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Houston’s Monthly Metrics: December 2016

The following article originally appeared in the December 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.

On November 10th, in front of thousands of attendees, Dr. Bill Gilmer, Director of the Institute for Regional Forecasting at the University of Houston, laid out his forecast for Houston in 2017. After recognizing the bumpy and considerably steep decline in the energy sector, Dr. Gilmer remained optimistic about Houston’s economy overall, feeling that the worst is likely in the rear view mirror and that Houston will begin to recover in 2017.

Dr. Gilmer outlined a series of scenarios, largely dependent on when the energy sector will rebound, with the weighted average being a loss of approximately 22,000 job growth in 2016, 4,500 jobs added in 2017 and then ramping up to 74,800 jobs in 2018 and 85,100 in 2019. Whether Houston will truly end up with negative job growth in 2016 is still a bit of a guessing game. Historically, Houston has always added jobs in the fourth quarter (holiday hiring) and expected upward revisions could actually show Houston was flat in 2016 – which would be welcomed given the declines experienced in the oil and gas market.

The Institute for Supply Management’s Purchasing Managers Index for October showed the first expansion measurement since December 2014, signaling that the survey respondents feel the worst is behind them as well. Centerpoint Energy continues to post strong growth numbers and Metrostudy has revised their 2016 new home starts figure up to 25,500, with 26,250 expected next year and 28,500 new home starts in 2018; a steady increase.

Apartment Data Services continues to report overbuilding, with approximately 15,000 units still under construction and another 26,000 units in lease up, with negative absorption in Class B, C and D spaces. CBRE reports just over 2 msf of office space under construction, a far cry from the 17 msf under construction two years ago. However, four school construction bonds recently passed, totaling over $700M and light industrial and retail appear to be holding steady, while heavy industrial work is expected to taper off sharply next year. The construction industry tends to trail the overall Houston economy by about 18 months to two years. A flat forecast for Houston in 2016 and 2017 likely means construction will continue to decline, albeit at a slower pace, in 2017, before flattening out and beginning to strengthen.