HOUSTON – (By Michelle Leigh Smith, Realty News Report) – Patrick Jankowski, Senior Vice President of Research and Regional Economist at the Greater Houston Partnership, says he is cautiously optimistic about Houston’s economy heading into 2018.
“I’m more excited about 2018 than I was about 2017,” Jankowski said in a luncheon address. “We spent last year managing the loss of 28,900 energy jobs — roughly one in every four jobs in the sector since December 2014. Oilfield equipment manufacturing, often counted as part of that sector, lost 19,500 positions, nearly half of its workforce. The recent uptick in drilling has generated some hiring in oilfield services, but exploration, production and equipment manufacturing continue to reduce headcount. Job losses in energy reverberate through the local economy because the sector pays above average wages and those incomes are typically spent locally.”
He added that Houston’s momentary absence from the top of national job-growth rankings is not a cause for concern. “We were number one for so many years in a row, we shouldn’t feel bad when we’re not leading,” he said.
Jankowski noted other strengths companies consider when evaluating Houston as a place to locate or expand.
Houston’s Three Defining Events of 2017
Jankowski described 2017 as shaped by three major events: the Super Bowl, Hurricane Harvey and the World Series championship. “During the Super Bowl, the region showcased itself at its best through volunteer efforts and community pride,” he said. “When Harvey struck, we witnessed widespread compassion as volunteers deployed boats and citizens donated clothes and food. And the World Series win highlighted Houston’s diversity: the Most Valuable Player was an immigrant from Venezuela. These moments demonstrate the cooperative spirit and work ethic of our residents — qualities companies value that don’t appear on balance sheets.”
For 2018, Jankowski forecasts the Greater Houston Partnership’s nine-county region will gain 45,500 jobs. He notes this is about 15,000 fewer jobs than a typical year and attributes the tempered growth forecast to Energy Department expectations that oil prices will average below $55 per barrel in 2018.
Layoffs and Industry Shifts
Jankowski said his analysis aims to clarify the trends behind growth and contraction so business leaders can make informed decisions about investment, hiring, and purchases. “Given uncertainty around oil prices, geopolitics, and the federal policy environment, more insight is helpful,” he said.
“Expect further job reductions in information services and construction — construction activity is about a quarter of what it was two years ago,” Jankowski told attendees at the Houston Region Economic Outlook event held at the Royal Sonesta Hotel. City building permits for the 12 months ending October 2017 totaled $5.7 billion, down 21 percent from $7.2 billion in the prior 12-month period. He added that employment in the energy sector is likely to remain flat.
Still, there are encouraging signs: the rig count rose by 332 rigs, a 55.6 percent increase from early December of the prior year. Baker Hughes reported 929 drilling rigs operating in North America the first week of December. Meanwhile, the Henry Hub spot price for natural gas averaged $3.02 per million BTUs in November, up 18.3 percent from $2.55 the prior November.
Energy’s Large Local Impact
Approximately one-third of Houston’s gross domestic product is directly related to oil and gas, Jankowski said. “This estimate excludes energy’s ripple effects on wholesale trade, transportation and professional services, as well as how energy workers spend their paychecks at grocery stores, restaurants and retail outlets. Including those expenditures increases energy’s footprint on local GDP substantially.”
The U.S. Energy Information Administration projected West Texas Intermediate to average around $50 per barrel in the first half of 2018 and $54 per barrel in the second half — modest improvement over 2017, according to Jankowski.
On November 30, OPEC, Russia and nine non-OPEC producers agreed to extend crude production cuts through the end of 2018. The deal, which had been slated to expire in March, represents a coordinated effort by 24 countries to hold about 1.8 million barrels per day off the market — more than half of global crude capacity. The need to include numerous non-OPEC producers highlights OPEC’s limited ability to influence markets unilaterally.
The agreement also included a compromise requested by Russia, with ministers agreeing to reconvene in June to assess whether cuts should end sooner than the December deadline. Russia’s participation was important because it supplies roughly one in nine barrels of global production. Moscow is cautious that a rapid global tightening could spur U.S. shale producers to dramatically increase output, shifting the benefits of higher prices to U.S. producers rather than to members of the production-cut coalition. Saudi Arabia has emphasized the need for additional inventory drawdowns before easing restrictions. According to the International Energy Agency, OECD commercial stocks peaked at about 3.07 billion barrels in Q3 2016 and declined to roughly 2.97 billion barrels in Q3 2017.
Kevin Roberts on Real Estate and Industrial Growth
Kevin Roberts, President of Transwestern Southwest, echoed Jankowski’s cautious optimism during a Greater Houston Partnership panel ahead of the luncheon. “Houston is a true gateway city for industrial activity, supported by a world-class port and the largest petrochemical complex in the world,” Roberts said. “Rising demand for plastics and resins is driving new space requirements. The Panama Canal expansion has increased container traffic through Houston, and e-commerce continues to boost logistics needs. Combined with a low cost of living, competitive taxes and a diversified, highly skilled labor pool, these factors position Houston for durable growth.”