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Houston’s Monthly Metrics: December 2017

The following article originally appeared in the December newsletter to clients of FMI Corporation, for the purpose of providing the latest leading indicators and industry issues to those clients.  Reprinted with permission.

While the worst still appears to be behind us, resulting in possibly the mildest recession Houston has ever experienced, the bathtub-shaped recovery that Patrick Jankowski, vice president of research at the Greater Houston Partnership, outlined a year ago continues to hold true. Jankowski characterized it as a wide bottom followed by a quick recovery. And the wide bottom persists.

Economist Dr. Bill Gilmer, who currently heads the Institute for Regional Forecasting at the University of Houston, recently presented his forecast for Houston’s economic future, and it echoes Jankowski’s sentiments that this long, slow recovery will continue, and the recovery timeline, according to Dr. Gilmer, will be heavily contingent on the future price of oil. Providing headwinds to Houston’s recovery are that most of the economic drivers that propped up our city for the past few years are now waning. The east Houston petrochemical boom has peaked and begun to decline. Oil and gas employment continues to flatline, and the market segments playing catch-up to our fast growth in the first half of the decade have now caught up. The only driver that remains is the U.S. economy’s strength.

So when can we expect oil prices to recover? Both Jankowski and Dr. Gilmer agree that $60 oil appears to be the “sweet spot” to get the economic engine humming again. And both agree that oil prices bottomed out last year and aren’t expected to drop back into the $20s again.

As for 2018, Gilmer gave three scenarios for job growth in Houston, each dependent on when oil prices were to rise. Those scenarios range from 20,000 jobs to nearly 70,000, with the most heavily weighted scenario seeing Houston add approximately 41,000 jobs next year, still below Houston’s long-term average, which Dr. Gilmer attributes, in part, to net migration numbers, which are lower as fewer people move to Houston for work. Drilling activity will dictate which scenario will play out, but all three scenarios show growth, which should be a confidence booster for Houstonians. Houston is recovering, but at a continued slow pace.

The construction industry lags the economy, suggesting another lean year or two for contractors while Houston finds its footing. The Super Bowl, Hurricane Harvey and the World Series all provided temporary boosts to our economy this year. Looking to 2018, the residential market should see some growth as developers have rerouted their efforts to the entry-level home, where a large amount of pent-up demand exists. Public work will continue to dominate the commercial projects. Voters recently approved over $2 billion in school bonds in the greater Houston area, giving districts the funds for much needed upgrades and repairs. Rumors surrounding medical work in 2018 are also being relayed.

If there are metrics or topics you would like FMI to include in upcoming newsletters, or if you would like to discuss any of the information contained herein in more detail, please contact FMI at 713-840-1775.