Economic Research Publications
Houston Economic Update
As the economic data continue to be revised and refined, they show that Houston had the shortest, mildest recession among major metros in Texas. However, the short fall into recession makes it impossible to bounce back hard, and local job growth has lagged the bigger bounce in the state’s other major metro areas. Over three to six months, Houston’s job growth has been the slowest among Texas’ large metropolitan areas. The unemployment rate shows little improvement over the past 12 months and remains above the state average. However, if a range of variables—payroll employment, unemployment rate, real retail sales and real wages—are taken into account, Houston’s recovery remains the most advanced in the state.
Retail Sales and Autos
Retailers saw growing confidence on the part of Houston consumers, with discounters, department stores and high-end retailers reporting continued month-to-month gains. Because Easter falls in April this year, comparisons to last March 2010 are not meaningful, but March and April combined are expected to average to sales levels that put retailers on plan or slightly ahead. Inventories are under control; hiring is cautious.
Auto sales for the first quarter were up a solid 6 percent in Houston, led by a 12 percent increase in trucks and SUVs. The return of $3.50 per gallon gasoline puts this momentum in truck sales in jeopardy.
Home sales still struggle in Houston, just as in the rest of the state and nation. Existing-home sales in February were down from January and off about 2 percent from a year earlier. New-home sales remain soft, and permits are off 26 percent from a year earlier. Local home builders have buckled up for a bumpy ride through the rest of 2011.
Apartments are the one favored sector in Houston commercial real estate, helped by slow job growth and higher credit standards for potential homeowners. Office and retail space are still waiting for strong job growth to give it a boost.
Energy Prices and Refining
The price of light sweet crude in the U.S. rose from $85 per barrel in mid-February to over $100 per barrel in March, primarily due to continued turmoil in the Middle East and conflict in Libya. Observers assumed a $10–$15 “fear” premium for crude. Natural gas price was over $4 per thousand cubic feet in February, fell back as cold weather receded and then strengthened again to over $4 with help from international events and rising crude prices. Domestic production continues to grow rapidly.
U.S. refining capacity utilization picked up as the maintenance season ended and with rising gasoline production as the summer driving season approached. Demand for oil products continues to grow but is still subdued compared with precrisis levels. Both on-highway prices of gasoline and crude rose along with the price of crude oil. Refinery margins grew and remained healthy in March despite the increase in crude prices.
The U.S. petrochemical market is relatively isolated from disruptions in Europe and Japan. Underlying domestic demand remained strong for plastics such as polyethylene and polypropylene. Rising energy feedstock costs quickly fed through to resin and plastic prices. Spot propylene, polyethylene, polyvinyl chloride and polypropylene prices were all up, and contract price increases followed for ethylene and polyethylene. Rising prices made U.S. exports less attractive, except for PVC where the weak domestic construction demand makes ample supplies available at competitive prices.
Oil Services and Machinery
The trend toward more oil- and natural-gas-directed drilling continued, with about half the drilling in the U.S. now directed to oil. Fewer than 900 rigs are directed to natural gas, compared with 1,600 at the last peak in domestic drilling in 2008. However, the rigs that are working are very service-intensive, providing high levels of activity for oil service companies. Horizontal drilling and fracturing are being used for both oil and gas, and backlogs are growing. Nearly 60 percent of U.S. drilling is horizontal, and the equipment and crews needed are in increasingly short supply.