The Houston Economy

Jesse Thompson Regional Business Economist

The Federal Reserve Bank of Dallas, Houston Branch February 2017

Image from http://peoplesguidetohouston.wordpress.com/category/uncategorized/

Employment

96

97

98

99

100

101

102

103

104

2014 2015 2016

Index, Dec-2014=100 2015: Houston Plateaus 2016: Houston Loses a Few Jobs

Drilling activity collapses

Oil prices stop falling

in Q1:2016.

SOURCE: Bureau of Labor Statistics, adjustments by the Dallas Fed.

Texas (ex Houston)

U.S. (ex Texas)

Houston

Metro Down 14K+ Jobs

ytd in August

Employment 1.1

1.9

0.2

3.3

2.9

0.0

3.6

-2.5

2.8

-6.6

-4.4

-0.1

-0.4

-1.4

2.9

3.1

2.0

-4.7

-2.6

2.1

-0.5

-8.3

Total

Trade, transp & utilities (20%)

Professional & business svc (16%)

Government (13%)

Education & health services (13%)

Leisure & hospitality (10%)

Manufacturing (7%)

Construction (7%)

Financial activities (5%)

Other services (4%)

Mining & logging (3%)

Sept. to Dec.

Dec.15 to Dec.16

NOTES: Data show seasonally adjusted and annualized percentage employment growth by industry supersector. Numbers in parentheses represent share of total employment and may not sum to 100 due to rounding.

SOURCES: Bureau of Labor Statistics; adjustments by the Dallas Fed.

Real Retail Sales & Wages

24

27

30

33

36

35

39

42

46

49

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Billions of 2016:Q1 dollars

Billions of 2016:Q1 dollars

Real Wages Paid & Retail Sales Down From 2014

Wages

Retail Sales

SOURCES: Bureau of Labor Statistics; adjustments by the Dallas Fed.

Oil & Gas Extraction

Oil & Gas Extraction

220

230

240

250

260

270

280

290

300

20

35

50

65

80

95

110

2014 2015 2016 2017

Thousands of jobs

Index, June 2014=105.79 U.S. Rig Counts and Houston Employment

NOTE: Rig count and crude production seasonally adjusted. Rig count and nominal oil price indexed to June 2014.

Crude oil price

U.S. rig count

Mining-related jobs: Total

75,000 Jobs lost since 2014.

Oil and Gas Jobs

-45

-35

-25

-15

-5

5

15

25

2014 2015 2016

Percent Change Selected Mining-Related Job Losses Slowing

Fabricated metals

Support activities for mining

Total

Architectural, engineering & related

Extraction

Agriculture, construction & mining machinery

Note: data are three-month annualized percent changes.

SOURCE: Bureau of Labor statistics; Seasonal and other adjustments by the Dallas Fed.

Survey: Need WTI~$50 to drill

WTI: $53, ytd 2017

Oil & Gas Extraction

SOURCE: Baker Hughes

0

50

100

150

200

250

300

350

20160506W20160603W20160701W20160729W20160826W20160923W20161021W20161118W20161216W20170113W20170210W20170310W20170407W

Rigs

Permian Drives Rig Recovery

Permian

Eagle Ford

Williston

DJ-Niobrara

0

10

20

30

40

50

60

70

80

90

100

20160506W20160603W20160701W20160729W20160826W20160923W20161021W20161118W20161216W20170113W20170210W20170310W20170407W

Rigs Gas Basin Drilling Up

Marcellus

Utica

Haynesville

May-16 Apr-17 Oct-16 May-16 Apr-17 Oct-16

Inventories

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total OECD Petroleum inventories projected to stay elevated

Million barrels

2010-2014 average

Dec.

3087

SOURCE: Energy Information Administration.

Inventories

20

25

30

35

40

45

50

2014 2015 2016 2017

U.S. crude inventories erode, product inventories surge.

Distillate fuelCrude (ex SPR)Gasoline

Note: dashed lines are seasonally adjusted. Numbers are for week ending november 25th.

SOURCE: EIA

Refining & Petrochemicals

Refining & Petrochemicals

-10

-5

0

5

10

15

20

25

30

0

1

2

3

4

5

6

7

8

198

6

198

7

19

88

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

20

05

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

Dollar Spread Oil/Gas Ratio Downstream advantage eroding?

Brent Spread

WTI/HH

Refining

-15

-10

-5

0

5

10

15

20

25

1996 1999 2002 2005 2008 2011 2014 2017

20

09

$ p

er

ba

rre

l d

evia

tio

n f

rom

me

an

Muse, Stancil & Co. East Coast Margins

Muse, Stancil, and Co. Gulf Coast Margins

WTI Crack

Note: data are seasonally adjusted, centered three-month moving-averages. SOURCE: Muse, Stancil, & Co., Wall Street Journal, Bureau of Labor Statistics.

Downstream Advantage

0

5

10

15

20

25

30

35

0

2

4

6

8

10

12

14

16

18

20

2015 2016 2017 2018 2019 2020 2021

Number of projects Billions of dollars Downstream construction in Houston

falls off in 2017 & 2018.

Value of projects delivered

Number of projects delivered

Note: Data are value of construction projects delivered. SOURCE: Baytown Economic Development Foundation. Institute for regional forecasting.

$55 Billion in capital

Investments announced

in Houston-area alone.

Punchline

2015 & 2016:

Upstream Jobs Down

Downstream-Related Jobs Up

2017:

Upstream Jobs Up

Downstream-Related Jobs Down

Houston Region Job Growth

Could be anemic into 2018

International Trade

Houston International Trade

76

78

80

82

84

86

88

90

92

94

9630

40

50

60

70

80

90

100

110

120

2011 2012 2013 2014 2015 2016

Index Jan.1988=100; Axis Inverted

Index, Jun.2014=100 Value of Trade Falls With Oil and Strong Dollar

NOTE: Data displayed are centered three-month moving averages, seasonally adjusted where appropriate.

SOURCE: Census Bureau. Dallas Fed. Energy Information Agency.

Value of Trade

West Texas Intermediate

Texas Value of the Dollar

Houston International Trade

30

40

50

60

70

80

90

100

110

120

2011 2012 2013 2014 2015 2016

Index, Jun.2014=100 Value of Trade Falls While Volumes Stay Stable

NOTE: Data displayed are centered three-month moving averages, seasonally adjusted where appropriate.

SOURCE: Census Bureau. Dallas Fed. Energy Information Agency.

Value of Trade

Vessel Weight

Texas Medical Center

Health Employment Growth

1.8

0.5

3.2

2.8

2.5

1.5

3.4 3.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Total Ambulatory health (47%) Hospitals (27%) Other health (26%)

Percent Job Growth Slowing.

Sept. to Dec.

Dec.15 to Dec.16

Average since 2000

NOTES: Data show seasonally adjusted and annualized percentage employment growth. Numbers in parentheses represent share of total health employment and may not sum to 100 due to rounding.

SOURCES: Bureau of Labor Statistics; adjustments by the Dallas Fed.

Construction & Real Estate

Construction & Real Estate

-2.5

-1.0

7.8

-6.9

-0.8

-2.6 -2.7

-6.4

-1.1 -0.3

-10

-5

0

5

10

Total construction Construction ofbuildings

Heavy & civilconstruction

Specialty trades Real estate & leasing

Construction Employment Falls.

Sept.16 to Dec. 16Dec.15 to Dec.16Average since 2000

Percent*

NOTE: Real estate and leasing is not a subsector of construction.

Houston Home Sales

0

2

4

6

8

10

12

75

100

125

150

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Months supply of inventory Index Jan2000=100

Tight Market Pushes Up Prices

Median

Home Sales*

Month's of supply

*per the 12mma of payroll employment

Note: Seasonally adjusted

SOURCE: Houston Association of Realtors. Author's calculations.

Houston Home Sales

-100

-50

0

50

100

150

2008 2009 2010 2011 2012 2013 2014 2015 2016

Multi-family pulls down total housing permits filed

Total

1-Family Units

Outlook

Outlook

Outlook

30

35

40

45

50

55

60

65

70

-10

-8

-6

-4

-2

0

2

4

6

8

10

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Index value Percent change Houston Purchasing Managers Index and Employment Growth

U.S. recessions

Houston employment

HPMI

NOTE: Employment growth is a three-month percent change.

SOURCES: Institute for Supply Managment; National Bureau of Economic Research; Bureau of Labor Statistics; Dallas Fed.

Outlook

-10

-8

-6

-4

-2

0

2

4

6

8

10

2009 2010 2011 2012 2013 2014 2015 2016 2017

Percent growth Total Number of Job Advertisements Slipping

Employment

Total ads

NOTE: Job ad data are a statistically optimized weighted moving averages, shifted forward two months.

Outlook

105

107

109

111

113

115

117

119

121

123

125

120

122

124

126

128

130

132

134

2012 2013 2014 2015 2016

Index, 2010=100 Index, 1987=100 Major Leading Indexes paint improved, modest picture

NOTES: July Texas Leading Index data point is an estimate.

SOURCES: The Conference Board; Dallas Fed.

Texas Leading Index

U.S. leading index

Looking Ahead

Forecast:

Dec-2015 to Dec-2016

Houston Job Growth*:

-0.1% in 2016

0.5 to 1.5% in 2017

Texas Job Growth:

1.5-2.5% in 2017

Looking Ahead

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The Houston Economy

Jesse Thompson Regional Business Economist

The Federal Reserve Bank of Dallas, Houston Branch February 2017

Image from http://peoplesguidetohouston.wordpress.com/category/uncategorized/