Houston Economic Update December 2010

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A publication of the Greater Houston Partnership Volume 19, Number 12 •December 2010 Oil Prices to Remain High? — Since December ’08, when the Friday closing spot price for West Texas Intermediate (WTI) oil fell to a low of $33.17 a barrel, the price has recovered quite nicely. During the first six months of ’09, the Friday close for WTI averaged $51.77 a barrel; the second half, it averaged $72.02; and in the first half of this year it averaged $77.75. Since October 1, WTI has fallen below $80 a barrel on only one day, and then just barely. One must return to the summer of ’08 to find comparable prices. But does the history of ’08 foreshadow the course of oil prices next year? It only took 12 weeks for oil to fall from $100 a barrel in mid-September to below $34 in mid-December. Are today’s oil prices posed for another precipitous fall? Probably not, and there are several reasons why. Other crudes traded on the world market have kept pace with the price of WTI. In the November 17 issue of This Week in Petroleum, the U.S. Energy Information Administration (EIA) notes that the spot price for Brent, the benchmark crude for Europe, increased from around $77 per barrel in September to $88 in November. The spot price for Dubai crude oil, a benchmark crude for Asia, increased from $75 to more than $85 during the same period. The spot price for Malaysia Tapis, another Asian benchmark crude, rose from $81 in September to $95 in November. Part of the increase may be due to the declining value of the dollar. Global oil prices are dollar-denominated, and the dollar has fallen about 8 percent against major currencies since June. However, the weaker dollar only accounts for a small portion of the more than doubling of oil prices in the past two years. Clearly the increase in WTI prices is not a local phenomenon, but reflects global pricing pressures. As the global economy recovers, oil demand has grown. EIA estimates that world oil demand averaged 83.61 million barrels a day in Q1/09 (the lowest point of the recession). In Q2/10, well into the U.S. recovery, world oil consumption averaged 86.36 million barrels per day, an increase of 2.75 million barrels. Growing demand is clearly exerting upward pressure on prices. December 2010 ©2010, Greater Houston Partnership Page 1 HOUSTON—THE ECONOMY AT A GLANCE The markets seem to be anticipating a gradual increase in prices, not speculating that prices will dramatically rise. Though the Commodity Futures Trading Commission’s Interagency Task Force reported that the pre-recession run-up in oil prices was “largely due to fundamental supply and demand factors,” many analysts believe that skyrocketing oil prices resulted from speculators entering the commodities market after they could no longer find the returns they had previously enjoyed in the equities market. As of this writing, the NYMEX futures market is pricing light sweet crude for December ’11 delivery at $88.56 per barrel―an increase, but not a dramatic one, from current spot prices. The markets seem to be suggesting that current prices are here to stay at least for another year. What does this outlook mean for the Houston economy? It suggests continued growth in oil exploration and production activities. According to the University of Houston’s Institute for Regional Forecasting, approximately one-third of our economic base (those sectors that produce goods and services for export outside the region) is dependent on upstream energy. High world oil prices also sustain the competitiveness of Houston’s petrochemical and plastics industries. Gulf Coast petrochemicals manufacturers, unlike many of their counterparts elsewhere, rely heavily on natural gas as a feedstock. As a rule of thumb, Gulf Coast plants can compete on the world market so long as the ratio of oil price per barrel to gas price per mcf (thousand cubic feet) exceeds six. With natural gas selling at less than $4 per mcf and oil at more than $80 per barrel, that ratio exceeds 20, making U.S. chemicals and plastics highly competitive. Note: Through the first nine months of this year, the U.S. exported $85.4 billion in plastics and organic chemicals, of which $15.3 billion shipped out of Houston. Though it’s intuitively obvious to anyone who lives here, higher oil prices are good for Houston. And at least for the near future, it looks like higher oil prices are here to stay. Employment Growing Slowly — The 10-county Houston-Sugar Land-Baytown Metropolitan Statistical Area gained 6,200 jobs, growing 0.2 percent, from October ’09 to October ’10, according to estimates by the Texas Workforce Commission. October marked the second consecutive month of year-over-year increases, another sign that the Houston economy is slowly recovering. Several sectors posted job gains over the past 12 months: health care and social assistance, 8,100 jobs (3.1 percent); durable goods manufacturing, 5,100 jobs (3.7 percent); mining and logging, 3,700 jobs (4.2 percent); leisure and hospitality, December 2010 ©2010, Greater Houston Partnership Page 2 HOUSTON—THE ECONOMY AT A GLANCE 3,600 jobs (1.6 percent); private educational services, 700 jobs (1.6 percent); and retail trade, 500 jobs (0.2 percent). Within professional services, architecture and engineering added 1,100 jobs (1.8 percent) and employment services added 600 jobs (1.3 percent) over the past year. However, legal services lost 300 jobs (1.3 percent), accounting lost 1,300 jobs (7.6 percent) and administrative support and waste services lost 3,000 jobs (1.9 percent) respectively, erasing job gains elsewhere in professional services. On a month-to-month basis, October saw a significant jump in construction employment, which was up 2,400 jobs (1.4 percent) since September, but down 4,700 jobs from October ’09 and 37,500 jobs from its peak in October ’08. Retail trade added 1,000 jobs in October due to additional hiring for the holidays. Though the government sector added 8,400 jobs in October (6,500 jobs in state and local education), the sector is down 1,200 jobs (0.3 percent) from October of last year. GHP will release its job growth forecast for next year on December 15th. New Building Contracts — Contracts for the construction of new buildings in the 10-county Houston metropolitan area totaled $507 million in October ’10, down 17 percent from $608 million in October ’09, reports McGraw Hill Construction. Residential contracts fell 3.5 percent, from $358 million last October to $345 million this October. Nonresidential contracts fell 36 percent from $250.2 million last October ’09 to $161 million this October. This is the lowest level of monthly commercial construction activity in the past six years. On an annual basis, residential construction totaled $4.98 billion for the 12 months ending October ’10, up 8.0 percent from $4.61 billion the same period last year. The first-time homebuyer’s tax credit stimulated construction earlier in the year and thus boosted the annual construction totals. April, May and June were three of the best months for new home construction in Houston since the summer of ’08. Over the past year and a half, the annualized total has bounced between $4.63 and $5.19 billion, suggesting that residential construction market is trying to find the bottom. Non-residential construction totaled $2.95 billion for the 12 months ending October ’10, down 29 percent from $4.16 billion during the same period last year. This is the lowest level of annualized activity in more than 10 years. The key to recovery in both residential and commercial construction is jobs. The region needs significant job growth to stimulate new household formation, consumer confidence, and demand for housing. Until job growth starts to absorb December 2010 ©2010, Greater Houston Partnership Page 3 HOUSTON—THE ECONOMY AT A GLANCE significant amounts of empty office and industrial space, commercial construction will focus primarily on build-to-suits. There will be very little speculative construction. Houston Maintains Low Cost of Living — In Q3/10, the cost of living in Houston was 19 percent below the average for 27 metropolitan areas over 2 million population and 9 percent below the average for all 314 reporting places, according to the ACCRA Cost of Living Index. The index, produced by the Council for Community and Economic Research, measures differences in the relative cost of consumer goods and services appropriate for a professional or managerial household. Bargain housing costs helped maintain Houston’s low cost of living. In Q3/10, housing costs in Houston were 38 percent below the major metro average and 21 percent below the average of all 314 reporting places. According to the ACCRA survey, the same new house that cost $210,639 in Houston in Q3/10 cost $322,278 in Miami, $428,500 in Boston, $597,244 in Washington, D.C., and $721,089 in San Francisco. The cost of grocery items in Houston was also the lowest among the major metro areas, 18 percent below the major metro average and 12 percent below the national average. Houston did not differ significantly from the nationwide average on the other components: utilities, transportation, health care, and miscellaneous goods and services. Trade Continues to Grow — The Houston-Galveston Customs District recorded trade valued at $154.4 billion for the first nine months of ’10, up 26.8 percent from $121.7 billion during the same period last year. In addition to the growth in the dollar value of trade, the movement of commodities also increased. 217.8 million short tons passed through the district so far this year, a 7.3 percent increase from the 202.9 short tons processed during the same period in ’09. Exports totaled $68.1 billion, up 25.5 percent from last year; and imports totaled $86.3 billion, up 27.9 percent from ‘09. Five commodities accounted for 73.5 percent of all exports through Houston to date: mineral fuel and oil ($19.3 billion), industrial machinery ($12.3 billion), organic chemicals ($10.2 billion), plastics ($5.1 billion) and electric machinery ($3.2 billion). Five commodities accounted for 84.6 percent of all imports through Houston so far this year: mineral fuel and oil ($57.7 billion), industrial machinery ($6.2 billion), iron and steel ($3.8 billion), organic chemicals ($2.8 billion) and electric machinery ($2.5 billion). December 2010 ©2010, Greater Houston Partnership Page 4 HOUSTON—THE ECONOMY AT A GLANCE ____________________________________ Patrick Jankowski, Marycruz García and Jenny Hsu contributed to this issue of The Economy at a Glance. The Greater Houston Partnership is the primary advocate of Houston’s business community and is dedicated to building regional economic prosperity. Visit the Greater Houston Partnership on the World Wide Web at www.houston.org. Contact us by phone at 713-844-3600. December 2010 ©2010, Greater Houston Partnership Page 5 HOUSTON—THE ECONOMY AT A GLANCE Houston Economic Indicators A Service of the Greater Houston Partnership Month ENERGY U.S. Active Rotary Rigs Spot Crude Oil Price ($/bbl, West Texas Intermediate) Spot Natural Gas ($/MMBtu, Henry Hub) UTILITIES AND PRODUCTION Houston Purchasing Managers Index Nonresidential Electric Current Sales (Mwh, CNP Service Area) CONSTRUCTION Total Building Contracts ($, Houston MSA) Nonresidential Residential Building Permits ($, City of Houston) Nonresidential New Nonresidential Nonresidential Additions/Alterations/Conversions Residential New Residential Residential Additions/Alterations/Conversions Multiple Listing Service (MLS) Activity Closings Median Sales Price - SF Detached Active Listings EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Goods Producing (Natural Resources/Mining/Const/Mfg) Service Providing Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Texas U.S. Unemployment Insurance Claims (Gulf Coast WDA) Initial Claims Continuing Claims TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Air Passengers (Houston Airport System) Domestic Passengers International Passengers Landings and Takeoffs Air Freight (000 lb) Enplaned Deplaned CONSUMERS New Car and Truck Sales (Units, Houston MSA) Cars Trucks, SUVs and Commercials Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA United States Hotel Performance (Harris County) Occupancy (%) Average Room Rate ($) Revenue Per Available Room ($) POSTINGS AND FORECLOSURES Postings (Harris County) Foreclosures (Harris County) Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Oct '10 Sep '10 Sep '10 Sep '10 Sep '10 Sep '10 Sep '10 Sep '10 Sep '10 Oct '10 Oct '10 Oct '10 1Q10 Oct '10 Oct '10 2Q10 2Q10 2Q10 Oct '10 Oct '10 MONTHLY DATA Most Recent 1,668 81.61 3.41 54.7 4,440,869 507,190,000 161,367,000 345,823,000 273,820,045 221,589,058 136,007,462 85,581,596 52,230,987 38,548,245 13,682,742 4,404 150,000 53,039 2,525,800 484,000 2,041,800 8.2 7.9 9.0 22,280 81,316 3,462,579 3,730,344 3,141,148 589,196 69,305 74,524 37,420 37,104 23,222 9,805 13,417 20,456 195.094 218.711 57.6 95.17 54.84 4,035 1,268 Year % Earlier Change 1,044 75.45 3.83 50.6 4,287,315 608,467,000 250,230,000 358,237,000 231,685,840 172,852,224 62,415,316 110,436,908 58,833,616 41,467,258 17,366,358 5,777 149,000 45,424 2,519,600 482,400 2,037,200 8.1 8.0 9.5 25,834 121,479 2,967,041 3,621,402 3,101,961 519,441 67,137 63,293 32,221 31,072 17,366 8,278 9,088 18,791 191.608 216.177 57.5 98.64 56.72 4,198 1,068 -13.8 -33.1 16.7 3.0 1.3 13.4 3.2 17.7 16.1 19.4 33.7 18.4 47.6 8.9 1.8 1.2 59.8 8.2 -11.1 8.1 3.6 -16.6 -35.5 -3.5 18.2 28.2 117.9 -22.5 -11.2 -7.0 -21.2 -23.8 0.7 16.8 0.2 0.3 0.2 YEAR-TO-DATE TOTAL OR AVERAGE* Most Recent 1,514 * 77.71 * 4.40 * 54.8 * 42,397,769 6,841,880,000 2,628,226,000 4,213,654,000 2,745,715,704 1,902,676,812 704,275,893 1,198,400,919 843,038,892 646,894,210 196,144,682 51,529 152,958 * 51,228 * 2,512,800 * 476,900 * 2,035,900 * 8.5 * 8.2 * 9.7 * 24,346 * 108,859 * 29,820,234 37,016,382 30,612,812 6,403,570 639,030 657,990 343,241 314,749 206,636 91,914 114,722 20,456 194.080 * 217.868 * 55.3 * 94.50 * 52.30 * 39,072 11,770 Year Earlier 1,078 * 59.30 * 3.77 * 43.6 * 41,889,253 7,341,271,000 3,333,222,000 4,008,049,000 3,272,973,784 2,528,807,814 1,168,756,203 1,360,051,611 744,165,970 549,329,590 194,836,380 53,117 151,015 * 45,480 * 2,555,400 * 507,700 * 2,047,700 * 7.2 * 7.2 * 8.8 * 25,197 * 127,297 * 27,265,449 36,408,206 30,484,815 5,923,391 663,537 557,247 296,161 261,086 187,157 87,957 99,200 18,791 190.375 * 214.217 * 60.1 * 100.52 * 60.43 * 33,245 9,020 -3.4 -14.5 9.4 1.7 0.4 8.1 -3.7 18.1 15.9 20.6 10.4 4.5 15.6 8.9 1.9 1.7 % Change 40.4 31.1 16.8 25.7 1.2 -6.8 -21.2 5.1 -16.1 -24.8 -39.7 -11.9 13.3 17.8 0.7 -3.0 1.3 12.6 -1.7 -6.1 -0.6 -3.5 -3.3 -3.9 18.7 -6.0 -13.5 17.5 30.5 December 2010 ©2010, Greater Houston Partnership Page 6 HOUSTON—THE ECONOMY AT A GLANCE Sources Rig Count Spot WTI, Spot Natural Gas Houston Purchasing Managers Index Electricity Building Construction Contracts City of Houston Building Permits MLS Data Employment, Unemployment Baker Hughes Incorporated U.S. Energy Information Agency National Association of Purchasing Management – Houston, Inc. CenterPoint Energy McGraw-Hill Construction Building Permit Department, City of Houston Houston Association of Realtors® Texas Workforce Commission Port Shipments Aviation Car and Truck Sales Retail Sales Consumer Price Index Hotels Postings, Foreclosures Port of Houston Authority Aviation Department, City of Houston TexAuto Facts Report, InfoNation, Inc., Sugar Land TX Texas Comptroller’s Office U.S. Bureau of Labor Statistics PKF Consulting/Hospitality Asset Advisors International Foreclosure Information & Listing Service STAY UP TO DATE! If you would like to receive this electronic publication on the first working day of each month, please email your request for Economy at a Glance to [email protected] Include your name, title and phone number and your company’s name and address. Archived copies are available to Partnership Members in the Members Only section at www.houston.org. For information about joining the Greater Houston Partnership and gaining access to this powerful resource, call Member Services at 713-844-3683. The foregoing table is updated whenever any data change — typically, 11 or so times per month. If you would like to receive those updates by e-mail, usually accompanied by commentary, please e-mail your request for Key Economic Indicators to [email protected] with the same identifying information. You may request Glance and Indicators in the same e-mail. December 2010 ©2010, Greater Houston Partnership Page 7 HOUSTON—THE ECONOMY AT A GLANCE HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Oct '10 Total Nonfarm Payroll Jobs Total Private Goods Producing Service Providing Private Service Providing Mining and Logging Oil & Gas Extraction Support Activities for Mining Construction Manufacturing Durable Goods Manufacturing Nondurable Goods Manufacturing Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Utilities Air Transportation Truck Transportation Pipeline Transportation Balance, incl Warehousing, Water & Rail Transport Information Telecommunications Finance & Insurance Real Estate & Rental and Leasing Professional & Business Services Professional, Scientific & Technical Services Legal Services Accounting, Tax Preparation, Bookkeeping Architectural, Engineering & Related Services Computer Systems Design & Related Services Admin & Support/Waste Mgt & Remediation Administrative & Support Services Employment Services Educational Services Health Care & Social Assistance Arts, Entertainment & Recreation Accommodation & Food Services Other Services Government Federal Government State Government State Government Educational Services Local Government Local Government Educational Services SOURCE: Texas Workforce Commission 2,525.8 2,150.1 484.0 2,041.8 1,666.1 91.0 51.8 38.2 171.2 221.8 143.1 78.7 128.6 263.3 121.4 16.5 23.8 18.9 8.8 53.4 32.2 17.2 86.6 50.1 349.3 170.4 22.8 15.7 61.3 23.5 158.5 151.4 51.6 43.5 266.0 27.5 206.0 91.6 375.7 28.6 71.8 38.7 275.3 187.9 Sept '10 2,516.3 2,149.0 480.7 2,035.6 1,668.3 90.5 51.3 38.1 168.8 221.4 142.5 78.9 128.4 262.3 120.5 16.5 24.0 18.7 8.9 52.4 32.1 17.1 86.5 50.5 351.0 169.4 22.8 15.4 61.2 23.3 161.3 153.9 50.8 43.2 265.5 28.8 207.5 92.0 367.3 28.4 70.6 38.0 268.3 182.1 Oct '09 2,519.6 2,142.7 482.4 2,035.9 1,660.3 87.3 49.1 37.0 175.9 219.2 138.0 81.2 130.0 262.8 121.2 16.5 24.2 18.6 8.7 53.2 33.8 18.0 87.6 50.7 352.9 172.9 23.1 17.0 60.2 23.7 161.5 153.6 51.0 42.8 257.9 26.9 203.0 90.7 376.9 29.1 70.9 37.7 276.9 191.6 Change from Sept '10 Oct '09 9.5 1.1 3.3 6.2 -2.2 0.5 0.5 0.1 2.4 0.4 0.6 -0.2 0.2 1.0 0.9 0.0 -0.2 0.2 -0.1 1.0 0.1 0.1 0.1 -0.4 -1.7 1.0 0.0 0.3 0.1 0.2 -2.8 -2.5 0.8 0.3 0.5 -1.3 -1.5 -0.4 8.4 0.2 1.2 0.7 7.0 5.8 6.2 7.4 1.6 5.9 5.8 3.7 2.7 1.2 -4.7 2.6 5.1 -2.5 -1.4 0.5 0.2 0.0 -0.4 0.3 0.1 0.2 -1.6 -0.8 -1.0 -0.6 -3.6 -2.5 -0.3 -1.3 1.1 -0.2 -3.0 -2.2 0.6 0.7 8.1 0.6 3.0 0.9 -1.2 -0.5 0.9 1.0 -1.6 -3.7 % Change from Sept '10 Oct '09 0.4 0.1 0.7 0.3 -0.1 0.6 1.0 0.3 1.4 0.2 0.4 -0.3 0.2 0.4 0.7 0.0 -0.8 1.1 -1.1 1.9 0.3 0.6 0.1 -0.8 -0.5 0.6 0.0 1.9 0.2 0.9 -1.7 -1.6 1.6 0.7 0.2 -4.5 -0.7 -0.4 2.3 0.7 1.7 1.8 2.6 3.2 0.2 0.3 0.3 0.3 0.3 4.2 5.5 3.2 -2.7 1.2 3.7 -3.1 -1.1 0.2 0.2 0.0 -1.7 1.6 1.1 0.4 -4.7 -4.4 -1.1 -1.2 -1.0 -1.4 -1.3 -7.6 1.8 -0.8 -1.9 -1.4 1.2 1.6 3.1 2.2 1.5 1.0 -0.3 -1.7 1.3 2.7 -0.6 -1.9 December 2010 ©2010, Greater Houston Partnership Page 8 HOUSTON—THE ECONOMY AT A GLANCE Q3/10 COST OF LIVING COMPARISONS: SELECTED METROS New York-Newark-Edison NY-NJ-PA 54.4 Los Angeles-Long Beach-Santa Ana CA 41.3 Washington-Arlington-Alexandria DC-VA-MD-WV 35.1 Boston-Cambridge-Quincy MA-NH 32.4 Miami-Fort Lauderdale-Miami Beach FL 10.5 Chicago-Naperville-Joliet IL-IN-WI 7.4 Denver-Aurora CO 3.9 Atlanta-Sandy Springs-Marietta GA -5.3 Dallas-Fort Worth-Arlington TX -5.9 Houston-Sugar Land-Baytown TX -9.0 % Below/Above Nationwide Average Source: ACCRA HOUSTON MSA EMPLOYMENT 2001-2011 2.65 2.60 2.55 NONFARM PAYROLL EMPLOYMENT (000,000) 160 140 120 100 80 60 40 20 0 -20 -40 -60 -80 -100 -120 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 JOBS 2.50 2.45 2.40 2.35 2.30 2.25 2.20 2.15 2.10 2.05 2.00 1.95 Jan-01 Jan-08 Jan-09 Jan-10 Jan-11 12-MONTH CHANGE Source: Texas Workforce Commission December 2010 ©2010, Greater Houston Partnership 12-MONTH CHANGE (000) Page 9 HOUSTON—THE ECONOMY AT A GLANCE GOODS-PRODUCING AND SERVICE-PROVIDING EMPLOYMENT HOUSTON MSA 2001-2011 550 540 530 520 GOODS-PRODUCING (000) 510 500 1.95 490 1.90 480 1.85 470 460 450 440 430 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 1.80 1.75 1.70 1.65 1.60 Jan-11 2.25 2.20 2.15 2.10 2.05 2.00 SERVICE-PROVIDING (000,000) GOODS-PRODUCING JOBS SERVICE-PROVIDING JOBS Source: Texas Workforce Commission UNEMPLOYMENT RATE HOUSTON & U.S. 2001-2011 11 10 9 8 PERCENT OF LABOR FORCE 7 6 5 4 3 2 1 0 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 HOUSTON Jan-07 U.S. Jan-08 Jan-09 Jan-09 Jan-11 Source: Texas Workforce Commission December 2010 ©2010, Greater Houston Partnership Page 10 HOUSTON—THE ECONOMY AT A GLANCE SPOT MARKET ENERGY PRICES 2001 - 2011 140 28 120 24 100 20 80 16 60 12 40 8 20 4 0 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 GAS MONTHLY 0 Jan-08 Jan-09 GAS 12-MO AVG Jan-10 Jan-11 WTI MONTHLY WTI 12-MO AVG Source: U.S. Energy Information Administration INFLATION: 12-MONTH CHANGE 2001-2011 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 HOUSTON CPI-U Jan-06 Jan-07 U.S. CPI-U Jan-08 Jan-09 Jan-10 Jan-11 Source: U.S. Bureau of Labor Statistics December 2010 ©2010, Greater Houston Partnership HENRY HUB NATURAL GAS ($/MMBTU) WEST TEXAS INTERMEDIATE ($/BBL) Page 11