As of our mid-December publication date, by virtually any measure, the Houston metro area economy is flourishing. However, significantly lower crude oil prices, now dropping through $60/barrel, represent a sea change for Houston. We expect oil drilling and exploration activity to cool worldwide. Also, service work on existing wells will ease, reflecting the decreasing profitability of crude oil production. Houston, as both a global and regional energy center will be caught in the changing currents. Already, we have seen the Texas drilling rig count dip for three consecutive weeks into early December. We expect to see this important leading indicator cool significantly over 2015, reflecting our view that oil prices will remain weak through 2015.
Houston has a high concentration of energy sector jobs, and those jobs are also linked to many other jobs throughout the regional economy. We expect to see most of the Houston economy impacted by significantly lower oil prices. However, refiners, petrochemicals and other industries that use petroleum as an input will enjoy expanded profit margins and provide some counterbalance to reduced oil field activity.
Houston’s previously robust rate of job growth will be a casualty of lower oil prices. We expect job growth in the Houston metro area to diminish in 2015 and again in 2016. Reduced job creation will attract fewer migrants into the Houston area in the years ahead. With consolidation in the energy sector will come less demand for office space, weighing on commercial real estate markets. Reduced job and income growth will likewise weigh on residential property markets. This cautious outlook is shaped by our oil price assumption. Higher oil prices through 2015 translate into a stronger Houston economy. Lower oil prices translate into a weaker Houston economy. At this time we assume that the balance of risk is to the downside for oil prices, representing a significant risk to the Houston regional economy in 2015 and 2016.
Click here for the complete Houston MSA Regional Economic Update:Houston 2014Q3.