Houston energy slump affecting city unevenly

At a recent West Houston Economic Development Summit, 2016 was introduced as a year where the downturn in the oil industry taints the economic outlook for several other sectors of the Houston economy. It’s not ready to go bust, but the sinking feeling is definitely now shared pain.

Based largely on the work of the University of Houston’s Bauer Institute for Regional Forecasting, economic prognostications called for the pain to seep into 2017 in some ways, too.

Like a virus spreading among the non-inoculated, the slowdown will, the Institute says, ding retail, commercial and residential real estate.

Bill Gilmer, the Institute’s director, even went so far as to call the slump a moderate, localized recession.

According to a report on the Houston energy sector released by the Institute at the end of last year,  three factors currently shape the outlook for Houston’s economy. First, Houston benefits from a strong U.S. economy that supports many jobs throughout the metropolitan area in big, national companies.

Next, the most important single factor currently shaping Houston’s economy is the collapse of oil prices and drilling. Once the payroll employment data for Houston are revised in March, it’s likely to come out that in 2015 more than 30,000 jobs were lost in oil and gas production, oil services, and oil-related manufacturing.

Finally, the third factor is a major boom in building downstream petrochemical, refining and liquefied natural gas plants.

Primarily driven by low natural gas prices, more than $50 billion in oil-industry construction is underway in East Houston, which is causing an influx of skilled construction workers. While these plants will offer fewer permanent jobs once their construction is completed, the construction jobs offer a welcome opportunity to the laborers who have them.

Taken together, the result of these three events is likely to be very slow, sustained job growth. And, that may be localized to the east side of Houston. The number of new jobs is small but still in positive territory,  yet way down from the 100,000 new jobs per year that Houston added each year from 2012-2014.

What’s really happening in the Houston economy?

And, that report relies heavily on prognostications about the energy sector.

By no means, though, is that the only thing going on in Houston. While it’s true that ripples are sent throughout the local economy when a big player is on injured reserve, financial services and the healthcare sector are continuing to be strong players in the local economic climate.

And even as many who have watched and written on the goings-on in Houston right now concur, the metro is not experiencing a recession anything like the 1980s, where the area lost 13.3 percent of its jobs, or better than one in eight.

Gilmer’s remarks at the summit, though, dampened the mood of those in the multifamily part of the world. While many in the industry say multifamily is still on stable footing, both Gilmer and economists from the Greater Houston Partnership think that apartments and condos are overbuilt in the city and occupancy rates are sliding on a more local basis.

In conclusion, the Institute’s outlook predicts that the national economy remains healthy and that downstream construction in the eastern part of the metro continues to add local jobs throughout 2016. The determining factor in Houston’s economic outlook is the level and timing of improvement in oil prices, leading to more spending for exploration and production, and in the number of working rigs.

So the economic picture for Houston’s many industries, and the sectors that support them might just be a question of which side of town you’re on.

Email Kimberley Sirk.