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 barrel. At market open on January 13, 2015, the price had fallen to $44.91.
When will prices reSPOT PRICES WEST TEXAS INTERMEDIATE, $/BBL
bound? The consenEvent
Oil Peak
Oil Trough
% Change
sus is that they wont
80s Recession
Aug 80
$39.50
Mar 86
$11.98
69.9
recover this year.
Perhaps in 16, if two
Great Recession
Jul 08
145.31
Dec 08
30.28
79.2
events
transpire
Current Downturn
Jun 14
107.95
Jan 15
44.91*
58.4
current low oil prices
drive a significant a- * Not the trough but the price as of 8 a.m. January 13
Source: U.S. Energy Information Administration
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 Chinese 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? Thats anyones 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 regions economy has matured
since then. Factors that exacerbated the 80s collapse are not present today. And theres
1

NYMEX stands for New York Mercantile Exchange, the commodity futures market where fuels, metals and agricultural products are
traded.

January 2015

2015, Greater Houston Partnership

Page 1

enough impetus from other sectors to support growth, albeit at a much slower pace than
in recent years. Houstons 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 theyre 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 wouldnt last forever and
planned accordingly. A few examples of the differences:

Additional insights into the drop

in oil prices and the impact on
Houston can be found in the
Partnerships 2015 Employment
Forecast available on the economy tab at www.houston.org/

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 wont approach anywhere 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 dont have an oil well, get one. The world saw John Travolta in Urban Cowboy as the image of the typical Houstonian. Many of todays business leaders began their careers in the 80s, remembered the excesses, and didnt 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.

Thats not to say Houston wont face challenges in the coming months. Even if crude
stabilizes at $50 a barrel, energy companies will face severe restrictions on cash flow.
January 2015

2015, Greater Houston Partnership

Page 2

Exploration budgets have already been slashed, sources of outside capital are drying up,
banks are starting to audit reserves, orders for oil field equipment have fallen off, and
service companies have begun quietly handing out pink slips. Dont expect to see a flood
of press releases announcing the layoffs. Ones 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 approximately 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 shortterm 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. Its not just U.S. production thats 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. Houstons
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 contract value awarded during the same period the previous year. Much of that work
is concentrated in chemicals plants along the Houston Ship Channel, across Galveston Bay, and in Brazoria County. This should continue to provide opportunities
for blue collar workers.

Houstons expanding population (via births and relocations) and aging population
(via baby boomers) continues to drive the need for health care.

The Partnerships 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

January 2015

2015, Greater Houston Partnership

Page 3

of 62,900 total jobs) than originally forecast, but the Partnership still expects to see employment growth in 15just not at the pace of recent years.
Employment Update The Houston-Sugar Land-Baytown
metro area led the state in employment growth, creating
Follow me on
125,300 jobs in the 12 months ending November, according
Twitter @PNJankowski
to the Texas Workforce Commission (TWC). The Dallas-Fort
Subscribe to my blog
Worth-Arlington metro ranked second, adding 111,500 jobs,
The Glass Half Full
followed by San Antonio-New Braunfels with 29,100 jobs,
also posted at
Austin-Round Rock-San Marcos with 28,600 jobs, and www.houston.org/economy
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 October and 5.7 percent in November 13. Texas unemployment rate was 4.6 percent in November, 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.
Total Nonfarm Payroll Employment
Houston Metro Area

Jobs
(Thousands)
3,000

2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

Source: Texas Workforce Commission

January 2015

2015, Greater Houston Partnership

Page 4

SNAPSHOT HOUSTONS KEY ECONOMIC INDICATORS

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 issued during the same period in 13. For the 12 months ending November, residential
permit values rose 42.9 percentfrom $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 single-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 record 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 percent 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 Management-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 Jankow ski and Jenny Philip
contributed to this issue of
Houston: The Economy at a Glance

January 2015

2015, Greater Houston Partnership

Page 5

STAY UP TO DATE!

To access past issues of Economy at a Glance, please click here.

If you are a nonmember and w ould like to receive this electronic publication, please email your
request for Economy at a Glance to echambers@houston.org. Include your name, title and phone
number and your companys 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 w ould like to
receive these updates by e-mail, usually accompanied by commentary,
please email your request for Key Economic Indicators to
echambers@houston.org w ith the same identifying information. You
may request Glance and Indicators in the same email.

January 2015

2015, Greater Houston Partnership

Follow me on
Twitter @PNJankowski
Subscribe to my blog
The Glass Half Full
also posted at
www.houston.org/economy

Page 6

HOUSTONTHE ECONOMY AT A GLANCE

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000)

Change from
Oct '14
Nov '13

% Change from
Oct '14
Nov '13

Nov '14

Oct '14

Nov '13

2,955.9
2,565.6
584.3
2,371.6
1,981.3

2,939.7
2,551.8
586.5
2,353.2
1,965.3

2,830.6
2,449.6
550.4
2,280.2
1,899.2

16.2
13.8
-2.2
18.4
16.0

125.3
116.0
33.9
91.4
82.1

0.6
0.5
-0.4
0.8
0.8

4.4
4.7
6.2
4.0
4.3

Mining and Logging

Oil & Gas Extraction
Support Activities for Mining

117.0
63.4
53.5

117.7
63.2
53.9

106.9
59.2
47.0

-0.7
0.2
-0.4

10.1
4.2
6.5

-0.6
0.3
-0.7

9.4
7.1
13.8

Construction

205.4

206.1

189.2

-0.7

16.2

-0.3

8.6

Manufacturing
Durable Goods Manufacturing
Nondurable Goods Manufacturing

261.9
173.2
88.7

262.7
174.6
88.1

254.3
171.9
82.4

-0.8
-1.4
0.6

7.6
1.3
6.3

-0.3
-0.8
0.7

3.0
0.8
7.6

Wholesale Trade

155.7

156.6

154.4

-0.9

1.3

-0.6

0.8

Retail Trade

300.2

292.3

293.7

7.9

6.5

2.7

2.2

Transportation, Warehousing and Utilities

Utilities
Air Transportation
Truck Transportation
Pipeline Transportation

142.5
16.6
23.3
25.1
9.9

139.3
16.4
23.3
25.1
9.8

132.8
16.0
23.3
24.0
9.5

3.2
0.2
0.0
0.0
0.1

9.7
0.6
0.0
1.1
0.4

2.3
1.2
0.0
0.0
1.0

7.3
3.8
0.0
4.6
4.2

Information
Telecommunications

33.8
15.2

33.3
15.1

32.6
14.9

0.5
0.1

1.2
0.3

1.5
0.7

3.7
2.0

Finance & Insurance

92.0

92.9

89.8

-0.9

2.2

-1.0

2.4

Real Estate & Rental and Leasing

54.0

54.9

52.3

-0.9

1.7

-1.6

3.3

449.0
222.8
24.2
21.0
80.7
32.8
201.0
189.5
80.7

447.7
221.8
24.2
20.9
79.7
32.4
200.9
188.9
80.7

431.8
205.0
23.9
20.5
70.1
30.3
202.5
191.8
74.6

1.3
1.0
0.0
0.1
1.0
0.4
0.1
0.6
0.0

17.2
17.8
0.3
0.5
10.6
2.5
-1.5
-2.3
6.1

0.3
0.5
0.0
0.5
1.3
1.2
0.0
0.3
0.0

4.0
8.7
1.3
2.4
15.1
8.3
-0.7
-1.2
8.2

53.5

53.4

50.9

0.1

2.6

0.2

5.1

Health Care & Social Assistance

311.3

310.6

287.7

0.7

23.6

0.2

8.2

Arts, Entertainment & Recreation

29.1

29.4

28.0

-0.3

1.1

-1.0

3.9

Accommodation & Food Services

257.2

252.0

245.2

5.2

12.0

2.1

4.9

Other Services

103.0

102.9

100.0

0.1

3.0

0.1

3.0

Government
Federal Government
State Government
State Government Educational Services
Local Government
Local Government Educational Services

390.3
27.7
73.7
40.0
288.9
203.8

387.9
27.3
73.6
39.8
287.0
201.8

381.0
27.3
73.4
39.8
280.3
196.9

2.4
0.4
0.1
0.2
1.9
2.0

9.3
0.4
0.3
0.2
8.6
6.9

0.6
1.5
0.1
0.5
0.7
1.0

2.4
1.5
0.4
0.5
3.1
3.5

Total Nonfarm Payroll Jobs

Total Private
Goods Producing
Service Providing
Private Service Providing

Professional & Business Services

Professional, Scientific & Technical Services
Legal Services
Accounting, Tax Preparation, Bookkeeping
Architectural, Engineering & Related Services
Computer Systems Design & Related Services
Admin & Support/Waste Mgt & Remediation
Administrative & Support Services
Employment Services
Educational Services

SOURCE: Texas Workforce Commission

January 2015

2015, Greater Houston Partnership

Page 7

HOUSTONTHE ECONOMY AT A GLANCE

Houston Economic Indicators
A Service of the Greater Houston Partnership

YEAR-TO-DATE TOTAL or
YTD AVERAGE*

MONTHLY DATA
Month

Most
Recent

ENERGY
U.S. Active Rotary Rigs
Spot Crude Oil Price ($/bbl, West Texas Intermediate)
Spot Natural Gas ($/MMBtu, Henry Hub)

Dec '14
Dec '14
Dec '14

1,882
60.23
3.45

1,756
97.07
4.23

7.2
-38.0
-18.4

1,862 *
93.38 *
4.31 *

1,762 *
98.00 *
3.71 *

5.7
-4.7
16.2

UTILITIES AND PRODUCTION

Houston Purchasing Managers Index
Nonresidential Electric Current Sales (Mwh, CNP Service Area)

Dec '14
Nov '14

51.5
4,639,848

55.4
4,392,870

-7.0
5.6

56.5 *
49,829,340

58.4 *
48,034,538

-3.3
3.7

Nov '14
Nov '14
Nov '14
Nov '14
Nov '14
Nov '14
Nov '14
Nov '14
Nov '14
Nov '14

1,562,009,000
928,509,000
633,500,000
557,555,813
339,118,105
222,121,104
116,997,001
218,437,708
203,537,825
14,899,883

965,565,000
339,864,000
625,701,000
376,587,045
216,736,377
90,666,974
126,069,403
159,850,668
145,848,450
14,002,218

61.8
173.2
1.2
48.1
56.5
145.0
-7.2
36.7
39.6
6.4

Oct '14
Oct '14
Oct '14

8,106
196,000
28,946

7,182
182,000
32,457

12.9
7.7
-10.8

Nov '14
Nov '14
Nov '14

2,955,900
584,300
2,371,600

2,830,600
550,400
2,280,200

4.4
6.2
4.0

Nov '14
Nov '14
Nov '14

4.5
4.6
5.5

5.7
5.8
6.6

Oct '14
Oct '14
Oct '14
Oct '14
Oct '14
Oct '14
Oct '14
Oct '14

3,937,011
4,464,317
3,764,899
699,418
71,482
42,810
23,424
19,386

3,726,758
4,206,141
3,542,097
664,044
68,236
36,842
19,347
17,495

5.6
6.1
6.3
5.3
4.8
16.2
21.1
10.8

39,197,949
44,255,514
36,035,518
8,219,996
682,547
365,823
193,329
172,494

37,552,953
42,273,901
34,791,694
7,482,207
671,626
344,350
183,285
161,065

4.4
4.7
3.6
9.9
1.6
6.2
5.5
7.1

Nov '14
Nov '14
Nov '14
2Q14

27,693
10,916
16,777
29,665

28,569
12,239
16,330
29,545

-3.1
-10.8
2.7
0.4

348,470
149,891
198,579
57,177

324,998
144,041
180,957
55,326

7.2
4.1
9.7
3.3

Nov '14
Nov '14

214.8
236.151

207.8
233.069

3.4
1.3

213.500 *
236.911 *

207.200 *
232.949 *

3.0
1.7

2Q14
2Q14
2Q14

74.7
111.81
83.52

71.9
104.65
75.25

6.8
11.0

74.0 *
109.49 *
81.05 *

71.2 *
102.55 *
73.00 *

6.8
11.0

CONSTRUCTION
Total Building Contracts ($, Houston MSA)
Nonresidential
Residential
Building Permits ($, City of Houston)
Nonresidential
New Nonresidential
Nonresidential Additions/Alterations/Conversions
Residential
New Residential
Residential Additions/Alterations/Conversions
Multiple Listing Service (MLS) Activity
Property Sales
Median Sales Price - SF Detached
Active Listings
EMPLOYMENT (Houston-Sugar Land-Baytown MSA)
Nonfarm Payroll Employment
Goods Producing (Natural Resources/Mining/Const/Mfg)
Service Providing
Unemployment Rate (%) - Not Seasonally Adjusted
Houston-Sugar Land-Baytown MSA
Texas
U.S.
TRANSPORTATION
Port of Houston Authority Shipments (Short Tons)
Air Passengers (Houston Airport System)
Domestic Passengers
International Passengers
Landings and Takeoffs
Air Freight (metric tons)
Enplaned
Deplaned
CONSUMERS
New Car and Truck Sales (Units, Houston MSA)
Cars
Trucks, SUVs and Commercials
Total Retail Sales ($000,000, Houston MSA, NAICS Basis)
Consumer Price Index for All Urban Consumers ('82-'84=100)
Houston-Galveston-Brazoria CMSA
United States
Hotel Performance (Houston MSA)
Occupancy (%)
Average Room Rate ($)
Revenue Per Available Room ($)

January 2015

Year
%
Earlier Change

2015, Greater Houston Partnership

Most
Recent

28,675,379,000
19,615,557,000
9,059,822,000
8,045,099,536
5,226,119,177
3,020,860,894
2,205,258,283
2,818,980,359
2,518,213,975
300,766,384
69,635
196,544 *
28,759 *
2,884,836 *
571,491 0
2,313,345 0
5.1 *
5.3 *
6.2 *

Year
Earlier

%
Change

11,546,460,000
3,573,055,000
7,973,405,000
5,517,636,311
3,459,875,050
1,774,008,338
1,685,866,712
2,057,761,261
1,850,993,759
206,767,502

148.3
449.0
13.6
45.8
51.0
70.3
30.8
37.0
36.0
45.5

67,920
178,723 *
32,787 *

2.5
10.0
-12.3

2,783,700 *
546,773 *
2,236,927 *

3.6
4.5
3.4

6.2 *
6.4 *
7.5 *

Page 8

HOUSTONTHE ECONOMY AT A GLANCE

Sources
Rig Count
Spot WTI, Spot Natural Gas
Houston Purchasing Managers
Index
Electricity
Building Construction Contracts
City of Houston Building Permits
MLS Data
Employment, Unemployment

January 2015

Baker Hughes Incorporated

U.S. Energy Information Admin.
National Association of
Purchasing Management
Houston, Inc.
CenterPoint Energy
McGraw-Hill Construction
Building Permit Department,
City of Houston
Houston Association of Realtors
Texas Workforce Commission

Port Shipments
Aviation
Car and Truck Sales
Retail Sales
Consumer Price Index
Hotels
Postings, Foreclosures

2015, Greater Houston Partnership

Port of Houston Authority

Aviation Department, City of
Houston
TexAuto Facts Report, InfoNation, Inc.,
Sugar Land TX
Texas Comptrollers Office
U.S. Bureau of Labor Statistics
PKF Consulting/HospitalityAsset
Advisors International
Foreclosure Information &Listing
Service

Page 9

HOUSTONTHE ECONOMY AT A GLANCE

3,000

150

2,900

120

2,800

90

2,700

60

2,600

30

2,500

2,400

-30

2,300

-60

2,200

-90

2,100

-120

2,000

-150
'04

'05

'06

'07

'08

'09

'10

12-Month Change

'11

'12

'13

'14

12-Month Change (000)

Nonfarm Payroll Employment (000)

Nonfarm Payroll Employment, Houston MSA

'15

Total Payroll Employment

Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment

Houston MSA
2,400

2,300

580

2,200
540
2,100
500
2,000
460

Service-Providing Jobs (000s)

Goods-Producing Jobs (000s)

620

1,900

420

1,800

'04

'05

'06

'07

'08

'09

Goods-Producing Jobs

'10

'11

'12

'13

'14

'15

Service-Providing Jobs

Source: Texas Workforce Commission

January 2015

2015, Greater Houston Partnership

Page 10

HOUSTONTHE ECONOMY AT A GLANCE

Unemployment Rate - Houston, Texas and U.S.
11
10

% Civilian Labor Force

9
8
7
6
5
4
3
'05

'06

'07

'08

'09

'10

Houston

'11

'12

Texas

'13

'14

'15

U.S.

Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices

160

16

140

14

120

12

100

10

80

60

40

20

Natural Gas, $ /mcf

WTI, $ barrel

Monthly Averages

0
'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

WTI
Natural Gas
Source: U.S. Energy Information Administration

January 2015

2015, Greater Houston Partnership

Page 11