Resilient Houston Faces Ongoing Stress

The Houston economy has been remarkably resilient in the face of extreme pressure on its large oil and gas sector. Unfortunately, we expect to see more pressure from low oil prices at least through the first half of this year. Labor metrics shifted in the Houston metro area in 2015. Following strong and steady monthly job growth in 2014, Houston saw increasingly choppy data through 2015. While still overall positive for the year, four months in 2015 showed net job losses and one month was close to zero. Still, year-over-year job growth in the Houston metro area was 0.8 percent in December, positive, but well below the peak 4.6 percent year-over-year growth from November 2012, and below the U.S. average of 2.0 percent for the month. The Houston area unemployment rate reached a low of 4.2 percent in February 2015, and then increased to 5.0 percent by December. Going forward, we except to see more consistent net job losses for Houston through the first half of 2016, bringing the unemployment rate up to 5.8 percent in the third quarter of this year.

Our Houston metro area forecast is largely contingent on our oil price outlook. We currently expect the price for WTI crude oil to increase to about $45 per barrel by year end. If this turns out to be an optimistic forecast, we would expect the Houston economy to show even bigger net job losses through this year. While we are hopeful that oil prices are currently in a bottoming-out process, we believe that it is still too early to say that we have reached a bottom in oil prices. Global demand remains softer than expected while production remains stronger than expected. The recent lifting of the U.S. crude oil export ban is good news for Texas, but it does not alter the fundamental reality of an oversupplied global oil market. What it does is allow U.S. producers access to markets that are currently being supplied by higher priced oil. One impact of U.S. crude oil exports will be to put even more pressure on high cost production globally, including Canadian tar sands production and North Sea production.

Houston 2016Q1

Click here for the complete Houston Regional Economic Update: Houston 2016Q1.

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