Houston Economic Update
The Houston area economy is treading water, following a period of stagnant growth that began with the oil downturn in late 2014. Bill Gilmer, director the Institute for Regional Forecasting at the University of Houston’s Bauer School of Business, has forecasted that Houston will add about 38,000 new jobs in 2017 – more than twice as many as 2016, but far below the historical average, preparing us for a “pretty mediocre year” to quote Gilmer.
As the industrial construction boom that aided Houston through the oil downturn is coming to an end, tens of thousands of construction workers will be without a job. In a perfect world, those workers could move into oil production. But since Gilmer predicts that oil producers will exhaust the extremely productive wells, the production costs will be forced upwards and the future looks bleak for both the workers and the current oil prices. Despite Gilmer’s tepid forecast, there has been a rapid spike in rig count and manufacturing and petrochemical refining jobs.
Gilmer, like many economists, declined to predict where oil prices are headed. “All of the optimism we were seeing back in November has pretty much been flushed out of the market,” Gilmer said. ” The problems we have continue to be about oil.” Despite efforts to diversify the Houston economy, Gilmer said, the region still depends heavily on the energy industry. The ratio of energy jobs to non-energy jobs in Houston’s employment core hasn’t changed in 20 years.
There was however, a glimmer of hope shining on the otherwise bleak horizon. The residential housing market seems to have worked through the excess of high-end homes and production is returning in more modest housing that provides Houston with one of its key economic advantages — affordability. This attracts workers and helps the economy grow.
Many Houstonians are “plenty tired of the crash of oil prices,” as paraphrased from Gilmer’s speech in late May. “We’re not going to get strong growth based on $48 a barrel…” After a major oil bust, a “pretty mediocre year” is nothing to sniff at.
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Houston Maintains Slow Job Growth
Heading into Q4, Houston continues to face economic uncertainty. But we’ve been here before – for the fifth time in 35 years, in fact. Oil has slipped below $40 per barrel. The energy industry has cut exploration and training budgets, laid off workers, and eliminated everything from travel to office supplies. Concerns about a repeat of the 80’s economic collapse are valid, but has Houston diversified enough so that the oil industry’s troubles may not sink us like an iceberg?
Don’t get out the lifeboats just yet. History is not about to repeat itself. Energy will undergo a restructure, but it won’t eliminate half its workforce as it did in the 80s. Real estate will soften, but it will not collapse. Outstanding energy loans will not crush the financial system. Houston won’t sink into recession, but the growth will be much slower. While energy struggles, other industries will prevail.
The Greater Houston Partnership’s forecast calls for growth in construction, retail, finance and insurance, educational services, health care, arts and entertainment, accommodation and food services, transportation, and government. The Partnership projects that more than 8,000 freighters will dock at the Port of Houston next year. The Texas Medical Center will treat 7.2 million patients. Houston refiners will continue to supply a quarter of the nation’s gasoline, diesel, and jet fuel. And chemical plant construction will continue to surge for at least another year. These were The Partnership’s job predictions for 2016, which gives us hope for the second half of the year…
Any decline in commercial, single-family, and multi-family construction will be offset by increases in civil and heavy industrial construction. The Greater Houston Partnership forecasts the construction sector to add between 8,000 and 10,000 jobs.
The retail forecast assumes neither a boom (12,000 new jobs) nor a mediocre year (only 2,000-4,000 jobs), thus we are looking at the addition of 5,000 retail jobs by the end of 2016.
More than 90,000 babies are born in Houston each year and more than 30,000 Houston residents join the over-65 population, thus more checkups, vaccinations, and specialist visits. Nearly 1 in 9 job holders in Houston works in health care and this isn’t going to change much. Health care will add 9,000 jobs this year.
The forecast for 2016 is conservative, calling for the public sector to add 5,000 jobs in 2016, with 4,000 of those in education.
This sector includes accounting, legal, architectural, computer systems design, marketing, advertising, and consulting which, in Houston, is closely tied to oil and gas. To manage costs, the oil and gas industry has postponed projects, reduced legal and consulting services, and halted improvements on computer systems. The forecast in this sector is lean, but it will call for 4,000 jobs.
A clearer understanding of what is driving economic growth (or loss) will help the business community make better investments and staffing decisions. And while losses will continue to plague oil field services, exploration, and production, it is predicted that Houston will create a total of 21,900 jobs in 2016. Opportunities will emerge to replace those lost in the downturn and Houston will remain an attractive place to live and work. Cue sigh of relief.
How Will Dropping Oil Prices Impact the Texas Job Market?
Oil prices have been dropping in Texas through the end of 2014 and into 2015, to an estimated amount of $83 million per day lost over six months in potential revenue for the state, according to a report by the Greater Houston Partnership. Just as Texas experienced economic growth during the oil boom, the falling oil prices and demand are expected to have wide-reaching effects for a projected two years and impact the Texas job market in a variety of ways:
Decline in Job Demand
Economist Karr Ingham, who analyzes economic indicators to develop the monthly Texas Petro Index, went on record in February 2015 and stated the Texas job market is likely to lose approximately 300,000 jobs both directly and indirectly related to the oil and gas industry. Fortunately, the industry accounts for around three percent of Texas’ nonagricultural job sector, so the impact won’t be disastrous state-wide; however, companies in the oil industry may have to reevaluate their employment strategies and consider layoffs or other budget cuts.
Reduced Profits
Dropping oil prices, as well as a lowered demand for oil-industry services, will presumably lead to an overall trend of dropped profits for oil related companies. For instance, Exxon Mobil Corporation, which is based out of Irving, Texas, reported 2014 fourth-quarter profit losses of 21 percent. With estimates of over a year before oil production slows enough to impact prices, businesses will need to think of ways to cut budgets in order to remain financially stable.
Uncertain Outlook
Since it is not known exactly how much more oil prices could potentially plummet, oil industry businesses face the unenviable task of attempting to plan without knowing much detail about what is in store for the near future. When planning for their employment needs, businesses may find contract workers or short-term temporary employees as more suitable options than strictly a full-time staff – until they have a better idea of how their overall company will perform through the price dropping.
If dropping oil prices have impacted your Texas business, Professional Alternatives can be a trusted resource to keep your business on track while staying within budget. Since 1998, we have been serving Texas employers with their staffing needs. We offer temporary staffing, temp-to-hire, and direct hire placement so you can find the most qualified candidates while maintaining flexibility. Contact us today to learn more about our business services.