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Houston Business Cycle

Employment

Houston Economic Update

F E D E R A L R E S E R V E B A N K O F D A L L A S , H O U S T O N B R A N C H

Manufacturing

Federal Reserve Bank of Dallas, Houston Branch, 1801 Allen Parkway, Houston, TX 77019 For questions or information, email: jesse.thompson@dal.frb.org

 Nonfarm payroll employment grew atan annualized rate of 4 percent in No-vember to 2.63 million jobs. Through November, payroll employment grew3.1 percent. This brings the number of   jobs added since the trough of Hous-ton’s business cycle to 136,000— more than 113 percent of what waslost in the recession. The unemploy-ment rate fell to 7.8 percent in De-cember. Preliminary figures indicate adrop in both the number of unem- ployed and the size of the labor force.

The U.S. unemployment rate fell to8.5 percent in January. The Gulf CoastWorkforce Development Area’s initialclaims for unemployment insuranceclimbed 3.6 percent in October butremained in a decelerating downwardtrend.

Economic activity in the Houston metropolitan area, as measured by the Federal Reserve Bank of Dallas business-cycle index, grewat an annualized rate of 7 percent in November. This figure wasaccompanied by an upward revision of the October growth ratefrom 9.6 to 9.8 percent. Energy, chemicals and trade have continu-ally allowed the region to outperform the nation and even the state.Despite trouble from Europe and a slowly accelerating national re-covery, Houston for the most part left the Great Recession behindin 2011, and its outlook remains positive.

January 2012

Employment Changes

Trade, transport, utilities 3.1

Construction & mining – 3.7

Prof. & business services 8.2

Education & health services 6.0

Manufacturing 1.8

Financial activities 5.3

Leisure & hospitality 11.2

Government – 1.1

Other services 11.5

Information – 3.8

Figures are three-period-average

annualized monthly growth rates,

sorted by descending industry share

of total wages paid in first quarter 

2011. Data are from the Bureau of 

Labor Statistics, seasonally ad-

 justed by the Federal Reserve Bank 

of Dallas. 

The Houston purchasing managers index (PMI) has a strong posi-tive correlation to month- and quarter-ahead employment growthin the region. Manufacturing employment averaged 5.2 percentannualized monthly growth through November. Machinery, fabri-cated metal products and mining machinery manufacturing haveled that growth the past several months. The PMI for Houstongrew to 61.6 in November. The November reading for the U.S.improved to 52.7, and the December reading was 53.9. Nationally,manufacturing capacity utilization has returned to a rate near, but below, its long-run average.

2,400

2,450

2,500

2,550

2,600

2,650

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

Thousands Houston Nonfarm Employment*

* Seasonally adjusted.

SOURCE: Bureau of Labor Statistics.

240

250

260

270

280

290

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

Houston Business-Cycle Index*

*Houston metropolitan area; October 1980 = 100.

SOURCE: Federal Reserve Bank of Dallas.

30

40

50

60

70

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

Index Purchasing Managers Index*

Houston 61.6

U.S. 53.9

*Scores above 50 indicate growth.

SOURCE: Institute for Supply Management.

0

2

4

6

8

1012

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

Percent U.S. and Houston Unemployment Rate*

U.S. 8.5

Houston 7.8

*Seasonally adjusted.

SOURCE: Bureau of Labor Statistics.

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Downstream

Upstream

Page 2 Houston Economic Update

Federal Reserve Bank of Dallas, Houston Branch, 1801 Allen Parkway, Houston, TX 77019 For questions or information, email: jesse.thompson@dal.frb.org

Real Estate

Forecasts: U.S. economy expected to improve slightly in 2012. Emerging economies to continue outperforming the developed world.

The Federal Reserve Bank of Dallas forecasts employment growth in Texas to end 2011 at 2 percent. The same is expected for 2012.

December Blue Chip Economic Consensus Forecasts of 2011 growth were 9.1 percent for China, 3.6 percent for Mexico, 3.3 percent for Brazil and 1.6 percentfor the euro zone.

While there are some expectations for acceleration — for example, in the U.S., Brazil and Japan (a nation whose growth in 2011 suffered due to the earthquakeand tsunami) — multiple forecasters report a likely slowdown for most of the world in 2012.

The average daily price of West Texas Intermediate in De-cember increased to $98.57, in part on continued elevatedinventories in Cushing, Okla. Brent and Louisiana Sweet both declined slightly in price. The Henry Hub average spot

  price of natural gas was $3.16, making WTI nearly 5.4times as expensive as gas on an energy-equivalent basis.The December weekly U.S. rig count peaked at 2,019 butended the month at 2,007. Oil now makes up nearly 60 per-cent of U.S. rig activity. Natural gas (methane) associatedwith the extraction of oil and gas-liquids from both tradi-tional and shale plays continues to swell inventories in spiteof low prices. Oil and gas producers and oil and gas ser-vices will likely continue to be strong sources of employ-ment growth in the Houston metropolitan area.

The growth rate of monthly existing-home sales, averagedover the last three months and seasonally adjusted, declined2 percent in November. New single-family home sales and

housing starts still haven’t convincingly shown a positivegrowth trend on a seasonally adjusted basis, and seasonallyadjusted permits for new private housing declined in  November, possibly breaking a nascent upward trend.Uncertainty in the single-family home market may becontributing to continued strong activity in multifamily

construction and persistently high multifamily occupancyrates. The supply of housing inventory fell to 6.5 months inHouston. The real estate industry remains a drag on theregion, but the outlook is improved for the year ahead.

The margins of refiners and petrochemical companies re-mained near their long-run averages in November after re-cent declines, due in part to favorable export markets.Gasoline and diesel prices in December averaged $3.33 and$3.86, respectively. U.S. consumption of gasoline and other refined petroleum products remained weak. Weekly exportsof refined petroleum products held near November’s recordhigh of 2,558 thousand barrels per day. The Gulf pipeline-delivered spot price index for ethylene, a main precursor of   petrochemical products, closed December up at $53.50.The chemicals industrial capacity utilization rate continuesto oscillate near its long-run average.

0

500

1,000

1,500

2,000

2,500

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

NumberU.S. Rotary Rig Count

Gas-directed rigs

Oil-directed rigs

SOURCE: Baker Hughes

0

10

20

30

40

50

60

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

Values Gulf Coast Downstream Margins

Ethylene cash margins*

Pace refining margins: Gulf Coast**

*Based on ethane feedstock (cents/lbs). **Based on West Texas Sour -RFG ($/barrel).

SOURCE: Oil and Gas Journal.

01

2

3

4

5

6

7

8

130

135

140

145

150

155

160

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

SalesPrice Median Home Price and Home Sales*

Median price Sales

*Seasonally adjusted. Units are in thousands.

SOURCE: Houston Association of Realtors.