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Houston’s Monthly Metrics: April 2016

The following article originally appeared in the April newsletter to clients of Kiley Advisors, LLC for the purpose of providing the latest leading indicators and industry issues to those clients.  Reprinted with permission.

Local economists remain cautiously optimistic when discussing Houston’s future.  The revised employment numbers reduced Houston’s job growth in 2015 from 23,200 to 15,200 jobs.  The revisions included losses of 23,800 in manufacturing and 17,700 jobs in mining and logging, while construction gained 12,600 jobs – thanks, in large part, to the industrial work in East Houston.  The Census Bureau recently announced population growth of 160,000 from mid-2014 to mid-2015 in the Houston MSA, with a 12.4% growth in population from 2010 – 2015.  After January’s expected job losses – as retailers routinely shed holiday employees and others delay layoffs until after the holidays –the next few months could indicate the pace of employment for the remainder of 2016.  All would agree, Houston’s employment growth will be slower in 2016 than experienced the past five years, but nearly all still forecast growth.

In fact, the question of a Houston recession hinges on oil – when the bottom is reached, when stability is seen, and when prices eventually rise.  Jesse Thompson, Business Economist at the Houston Branch of the Federal Reserve Bank of Dallas, noted that it would likely be mid-2017 before supply/demand would support further drilling.  And recently at a Houston Economic Club luncheon, a chief economist at Wood Mackenzie, Ed Rawle, revealed their bullish prediction of $60 oil by the end of 2017.

CBRE is beginning to see the spread of oil’s impact into other arenas in Houston.  While sublease space may have crested at 10.1 msf in the office market, a dramatic rise in sublet space is now being seen in the light industrial sector, jumping to 3.5 msf in the first quarter, setting a record.  The rig count, now down more than 75% both nationally and in Texas, have left drillers only with the sweetest of spots to drill, and some of those may be cut too.  Baker Hughes has reportedly ended all 401(k) matches and Schlumberger has stopped all overtime work, both precautions to prevent further layoffs.

For construction, 2017 and 2018 are both shaping up to be particularly challenging.  City of Houston permits have already dropped compared to a year ago, the AIA Billings Index is relatively flat, while steel price increases are being announced by vendors.  The war for talent is not subsiding, and pressure on margins is intensifying.  Strap yourselves in for the bumpy ride ahead.