The global boom in both traditional and alternative energy industries helped the Houston metropolitan area to surpass its pre-recession employment peak of 2.6 million payroll jobs set in August 2008 by October 2011. The region’s unemployment rate of 8.1 percent in November 2011 was well below the U.S. average of 8.7 percent for the month. We expect that relationship to hold going forward. High oil prices are a boost to the Houston economy. Recent sabre rattling between the U.S. and Iran has helped to push the price of West Texas Intermediate crude back to $100/barrel after easing through late summer/early fall. The Port of Houston is also a major economic engine for the area as it is the top-ranking U.S. port for international commerce. Together, the Port of Houston, the Houston Ship Channel, and Galveston Bay represent a significant economic asset for the area, supporting hundreds of thousands of jobs state-wide and generating significant state and local tax revenue.
Houston’s global connections also expose the area to downside risk. Our baseline oil price forecast holds WTI at $100/barrel through 2012. This price would support very active drilling programs throughout the world. However, there is downside risk to oil prices in addition to upside risk. Ample global supply accompanied by flat or cooling demand by developed economies and slower demand growth from developing Asia could push prices down. Likewise, a cooler global economy could dampen shipping traffic through the Port of Houston.
House prices in Houston did not experience the destabilizing price appreciation of other areas in the mid-2000s. Consequently prices have been firmer on the downside. Since peaking in 2007Q1 the FHFA house price index for the U.S. is down about 16 percent. From its later peak in 2009Q1, the Houston FHFA house prince index is down three percent. Housing starts, particularly on multifamily projects have been on the upswing through 2011. Declining vacancy rates and improving rents are incentivizing multifamily builders.
Click here for the complete Houston MSA Regional Economic Update, including a forecast table and charts of regional economic activity: Houston2012Q1.