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Houston Beige
Book
An Update on the Houston Economy
May 2006
Bill
Gilmer reviews recent economic conditions in Houston.
Houston’s economy
continues its rapid expansion. Although local job growth has slowed
the past couple of months, Houston still is registering 3 percent
job gains over the past 12 months—double the national rate.
The local unemployment rate has fallen to a seasonally adjusted
5.1 percent, and the Houston Purchasing Managers Index was a very
strong 64.2 in April. Beige Book respondents gave no hints at any
signs of slowdown ahead.
Retail
Sales and Autos
Retail sales in Houston moved at a rapid clip in May, down only
slightly from the torrid pace of April. Upper- and middle-range
department stores seemed to be doing best, with discount stores
lagging.
Houston metropolitan
area auto sales were up 5.9 percent through April, compared with
the first four months of 2005. High gasoline prices have not deterred
Houstonians from buying trucks and SUVs, which made up 56 percent
of total sales.
Real
Estate
Existing home sales rose 5.1 percent in April compared with a year
ago, and prices are matching record levels for median sale value.
The inventory of homes on the market continues to shrink. New home
sales and traffic through model homes both increased significantly
in the first quarter. New home inventories are below last year,
and speculative home construction is up 10 percent.
Houston office occupancy
is slowly tightening with the city’s large employment gains.
Most suburban markets are reaching high occupancy levels, but still-slack
downtown towers are likely to keep a lid on rents throughout the
city—especially for large blocks of space.
Energy
Prices
In early April, the price of sweet crude was $66–$67 per barrel,
but moved above $70 per barrel at midmonth. Prices were driven upward
primarily by tension between the U.S. and Iran and by a series of
killings and kidnappings of oil workers in Nigeria. The price of
sweet crude has remained near $70 since that time. Crude inventories
remain well above historical norms. Shell announced that its large
Mars platform in the Gulf of Mexico would return to full production
by late May or early June.
Regular gasoline
futures prices were near $1.90 in early April, strengthened to $2.25
in midmonth along with the price of crude and fell back to near
$2 in late May. Gasoline inventories dropped from recent highs to
levels closer to those typical of recent years. Reformulated inventories
fell to very low levels with the changeover to ethanol-based oxygenates.
The transition appears to be nearing completion without major incident,
but a series of refinery outages has kept markets nervous.
Refining
and Petrochemicals
Refinery capacity utilization on the Gulf Coast moved back above
90 percent for the first time since the hurricanes, primarily due
to the return of three large refineries (two in New Orleans and
one in Houston). Refinery margins, which had weakened in February,
bounced up to near $20 per barrel of crude refined for much of April
and weakened by only a couple of dollars for most of May.
Downward pressure on
chemical prices continued through March and into April, as capacity
returned from the hurricanes, some imports continued and natural
gas feedstock prices fell. However, major plant outages in ethylene
turned prices around in May, and polyethylene prices responded to
stronger demand and higher feedstock costs. Polypropylene prices
rose as propylene prices followed gasoline upward. Polyvinyl chloride
prices fell because of the weakening U.S. housing market.
Oil
Services and Machinery
The U.S. and Texas rig counts are rising rapidly. However, rigs
are exiting the Gulf of Mexico, seeking better day rates elsewhere
and escaping the high insurance premiums demanded because of the
approaching hurricane season. Otherwise, the story remains the same
as in recent months—very strong demand driven by land-based
and natural-gas-directed drilling. Although natural gas prices fell
below $6 per thousand cubic feet because of high inventories, there
were no reports that this deterred producers from further exploration
or investment.
| 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, May 2006, www.dallasfed.org/eyi/houston/hbb0604.html. |
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