|
Houston Beige
Book
An Update on the Houston Economy
April 2006
Bill
Gilmer reviews recent economic conditions in Houston.
Revised employment
data show Houston’s job growth over the past 12 months at
2.9 percent, faster than both the United States at 1.6 percent and
Texas at 2.6 percent. The revisions pull the job growth more closely
in line with recent movements in the Houston unemployment rate,
coincident index of economic activity and local purchasing managers
index, all of which show the Houston economy accelerating and pulling
away from the nation. Beige Book respondents were uniformly upbeat
in their assessment of Houston’s performance in recent weeks.
Retail
and Auto Sales
Houston retailers reported good news for the period, with every
category hitting or exceeding expectations. Department, discount,
furniture and food stores, as well as independents, all shared in
the good results. Some stores saw sales as much as 20 percent higher
than anticipated.
Truck and auto
sales continued on an upward trend. March sales for the metropolitan
area were up 5.1 percent from last year, and first-quarter sales
rose an even healthier 7.2 percent. Trucks still make up 57 percent
of total sales in Houston, a share little changed by high gasoline
prices.
Energy
Prices
The price of crude oil was near $60 in early March but climbed steadily
to near $70 by mid-April. Downward pressure on crude demand by a
heavy refinery maintenance season was offset by international tension
in Iran and Nigeria. Gasoline prices rose throughout the period,
following crude upward and reflecting concern that the transition
to methanol from MTBE would not go smoothly. Prices at the pump
have risen about 25 cents per gallon since early March. Diesel and
heating oil also felt upward price pressure from crude but did not
rise as far as gasoline because of the winding down of the heating
season.
Natural gas
prices have remained consistently near $7 per thousand cubic feet
in recent weeks. With no heating or cooling demand, the gas price
was supported primarily by rising crude oil price. Because of the
warm winter, natural gas storage levels are very high—60 percent
above the five-year average.
Refining
and Petrochemicals
Refiners underwent a long maintenance season. Much of the work postponed
after last fall’s hurricanes was finally undertaken this spring.
After soaring as high as 5 million barrels per day after the storms,
refined product imports settled back into historical ranges. Refinery
margins, which had weakened in January and February, surged back
to $15–$17 per barrel.
Results vary
widely by product for petrochemicals. Prices are falling and demand
is lackluster for most. Price comparisons, however, have to be made
against pre-hurricane levels (ABS, PET bottle resin and paraxylene
are about equal or below, while polyethylene, polyvinyl chloride
and polystyrene are still well above). The ethylene market is being
affected by extensive maintenance. Although price no longer justifies
imports in many cases, numerous downstream processors are reluctant
to close the door to imports, seeing them as possible insurance
with a new hurricane season approaching. Lower product prices have
not meant less profit for many products because the falling price
of natural gas feedstock has kept margins wide.
Oil
Services and Machinery
There was little change in the oil service industry. Contacts reported
continued very strong demand, tight capacity, growing backlogs and
more work turned down because it cannot be scheduled. The rig count
continues to rise due to the entry of rebuilt and refurbished as
well as newly built rigs. The number of rigs working in the Gulf
of Mexico has returned to pre-hurricane levels, but rigs continue
to leave the Gulf for other waters and drive day rates sharply upward.
Capital spending programs are strong; the primary constraint on
expanding capacity remains people.
| 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, April 2006, www.dallasfed.org/eyi/houston/hbb0603.html. |
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