The following article originally appeared in the September newsletter to clients of Kiley Advisors, LLC. Reprinted with permission.
In light of the unsettling alarmist headlines, prevalent in media these days, we wanted to offer some factual data about Houston and Texas. They come from a Federal Reserve conference on August 7th, a Houston Economics Club meeting on August 25th, and a Greater Houston Partnership Economic Advisory Panel on August 28th.
Both Houston and Texas are clearly affected by the drop in oil prices, instigated by slowing global demand. Houston, as the global energy capital, has been particularly hard-hit as job cuts move from the field to corporate head-quarters. The loss of these energy related jobs has impact now on office space, as projects are delayed or cancelled, but will also impact philanthropic-based construction and luxury sales as the average energy annual compensation previously reached $225,600, nearly four times the average non-energy compensation. These losses have caused Houston’s unemployment rate to reach 4.4%, now higher than Dallas/Fort Worth’s 3.9%; San Antonio’s, 4%, and Austin’s remarkable 3.3%. The overall rate for Texas is 4.4% and the US rate is 5.3%. Texas remains the place to be.
Job growth projections for Houston have been revised downward to a range of 0-1%, about 10-30,000 jobs. Projections for Dallas/Fort Worth are 2.1%; San Antonio 0.5-1.5%; Austin 4%(!); and Texas 0.5-1.5%. Population growth in Houston remains at about 100,000 people annually, maintaining the demand for homes, retail, and schools.
Oil prices could remain below $60/barrel (bbl) for quite a while. Global supply is still exceeding demand about 2 million bpd. Production continues to rise, despite the rig count dropping, because of technological improvements that increase efficiencies. Lift costs, the non-balance sheet expenditures, have dropped into the $30/bbl range.
World economies welcome low energy prices. The IMF projects lower oil prices will add 0.5% to Global GDP; 0.6% to the US GDP, adding cash flow of $700 per year/ household. Houston demonstrated in the 90’s that it can create jobs when energy prices are low. Between 1990 and 2000, Houston created 512,600 jobs, only 1,000 in the energy category, while oil prices averaged in the mid $20/bbl.
Health Care; K-12, Higher Education, and Light Industrial markets remain strong, playing catch-up from the ACA, population growth and/or anticipating the Port and chemical plant expansions. Hopefully these Houston and Texas facts calm and inspire.
