High oil prices, robust exploration and production activity, and strong international demand for Houston-made equipment for the oil and gas fields have kept the energy sector humming and attracted job-seeking newcomers.
While Houston’s red-hot growth will likely cool somewhat next year with a dip in worldwide energy demand, such key sectors as construction are expected to flourish.
We asked four economic observers – an economist, a recruiter, a banker and an economic developer – for their thoughts on where Houston is headed. Here is what they said:
Q: What words would you use to describe the Houston economy at the moment?
A: “Scalding hot,” said Craig Richard, chief economic development officer for the Greater Houston Partnership. He pointed to the most recent 3.7 percent year-over-year job-creation rate and noted how Houston is outpacing all the other major metro areas.
“We knew health care was picking up, we knew energy was picking up, and now we’re seeing construction taking off,” he said. “It has had a ripple effect throughout the economy. New homes and new commercial construction mean lots of new jobs in a lot of different areas.”
To an oil and gas recruiter, three words – robust, buoyant and consistent – come to mind.
Houston is more robust than the rest of the country, said Jamie Ferguson, vice president of U.S. operations for the recruiting firm Maxwell Drummond. The buoyancy comes from confidence in the energy industry, and growth has been consistent.
But the party can’t last forever.
“I would say the air is coming out of the balloon a little bit,” said Bill Gilmer, director of the University of Houston’s Institute for Regional Forecasting at the Bauer College of Business. “It hasn’t burst, it hasn’t deflated, but it’s a little softer.”
Until now, Houston has outperformed the rest of the United States with gains in energy, manufacturing and other key industries that stem in part from strong worldwide growth that has driven demand for exports.
But some key trading partners – namely China, India and Brazil – have slowed, and Houston is feeling the effect, Gilmer said. The rig count is down, and business for the service providers isn’t as robust as it was.
“All the big positives that were working for Houston are not working quite so well now,” Gilmer said.
Q: Which sectors seem to be doing the best?
A: Real estate is very encouraging, and it’s broad-based, said Gina Luna, chairman of Chase in Houston. That includes office towers, industrial sites, apartments and single-family homes.
Sales of single-family homes are rising, and the supply of available homes continues to fall, she said. Some sellers get multiple offers in one day.
That doesn’t happen in every neighborhood, but people are moving here and buying houses.
“It’s a seller’s market,” Luna said.
Richard points to the improvement of the warehousing, transportation and utilities sector. The industry often lags, but it added jobs at a 4.1 percent rate over the past year.
It reflects the growth of other industries that have to store and ship their products, he said. It’s a sector that measures the health of the local economy.
Q: Which sectors are struggling?
A: Venture-backed technology companies are struggling a bit, Ferguson said. There is an appetite to run more efficient operations, but there is a reluctance, a “general stall,” to adopt new technologies, especially when companies are doing the best they can to meet demand.
Companies are biding their time, he said. If something is working for them now, there is a tendency not to take on additional risk. New technology can be risky; while it might create efficiency, it can be more expensive at the beginning.
The financial sector is also having a tough time, Gilmer said.
Bankers are getting squeezed by increased costs of regulation at the same time they’re getting squeezed by low interest rates when they’re making loans or trying to invest, he said.
Even though Houston has gained thousands of jobs and family incomes are rising, there is still a reluctance to spend, Gilmer said.
Retailers have had a difficult time because consumers are focused on saving for the future and many are still gun-shy about making big expenditures.
Q: Gasoline prices have been hovering between $3.50 and $4 a gallon. At what point will high gas prices affect the behavior of Houstonians by driving less, buying more fuel-efficient vehicles or taking mass transit? Or are we so focused on our cars that higher gas prices won’t play much of a role?
A: When Gilmer’s former job at the Federal Reserve made it easier to take the bus, he could always tell when gasoline prices were surging because the commuter buses would fill up.
So he was surprised this summer when gasoline prices reached nearly $4 a gallon and Houstonians seemed to stay in their cars. Drivers aren’t comfortable with $3.50 to $4 a gallon gas, he said, but they’ve learned to live with it to some extent.
“People have adopted a new normal,” Luna said.
While she believes fuel prices are abnormally high for this time of year because of refinery disruptions on the West Coast, prices should eventually settle between $3.25 and $3.50 a gallon.
Drivers are adapting, Luna said. When Houston gets more rail lines, some commuters will likely rely more on public transportation.
Q: How do you foresee hiring in Houston during the next six months? Will it be stronger or not as strong as it has been?
A: “I think there will be a plateau,” said Ferguson, who believes uncertainty over the presidential election and low natural gas prices will help keep the economy on its current path.
Some organizations are struggling with their strategy going forward, he said. There is a bit of a “wait and see” going on right now.
“It’s hard to imagine it being any stronger than it is now,” said Richard, who calls the current pace of job growth – 96,600 new jobs during the past 12 months – torrid.
“I don’t think it’s sustainable,” he said. “Not at that pace.”
Even if Houston comes off its 3.7 percent year-over-year growth rate, he said, growth is likely to remain strong.
Houston would still be the envy of other cities even if its year-over-year growth rate dipped to 2.5 percent to 3 percent, Richard said.
Q: Do you think Houstonians are confident enough to support the various bond proposals in the upcoming election to pay for improvements in libraries, fire stations, parks, new schools and new roads? Or will they hold back in their public spending?
A: Houstonians probably have enough confidence in the economy to make the investments, Gilmer said, but he’s not sure they trust the political system to spend their money wisely.
“I hope they recognize the need,” Gilmer said. “We’re a growing city, and infrastructure is an important investment. Houston is pro-growth city.”
Many residents recognize that to be a truly great city, Houston has to invest in its infrastructure, Luna said. It’s also an important factor in attracting newcomers.
People and companies are moving to Houston, she said. And infrastructure is an important factor in how the city competes.
Q: Are you planning to spend more or less on your holiday shopping this year? What about other Houstonians? Do they feel flush or strapped?
A: Houstonians have jobs and they feel in control of their finances, Luna said, referring to recent research by Chase on local consumers. They’re not worried that they owe more on their houses than their houses are actually worth.
Houstonians are also more optimistic than consumers in other parts of the country, Luna said. Those signs taken together point to good holiday sales, she added.
Spending is up, Richard said, pointing to recent sales tax receipts. The recent surge in home sales will spur other home-related purchases such as furniture and home-improvement projects.
“I think we’ll have a good Christmas,” he said.
Q: Are construction and real estate on their way back? And are they here to stay?
A: The real estate market is on the way up, and construction is unlike any other in the country, Ferguson said.
Houston has become a bit of a mecca during the last few years, he said. People are coming for energy jobs, which ensures the real estate market will be fairly robust in coming years.
Richard doesn’t have to look far for signs of progress.
About five years ago, he bought a house in a new neighborhood near Ellington Airport. Construction came to a halt two or three years ago, but Richard began to notice the bulldozers again this spring. Now it seems every available lot is under construction.
“That’s happening in pockets all across the city,” he said.
And many of those houses are getting sold to people who drive cars with out-of-state license plates.