Houston Faces Ongoing Energy Sector Consolidation

There is much more to the Houston economy than the price of oil, but the low price of oil continues to weigh heavily on the center of the North American oil market. Perversely, the Paris terrorist attacks may have provided some support for global oil prices, but downside momentum may continue as inventories of both crude and refined products increase. The price of West Texas intermediate crude oil is approaching $40/barrel and may retest the late-August low. Natural gas prices also remain exceptionally weak at $2.50 per mmbtu.

Job growth in the Houston metro area has clearly stepped down from the vigorous 8,100 net new payroll jobs per month average of 2014. Through September, the 2015 monthly average is a weak 656 net new jobs per month. And this disguises the four months of net job losses seen so far this year. We expect the Houston metro area economy to shed jobs on a net basis more consistently from the fourth quarter of 2015 through the second quarter of 2016, and the unemployment rate to increase through the third quarter of 2016.

Five smaller Houston-based energy companies appear on the Security and Exchange Commission’s list of distressed companies. The proposed Halliburton-Baker Hughes merger will likely not be approved by the Department of Justice until late-November. According to the Houston Business Journal, Halliburton could cut as many as 20,000 jobs worldwide after the deal is finalized. Houston office construction has already slowed down considerably, with new projects down 33 percent this fall from one year ago. We expect residential construction to also cool through next year.

Good news for Houston came from the University of Texas, which announced plans to build a 332 acre research facility in southwest Houston. Also, a high speed rail terminal site appears to be one step closer for Houston after the Federal Railroad Administration eliminated a downtown site, apparently favoring a site at the intersection of Highway 290 and Loop 610. Construction on the rail system could begin in 2017.

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Click here for the complete Houston Regional Economic Update: Houston 2015Q4.

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