Economic Research Publications
Houston Economic Update
Official data on Houston’s employment paint the picture of a stagnant economy, one lagging the rest of the state. There has been no significant gain in local payroll employment over the past six months, and the unemployment rate has ticked up by half a percentage point. Private reports from local purchasing managers and retailers, and data on auto sales and the real estate market, have been more optimistic about recent progress in the local economy. Major revisions of the employment data in March could resolve the differences, perhaps painting a different and improved jobs picture for Houston.
Retail Sales and Autos
Recent retail sales got a boost from Valentine’s Day and from cold weather that encouraged a family trip to the mall. Retailers report that the recent sales increase is part of a broader trend of growing consumer confidence, and they expect steady sales gains to continue through 2011.
Cold weather worked against auto sales, as local sales of cars and light trucks fell 5 percent from a year earlier. However, Houston sales finished 2010 strong, and this recent decline does not seem to be a significant break in that trend.
Closings of single-family homes jumped in January, up 8 percent compared with the same month last year. Median home prices also improved, and the inventory of homes on the market fell to 7.4 months.
Commercial rents remain generally soft, with low occupancy that continues in a flat trend for office, retail and industrial properties. Apartment rents have trended up in recent months, but are coming under pressure as new apartment properties begin to lease up.
Energy Prices and Refining
West Texas Intermediate (WTI) crude oil prices were near $90 per barrel at year-end 2010, remained there through January and then weakened in early February to about $86. Unrest in the Middle East has since put them back on an upward path. The demand for oil products is up only by about 1 percent on a 12-month basis and has weakened week after week as consumers have reacted to $3 on-highway prices for both gasoline and diesel. Gasoline inventories have grown rapidly in recent weeks, moving well out of normal ranges. Refinery utilization rates have moved down from 88 to 85 percent. This is partly a normal move into the spring maintenance season, but also because of weaker refinery margins—much weaker than late last year.
Petrochemicals and Plastics
Petrochemical prices have mostly been stable, with the exception of increases in polypropylene (PP) and polystyrene (PS). Global demand pushed the prices of benzene up sharply, and the price of PS with it. Plant outages drove up the price of PP sharply, in a market that was already very tight because of limited feedstock. Margins are generally strong. Domestic demand was reported stable to moderately increasing. Global growth was driving strong demand for caustic soda and benzene.
Oil Services and Machinery
The U.S. rig count continued a trend of slow growth in overall drilling. Texas and New Mexico both showed nice increases in the number of rigs working, while Louisiana was flat. The Gulf of Mexico rose slightly. The trends early this year are a continuation of late 2010. Unconventional shale is the dominant factor driving U.S. drilling activity. Drilling continues to shift to oil and away from natural gas, reflecting the weak natural gas prices compared to oil. Over 45 percent of rigs working in January and February were directed to oil. At the same time, about 57 percent of working rigs were drilling horizontal wells. The activities associated with the horizontal wells are increasingly service intensive, requiring multiple lateral wells and multiple fractures and completions on each well. Margins for operators with fracturing capacity have jumped sharply. The entire supply chain was described as being stretched.