|
Houston Beige
Book
An Update on the Houston Economy
January 2006
Bill
Gilmer reviews recent economic conditions in Houston.
The Houston
economy continues to roar ahead. Figures for the most recent 12
months' data show drilling activity up 16 percent, local building
contracts up 8 percent, tonnage at the Port of Houston up 10 percent
and local retail sales up 11 percent. The Houston Purchasing Managers
Index remains above 60. Only the local job market looks mediocre,
with job growth at 1.3 percent and the unemployment rate still at
5.9 percent.
Retail
and Auto Sales
Retail sales were OK for the holidays but fell short of expectations.
Upscale retail was well above expectations, while discounters generally
fell short. It should be noted that expectations may have been higher
in Houston than elsewhere. The purchase of gift cards may have changed
the holiday counting scheme to some extent, as shoppers are increasingly
buying the cards as gifts, then holding them for the winter sales
to come.
Car and truck
sales increased 3.4 percent in November, compared with the previous
November. Car sales were up 15.7 percent and truck and SUV sales
down 5.1 percent, indicating that even truck-loving oil producers
can react to high gasoline prices.
Real
Estate
The national housing market may show some signs of cooling, but
not in Houston. Existing home sales in November rose 8.7 percent
over the past 12 months, while new home sales jumped 32 percent
over the same period. The median price of an existing home increased
nearly 10 percent over the past year. Traffic is up for new home
developers, and spec inventory is down sharply.
Apartments and offices
are waiting for the next shoe to fall from the continuing New Orleans
recovery effort. Apartment vouchers were discontinued in December,
and the question remains as to how many evacuees will now stay in
Houston. Apartment occupancy is up more than 3 percent in recent
months, while rents have risen only slightly in the past 12 months.
Which businesses will keep former New Orleans employees in Houston
and who moves back is also the open question for the office market.
Office occupancy and rent in Houston remain flat.
Energy
Prices
In recent weeks, the dominant factors in crude and other energy
markets have been cold weather and the ongoing recovery of the Gulf
of Mexico. Crude prices were mostly in the high $50s per barrel
range, strengthening to the low $60s in late December. The U.S.
is well-supplied with crude; inventories are more than 10 percent
above normal. Demand is improving as more refineries come back online.
Cold December weather
briefly drove natural gas prices to new records near $15 per thousand
cubic feet. Prices then weakened sharply to $9 in late December
and early January as warm weather returned and inventories remained
healthy.
Retail gasoline prices
fell steadily through December, then popped back up with the price
of crude oil. Heating oil prices strengthened with cold weather
but fell back afterward. Refinery margins began a sharp and consistent
decline in early October that continued through November, then stabilized
at still-healthy levels in December. Gulf Coast refinery utilization
rose from 78 percent to 85 percent.
Oil
Services and Machinery
Oil service companies reported unchanged—but excellent—business
conditions. Several recent surveys of drilling intentions indicate
these good conditions will continue through 2006. The domestic rig
count has been flat, but respondents emphasized that this is due
to full utilization of crews and equipment. Reports of labor and
material shortages continue at all levels of the industry.
Petrochemicals
Petrochemical producers noted that demand and prices began to weaken
for a number of products. Demand was weak as downstream processors
held back building inventories for tax reasons. Also, they expected
price declines ahead and didn’t want to be caught with expensive
inventories. The spike in natural gas prices in December briefly
froze the downward price momentum, but it is expected to continue.
Another factor affecting the price of some products was high levels
of imports, attracted by high post-hurricane prices.
| Gilmer
is a vice president at the Federal Reserve Bank of Dallas.
SUGGESTED
CITATION:
Gilmer,
Robert W.
(2006), Federal Reserve Bank of Dallas Expand Your
Insight Houston Beige Book, January 2006, www.dallasfed.org/eyi/houston/hbb0601.html. |
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