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Houston Beige
Book
An Update on the Houston Economy
September 2006
Bill
Gilmer reviews recent economic conditions in Houston.
The
signs of a slowdown in the local economy that emerged over the spring
and summer have become increasingly muted. Strong job growth in
August, along with revisions to previous months, put Houston’s
employment back on a healthy track. Over the past three months,
job growth has accelerated to a 3.3 percent annual rate. Houston’s
seasonally adjusted unemployment rate fell to 5 percent in August,
the lowest in nearly five years. Concerns about the local economy
going forward will focus on lower oil and natural gas prices and
a pause in drilling activity.
Retail
and Auto Sales
Overall retail sales have been good for the last quarter. Sales
started slow in July, accelerated some in August and really picked
up in September. The fall in gasoline prices seems to have helped,
shifting some disposable income back into other retail.
Houston auto sales defied
weak national trends in August, rising 18 percent from a year earlier.
The monthly total was the highest since Tropical Storm Allison forced
the replacement of thousands of vehicles in the city in 2001.
Real
Estate
Local new home sales in August were about 7 percent below last August—the
first negative comparison for year-over-year figures in 2006. The
inventory of speculative homes on the ground is flat compared with
August 2005, but when the number of spec homes under construction
is added, the total is up 13 percent. Sales of existing homes, in
contrast, are up 5.5 percent since August of last year.
Office occupancy and
rents have trended up slowly over the past year. The strongest real
estate market in Houston is industrial, and it continued its winning
ways by tightening even further at midyear.
Energy
Prices
After peaking near $78 in July, crude prices slid to near $70 by
September 1 and then to near $60 in late September. Slack oil prices
have been attributed to weaker U.S. growth, fewer international
concerns, rising inventories at home and abroad, and mild weather.
As in recent years, gasoline demand fell seasonally with the end
of the driving season but remains 4 percent stronger than last year.
Wholesale gasoline prices dropped about 50 cents per gallon in September,
and prices fell even further at the pump.
Natural gas prices declined
steadily throughout the period, from near $6 on September 1 to near
$4 in early October. The weakness resulted from a lack of seasonal
demand, no hurricane activity to threaten Gulf production and a
growing inventory glut. Natural gas storage is now about 12 percent
above the five-year average.
Refining
and Petrochemicals
The rapid descent in oil-product prices squeezed refiner margins,
despite lower crude input prices. Margins tumbled to near $6 in
recent weeks, levels that appear weak compared with recent results
but continue to look good historically. Gulf Coast refineries continue
to operate at very high levels, near 97 percent in recent weeks.
Petrochemical feedstock
prices plummeted with the decline in oil and natural gas prices,
but product prices have not yet declined significantly. Ethylene
prices were supported by several plant outages. Synthetic rubber
specifically pointed to a softer consumer market as an element in
modest price weakening. Plastics prices have also generally held
up, though lower energy costs should eventually feed through to
lower product prices. Margins—already very good to start with—have
widened further with the drop in feedstock costs.
Oil
Services
Growth in the domestic rig count has been strong all year but seemed
to pause in recent weeks. This flattening out of the rig count appears
to be a response to recent weakness in energy prices. Service companies
report that their fundamentals remain sound in terms of backlogs
and pricing. Producers have not significantly revised drilling plans
and remain unwilling to give up rigs or their place in line for
future services.
| 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, September 2006, www.dallasfed.org/eyi/houston/hbb0607.html. |
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