|
Houston Beige
Book
An Update on the Houston Economy
November 2006
Bill
Gilmer reviews recent economic conditions in Houston.
The
Houston economy continues to boom. Seasonally adjusted unemployment
has fallen to 4.7 percent, the lowest rate since 2001. Allowing
for known data revisions to come, Houston has created 99,000 wage
and salary jobs in the past 12 months. While there are dark clouds
in the distance—most notably, a slowing U.S. economy and rising
natural gas inventories—the immediate problem in key local
industries remains labor shortages, backlogs and long lead times.
Retail
and Auto Sales
Retail sales turned weak in recent weeks, with most retailers failing
to meet their October or early November plans. Year-ago comparisons
would be misleading because of consumer buying after the hurricanes.
But recent strong months had led retailers to plan on solid increases
for October. Now, the results of the past few weeks have raised
concerns about the coming holidays.
September autos
sales were very healthy, up 14 percent from a year earlier.
Real Estate
Strong job growth is supporting most of Houston’s real estate
markets. Existing-home sales were up 18 percent in September from
a year earlier, with the median price rising 3.1 percent. New-home
sales were up 6 percent. The office market has made dramatic absorption
and occupancy gains in recent months, led by Class A and central
business district space. Industrial real estate remains strong,
but the retail market has softened. The post-Katrina apartment market
continues to move in reverse, with falling occupancy and lower rents
over the past six months.
Energy
Prices and Drilling
The price of West Texas Intermediate is near $60 per barrel and
has moved in a narrow range between $57 and $61 in recent weeks.
Natural gas fell under $6 per thousand cubic feet in late August,
under $5 in mid-September and briefly under $4 in late September.
Price has steadily strengthened and been in the $6–$8 range
since mid-October. This apparent strength defies the fundamentals
of over 3.4 trillion cubic feet of gas in storage, when the Energy
Department estimates maximum storage of 3.6 Tcf.
In response
to possible weak natural gas prices, domestic drilling has flattened
at high levels over the past three months. Unconventional gas in
the Rockies and Canadian drilling in Alberta have been most affected
so far. A few smaller land-based rigs have come offline, and day-rates
continue to rise—just more slowly than before. International
activity continued to grow significantly, with every continent adding
rigs in recent months.
Refining
Gulf Coast refineries have returned from maintenance and are now
operating at high levels. The return was delayed in some cases by
labor and construction shortages or relatively weak margins that
offered less incentive to hurry back into production. Refining margins
have been $8–$10 per barrel, strong by historical standards
but half to one-third the margins enjoyed over the summer.
Petrochemicals
Petrochemicals were mixed. Ethylene production has been affected
by a series of planned and unplanned outages that have supported
prices and kept profit margins high. Expectations are for lower
prices in the future as outages end, the price of natural gas falls
and the demand for downstream plastics shrinks. Demand for butadiene,
in contrast, is very strong. Price is high, helped by strong demand
for natural rubber, and margins are excellent. Isobutylene, used
in the production of many consumer products, weakened in October,
but returned strongly and is pushing capacity limits in November.
| 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, November 2006, www.dallasfed.org/eyi/houston/hbb0608.html. |
|
About
EYI | Global
Economy | U.S.
Economy | Regional Economy
| Free Enterprise
| Money & Banking
| Technology
Federal Reserve Bank of
Dallas | FRB
Dallas Publications
|
