion to $5.6 billion, a 50.4 percent increase. Inflation — The cost of consumer goods and services, as measured by the Consumer Price Index for All Urban Consumers, increased 1.3 percent nationwide from November ’13 to November ’14, according to the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) rose 1.7 percent over the 12 months. Home Sales — Houston-area realtors remained busy through the fall, selling 6,639 sin-gle-family homes in October, a 12.3 percent increase from the 5,912 sold October ’13. The Houston Association of REALTORS® (HAR) reports that home prices reached rec-ord highs for an October. The average price of a single family home rose 9.8 percent year over year to $262,013, and the median price of a single family home increased 8.3 per-cent to $192,000. Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short-term leading indicator for regional production, registered 51.5 in December, down from 54.3 in November, according to the latest report from the Institute for Supply Man-agement-Houston. The December PMI is the lowest reading for Houston production since November ’09. Vehicle Sales — Houston-area auto dealers sold 27,693 vehicles in November, down 3.1 percent from November ’13, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. Vehicle sales fell for the second straight month, but produced the second highest November in the past 15 years. In the 12 months ending November ’14, 371,331 vehicles were sold in the Houston region, up 6.0 percent from the 350,454 sold during the prior 12 months.
Patrick Jankowski and Jenny Philip contributed to this issue of
To access past issues of Economy at a Glance, please click here. If you are a nonmember and would like to receive this electronic publication, please email your request for Economy at a Glance to [email protected]. Include your name, title and phone number and your company’s name and address. For information about joining the Greater Houston Partnership, call Member Services at 713-844-3683. The Key Economic Indicators table is updated whenever any data change — typically, 11 or so times per month. If you would like to receive these updates by e-mail, usually accompanied by commentary, please email your request for Key Economic Indicators to [email protected] with the same identifying information. You may request Glance and Indicators in the same email.
Houston Economic IndicatorsA Service of the Greater Houston Partnership
Most Year % Most Year %Month Recent Earlier Change Recent Earlier Change
ENERGYU.S. Active Rotary Rigs Dec '14 1,882 1,756 7.2 1,862 * 1,762 * 5.7Spot Crude Oil Price ($/bbl, West Texas Intermediate) Dec '14 60.23 97.07 -38.0 93.38 * 98.00 * -4.7Spot Natural Gas ($/MMBtu, Henry Hub) Dec '14 3.45 4.23 -18.4 4.31 * 3.71 * 16.2
UTILITIES AND PRODUCTIONHouston Purchasing Managers Index Dec '14 51.5 55.4 -7.0 56.5 * 58.4 * -3.3Nonresidential Electric Current Sales (Mwh, CNP Service Area) Nov '14 4,639,848 4,392,870 5.6 49,829,340 48,034,538 3.7
CONSTRUCTIONTotal Building Contracts ($, Houston MSA) Nov '14 1,562,009,000 965,565,000 61.8 28,675,379,000 11,546,460,000 148.3Nonresidential Nov '14 928,509,000 339,864,000 173.2 19,615,557,000 3,573,055,000 449.0Residential Nov '14 633,500,000 625,701,000 1.2 9,059,822,000 7,973,405,000 13.6Building Permits ($, City of Houston) Nov '14 557,555,813 376,587,045 48.1 8,045,099,536 5,517,636,311 45.8Nonresidential Nov '14 339,118,105 216,736,377 56.5 5,226,119,177 3,459,875,050 51.0New Nonresidential Nov '14 222,121,104 90,666,974 145.0 3,020,860,894 1,774,008,338 70.3Nonresidential Additions/Alterations/Conversions Nov '14 116,997,001 126,069,403 -7.2 2,205,258,283 1,685,866,712 30.8Residential Nov '14 218,437,708 159,850,668 36.7 2,818,980,359 2,057,761,261 37.0New Residential Nov '14 203,537,825 145,848,450 39.6 2,518,213,975 1,850,993,759 36.0Residential Additions/Alterations/Conversions Nov '14 14,899,883 14,002,218 6.4 300,766,384 206,767,502 45.5Multiple Listing Service (MLS) ActivityProperty Sales Oct '14 8,106 7,182 12.9 69,635 67,920 2.5Median Sales Price - SF Detached Oct '14 196,000 182,000 7.7 196,544 * 178,723 * 10.0Active Listings Oct '14 28,946 32,457 -10.8 28,759 * 32,787 * -12.3
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
GDP. If one assumes that fabricated metal products (e.g., pipes, valves, flanges) accounts
for another $7.0 billion,4 pipeline transportation for $4.0 billion5 and engineering services
for $10.0 billion,6 the share of Houston’s economy directly tied to energy exceeds $186.6
billion, or 38.1 percent of regional GDP. Bear in mind that this estimate is only as good as
its assumptions. Energy’s share of Houston GDP could be higher or lower. The estimates
do underscore energy’s dominance in Houston’s economy.
Ready for Your Close-Up, Houston? — Each September, the U.S. Census Bureau re-
leases the American Community Survey (ACS), an annual snapshot of the population’s
economic, demographic, housing and social characteristics.7 Comparing responses from
the ACS over time can provide insights into changes in the population. The Greater Hou-
ston Partnership has compared data from the ’09 and ’13 ACS for the nine-county Houston
metro area and noted the following:
Houston continues to diversify. Anglos now
represent a smaller share of Houston’s popula-
tion than they did in ’09, while Blacks, Asians
and Hispanics represent larger shares.
Labor force participation in Houston has fallen,
but not to the same extent as nationally. In ’09,
68.4 percent of Houstonians 16 and older were
in the labor force, i.e., employed or actively
looking for work. In ’13, Houston’s labor force
participation rate slipped to 67.3 percent. Given
the region’s robust job growth, the local decline
is more likely due to an aging population than disillusioned workers, who account for
much of the nationwide decline. In Houston, the population 62 and older rose by
132,000 over the four years.
Houstonians love their cars. In ’09, 78.8 percent of all workers drove to work alone
each day. In ’13, single-passenger commuters accounted for 79.7 percent of all work
trips. That figure equates to 211,000 more vehicles on the road last year than four years
earlier. Only 2.4 percent of Houstonians use public transit to get to work.
4 BEA estimated fabricated metal products’ contribution to Houston’s GDP at $6.6 billion in ’12 but did not provide an estimate
for ’13. 5 This is a conservative estimate based on fact that nationwide pipeline transportation is a $19.5 billion industry and Houston-
based firms control 44 percent of the nation’s oil pipeline capacity and 52 percent of the nation’s gas pipeline capacity. And
while certain firms in Houston may report revenues which greatly exceed GHP’s estimates, regional GDP is based on value add-
ed locally and thus pipelines’ share of GDP is a fraction of total reported revenues. 6 A very rough estimate based on architectural and engineering services accounting for 17.7 percent of business and professional
services employment and BEA estimating the sector contributed $59.0 billion to Houston’s GDP in ’13. 7 Information from the survey helps determine how more than $400 billion in federal and state funds are distributed each year.
RACIAL/ETHNIC PROFILE % of Metro Houston Population*
’09 ‘13
American Indian 0.2 0.2
Asian 6.0 6.9
Black 16.5 16.8
Hispanic 34.4 36.1
White 41.7 38.3
Other 1.2 1.7
Total % 100.0 100.0
’09 based on an estimated 5,865,086 residents. ’13 based on an estimated 6,313,158 area residents.
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
Subsectors with the fastest annual growth rates: building construction (13.6 percent),
engineering services (13.2 percent), and oil field services (9.2 percent).
High oil prices are supporting employment growth in exploration, oil field services, and
oil field equipment manufacturing. Expansion of chemical plants along the Texas Gulf
Coast now drives growth in construction, metal fabrication and energy services. Popula-
tion growth (fed by employment growth) is creating more retail, health care, restaurant,
building construction and local education jobs. Expansion of international trade is push-
ing growth in transportation and, to a lesser extent, wholesale trade.
July’s unemployment rate stood at 5.5 percent, a rate that might be the natural rate of un-
employment at the national level, and is probably close to the natural rate for Houston.3
Local unemployment rates are not seasonally adjusted, but the 5.5 percent is in the neigh-
borhood of July unemployment rates for ’05 through ’08, periods when Houston had a
healthy economy. Now that school has resumed and educators and students are back in
the classroom (and the educators no longer defined as unemployed), Houston may see
even lower unemployment rates. If the unemployment rate continues to fall, local em-
ployers will find it harder to fill open positions, putting additional upward pressure on lo-
cal wages.
At the current rate of growth, Houston should sur-
pass 2.9 million jobs in September, and if the econ-
omy continues along its current expansion path,
Houston should hit a milestone this time next year
and surpass 3.0 million jobs.
Another First Place Finish — In ’13, Houston led
the nation in exports for the second consecutive
year, according to data recently released by the
U.S. International Trade Administration. The re-
gion shipped nearly $115.0 billion in goods over-
seas, up 4.2 percent from $110.3 billion in ’12,
slightly ahead of New York and well ahead of Los
Angeles.
Over the past 10 years, Houston’s exports have
grown by more than $73 billion, the largest gain of
any U.S. metro area. Over that period, Houston has
risen from third to first place among the nation’s
exporting metros.
3 Economists define the natural rate of unemployment as the lowest level of unemployment at which inflation remains stable. This is
also sometimes referred to as the nonaccelerating inflation rate of unemployment, or NAIRU.
METRO EXPORTS – ’13
Metro Area $ Billions %
’13–’12 Houston 114.963 4.2 New York 106.923 4.5 Los Angeles 76.306 1.7 Seattle 56.686 12.7 Detroit 53.906 -2.7 Chicago 44.911 10.7 Miami 41.772 -12.7 New Orleans 30.031 23.3 Dallas-Ft. Worth 27.596 -0.8 San Francisco 25.305 9.9 Philadelphia 24.929 8.4 Minneapolis 23.747 -5.6 San Jose 23.413 -12.3 Boston 22.213 4.6 Cincinnati 20.976 5.1 San Antonio 19.288 37.7 Atlanta 18.828 3.6 San Diego 17.886 4.1 Portland 17.607 -13.4 Washington 16.225 11.1
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service
A publication of the Greater Houston Partnership Volume 23, Number 6 June 2014
Measuring Four Years of Growth — The Houston-Sugar Land-Baytown Metro Area
added nearly 10,000 firms, and wages paid to workers grew by more than $33.5 billion, since
the end of ’09. That’s the conclusion of GHP’s analysis of recently published data from the
Quarterly Census of
Employment and
Wages (QCEW). The
QCEW differs in sev-
eral ways from the
Current Employment
Statistics (CES) pro-
gram, which receives
broader coverage in
the media.
The Texas Workforce Commission (TWC) releases CES data monthly while the QCEW,
as its names implies, is released four times a year.
The CES counts only jobs. 1 The QCEW counts jobs, firms, and establishments, and re-
ports total wages and average weekly wages in each industry in a region.
CES data come from a national survey of more than 440,000 establishments. Houston is
a subset of that survey, and as such, it’s subject to sampling errors and frequently revised.
The QCEW comes from reports filed with state employment agencies, covers 99.7 per-
cent of all U.S. civilian employment, and is seldom revised.
In Houston, the CES covers about 75 industries, the QCEW covers more than 300.
GHP’s analysis of QCEW data for Q4/13, the most recent available, found the following:
More Houstonians (202,565) are employed in restaurants and eating places than in any
other industry in the region. That’s followed by elementary and secondary schools
1 The one exception is that the CES provides some detail for the broad durables and nondurables goods manufacturing sectors.
ECONOMIC SNAPSHOT – HOUSTON METRO AREA
Change, ’09 – ’13
Q4/09 Q4/13 # %
Total Employment 2,478,567 2,797,317 318,750 12.9
# Firms 105,895 115,726 9,831 9.3
# Establishments1 129,911 141,888 11,977 9.2
Total Salaries & Wages2 $136.211 $169.761 $33.550 19.8
Average Weekly Wage $1,133 $1,247 $114 9.1
1 A firm may have multiple establishments, e.g., branches of a bank, outlets for a store. 2 Billions Source: Quarterly Census of Employment & Wages, Texas Workforce Commission
If you are a nonmember and would like to receive this electronic publication on the first working day of each month, please email your request for Economy at a Glance to [email protected]. Include your name, title and phone number and your company’s name and address. For information about joining the Greater Houston Partnership and gaining access to this powerful resource, call Member Services at 713-844-3683. The Key Economic Indicators table is updated whenever any data change — typically, 11 or so times per month. If you would like to receive these updates by e-mail, usually accompanied by commentary, please email your request for Key Economic Indicators to [email protected] with the same identifying information. You may request Glance and Indicators in the same email.
Sources Rig Count Baker Hughes Incorporated Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Houston Purchasing Managers National Association of Index Purchasing Management – Houston, Inc. Electricity CenterPoint Energy Building Construction Contracts McGraw-Hill Construction City of Houston Building Permits Building Permit Department, City of Houston
MLS Data Houston Association of Realtors Employment, Unemployment Texas Workforce Commission
Port Shipments Port of Houston Authority Aviation Aviation Department, City of Houston Car and Truck Sales TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX Retail Sales Texas Comptroller’s Office Consumer Price Index U.S. Bureau of Labor Statistics Hotels PKF Consulting/HospitalityAsset Advisors International Postings, Foreclosures Foreclosure Information &Listing Service