GHP 2010 EconomicForecast

8/14/2019 GHP 2010 EconomicForecast

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December 14, 2009 2009, Greater Houston Partnership

A publication of the Greater Houston Partnership December 14, 2009

The short version of the Greater Houston Partner-ships 10 employment forecast is that metropolitanHouston, which probably lost nearly 93,000 jobsthis year (December to December), will end 10with a net gain of 1,900. The good news in thisforecast is that Houston comes to next Decembermoving in the right direction. Job losses cease

around mid-year, and Q3/10 brings the first blush ofjob growth in Houstons nascent recovery.

Whats Driving the Houston Economy?

To understand whats going on in this forecast, letsset the stage by reviewing how we arrived where weare today.

For several years, three external factors have chan-

neled the growth of Houstons economy: energyprices, the health of the national economy, and thevalue of the dollar against other major currencies.Those drivers remain operativebut now theres anadded factor in play.

August 07 brought the first blush of what became acrippling worldwide credit crunch. No industry or

regionnot even Houstonhas been immune to itseffects. Houston, however, was sheltered for an-other year or so by the sharp run-up in energyprices, which by July 08 had seen the price of WestTexas Intermediate (WTI) crude oil nearly triplefrom less than $53 per barrel in early 07 to morethan $147, while Henry Hub natural gas more than

doubled, from less than $6 per 1,000 cu.ft. insummer 07 to more than $13. The stimulative ef-fects of high and rising energy prices shieldedHouston for a time from the worst effects of sharplyreduced credit.

As recession became entrenched in most developedeconomies in 08, worldwide energy demand felland with it, energy prices tumbled. By the end of08, WTI was below $40, Henry Hub natural gashad once again fallen below $6, the world wasawash in crude oil, and natural gas was plentiful

Compounding these setbacks, real GDP growthposted the first of four consecutive quarters of con-traction in Q3/08, and international trade shrank ascredit and demand dried up. Without the shield ofhigh commodity prices, Houston was exposed to thebrunt of the worst recession in seven decades. Jobgrowth here slowed rapidly, and then turned nega-tive early in 09.

This year has seen some easing in creditavailability, but tight credit remains a constraint on

much business activityespecially in commercialreal estate, which faces massive refinancingdemands in 10.

What of the three long-term drivers?

While real GDP growth returned in Q3/09, thatgrowth is far from robust. Most forecasts for 10call for 1.9 to 2.7 percentless than the 3 percent

2010 EMPLOYMENT FORECAST

Houston MSA Employment Forecast 2010

Sources: Estimates 12/05-10/09, Texas Workforce Comm ission; forecasts 11/09-12/10, Gre ater Houston Partnership


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HOUSTON2010 EMPLOYMENT FORECAST


jobs in fabricated metal products manufacturing and

6,600 in architectural and engineering services.

International trade: Houston has long occupied a

prominent position in international business. Its

ironic that international trade now appears to havemade Houston more vulnerable than the other large

Texas metros to the steep worldwide drop in trade

induced by limited credit availability. From Decem-

ber 08 to December 09, wholesale trade employ-

ment in Houston fell about 11.7 percent, costing

16,400 jobs. The related category of transportation

that includes warehousing, water transport and rail

transport is likely to have shed another 10,000 jobs,

down 17.9 percent.

Those three stories involve industries that representmore than two-thirds of the job loss we project

Houston to have sustained this yearand that tally

doesnt include the effects of upstream energy re-

ductions on such industries as retail trade, food ser-

vices, entertainment and recreation, and personal

services. Accordingly, what happens to them is like-

ly to dominate Houstons employment picture next

year.

Whats in Store for 2010

On balance, the Houston metro area should eke out

a net job gain1,900 jobsnext year. Thats the

end product of gains and losses for individual in-

dustries that respond in different ways to economic

developments. As we turn to a detailed look at next

year (see table, p. 6), we emphasize that the precise

numbers in a forecast arent as important as under-

standing the reasons underlying the forecast. Being

aware of what drives a forecast allows one to adjust

expectations when unanticipated changes occur.

Upstream energy: On the assumption that U.S. real

GDP grows 1.9 percent (most other forecasts are a

bit higher) and world real oil-consumption-

weighted GDP grows 2.6 percent next year, the

U.S. Energy Information Administration (EIA)

expects the price of West Texas Intermediate crude

to be little changed in 10, averaging about $79 for

the year and edging above $81 in Q4. On the other

hand, EIA sees total domestic natural gas

consumption declining 0.4 percent as some power

generation shifts away from natural gas to new

coal-fired generation, more than offsetting risingresidential, commercial and industrial gas usage. In

EIAs forecast, natural gas prices are pushed higher

by declining production, but remain below $5

through Q3, rising to $5.20 in Q4. These

inauspicious scenarios for growth in exploration

and production activity suggest continuation of this

years corporate and field layoffs into 10. Even

though most of the majors are involved in multi-

year projects that are not strongly influenced by

short-term price movements, recently announced

job cuts and budget reductions at some leadin

firms indicate that E&P employment in Houston

will decline by nearly 2 percent in 10. Oilfield ser-

vices firms, which are likely to have eliminated

about 5,100 jobs this year, could easily drop another

1,400 in 10. Overall, we expect mining and logging

employment to decline by 2,300 jobs, or 2.6

percent. This loss, of course, will have ripple effects

on industries that depend heavily on consumers

discretionary spending.

Construction: Aside from potential federal stimulus

spending and tax incentives, theres little to spark

construction in Houston next year. Except in special

cases, strict lending standards pose a daunting chal-

lenge to financing most projects of any type.

Single-family residential constructionperhaps

buoyed by federal tax credits, but still con-

strained by strict lending standardsis unlikely

next year to see much more than a repetition ofthis years 15,000 or so starts.

At a time when apartments are plentiful, when a

difficult job market is compelling some young

adults to return to their parental homes, and

when financing for new complexes is exceed-

ingly tight, multi-family construction should re-

main at a low level.


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Declining employment has all but eliminated

demand for new general purpose office space.

Groundbreaking on new industrial projects,

CBRE reports, has fallen to a near standstill

amidst concerns of overbuilding as well as a

lack of money to support proposed projects. This years store closings and decline in con-

sumer spending have dampened retail prospects,

and the credit crunch makes prospects for retail

construction next year dim. CBRE opines:

New construction should continue to decline

rapidly due to the inability of developers to find

affordable financing and meet higher pre-

leasing requirements set by lenders.

Even public works construction is suffering. De-

spite the prospects for rising enrollments, some

local school districts have deferred issuing

bonds for new school construction because de-

clining property values threaten tax revenues.

Projects for which funding is either already as-

sured or not burdened by credit constraints

METROs light rail, for instanceshould go

forward.

While 09 probably saw the brunt of the hits to con-

struction employment in the Houston region, a fur-

ther modest decline in 10 seems unavoidable. ThePartnership expects this loss to run to 5,500 jobs, or

3.1 percent, despite a slight uptick in heavy and

civil engineering construction.

International trade: Unfortunately, the industry

definitions used by the Bureau of Labor Statistics to

tally employment data dont permit us to isolate in-

ternational trade. We gain some insight to whats

going on by looking at wholesale trade and the resi-

dual category in transportation and warehousing

that includes warehousing, waterbornetransportation and rail transportation as primary

components.

As developed economies worldwide fell into reces-

sion, demand for goods declined, and international

trade shipments declined precipitously. Oil consti-

tutes a sufficiently large portion of imports to the

Port of Houston to mask what happens with other

commodities. Excluding mineral fuels, the 12-

month total volume of Port of Houston imports and

exports peaked in August 08 and then fell 19.0 per-

cent over the next 12 months before posting a slight

improvement to a decline of 18.4 percent this Sep-tember (the latest data available at this writing).

Had demand abroad not contracted, the weakening

of the dollar in 09 would have made Houston ex-

ports more attractive. With economic growth now

accelerating in some Asian economies (e.g., India

and China) and returning in some developed econo-

mies (e.g., Germany and France), trade volumes

should improveand Houston certainly hasnt los

its capacity to handle international trade. Q3/09

brought solid gains in imports and exports at the na-tional level, brightening the prospects for further

growth in 10. These prospects underpin the Part-

nerships expectation that wholesale trade in Hous-

ton next year will regain 5,200 of the 16,400 jobs it

lost this year, and that the unpublished conglom-

erate of industries that includes warehousing, wa-

terborne transportation, and rail transportation wil

add back 2,900 of the 10,000 jobs it lost this year.

What of other industries with large numbers of jobs

in Houston?

Manufacturing declines for a second consecutive

year in this forecastbut by only 2.1 percent, ver-

sus 7.5 percent this year. About three-fourths of the

4,800 manufacturing jobs expected to be lost in 10

are in fabricated metal products manufacturing

Houston MSA Job Change by Industry 2008-2010

-25

-20

-15

-10

-5

0

5

10

Mining&Logging

Construction

Manufacturing

WholesaleTrade

RetailTrade

Transp,Whsng&Util

Information

Finance&Insurance

RealEst&Rent/Lease

Prof&BusinessSvcs

EducationalSvcs

Health&SocAssist

Arts,Entertain&Rec

Lodging&FoodSvcs

OtherServices

Government

NetChange(000)


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which is adversely affected by dwindling construc-

tion activity.

Retail trade, which will have lost a bit more than

10,000 jobs this year, nearly breaks even in 10,

shedding just 400 jobsless than it lost in 08. This

forecast anticipates rising consumer confidence asjob losses abate in the first half of 10 and gains ap-

pear in the second half. An expanding consumer

market adds support for retail trade employment:

population growth in this decade has consistently

exceeded 100,000 persons per year in the 10-county

metropolitan area.

Professional, scientific and technical services,

which saw employment decline about 3.3 percent

this year, ends next year almost even as a continued

decline into summer is reversed. This sector is bu-

oyed by a second year of 4.0 percent growth in

computer systems design and a 2.1 percent gain in

legal services. Architectural and engineering

services, however, are expected to decline 1.9

percent after a 9.8 percent drop this year, hurt by

both the continued decline in construction activity

and the less-than-robust outlook for upstream ener-

gy.

Administrative and support services is expected to

reverse this years loss of 5,200 jobs with a net gain

of 5,400. A solid advance in employment

servicesa harbinger of growth in permanent

jobsmore than offsets mild declines in other

fields, including services to buildings. Hiring

temporary workers is frequently managements first

response when demands from an improving

economy outstrip the production capacity of current

staff.

Health care and social assistance isnt immune torecessionary pressures, but its dominant health care

component also is driven by the growth and aging

of the population it serves. This forecast sees job

growth slowing from 2.0 percent this year to 1.6

percent next year. Revenue flows constrain growth

in health care, and demand for social services eases

in the latter part of the year.

Accommodation and food services ekes out a net

gain of 0.5 percent in 10. The year is a difficult one

for the lodging industry, but an improving regional

economy moving toward 11 should bolster restau-

rants and other food services.

Government should add 4,100 jobsa 1.1 percentincreaseas 4,800 jobs added in public education

more than offset a modest decline in other govern-

mental functions. The gains in public education are

predicated not only on population growth, but also

on the rise in demand for additional education and/

or vocational training that typically occurs in a re-

cession, when laid-off workers and entrants to the

work force who cant find employment seek to up-

grade their skills. The forecast for government also

recognizes that many political jurisdictions are see-ing reduced revenues from property and sales taxes.

One of many uncertainties that could alter this fore-

cast is the extent of additional federal actions to

blunt the inroads made by this recession. The antici-

pated expansion in public education in this forecast

assumes that funding will be availablesomething

that may depend on federal assistance. Elsewhere

however, this forecast does not assume any addi-

tional federal intervention. A wide range of policy

actions that have been discussed in recent weekscould provide greater gains or smaller losses than

this forecast anticipates across a wide range of in-

dustries.

The outlook for 10 isnt nearly so dire as was theforecast for 09. We see job losses here continuingwell into 10, but at moderating rates. By the timewe reach the final quarter of next year, employ-menta lagging indicatorshould be on the up-swing. Houstons economy is fundamentally sound

and its well-positioned to return to vigorousgrowth as recession turns to growth across theglobe.


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2010 NONFARM PAYROLL EMPLOYMENT FORECAST

HOUSTON-SUGAR LAND-BAYTOWN MSA

12/08 12/09 12/10 '08 '09 '10 '08 '09 '10

Total Nonfarm Payroll Jobs 2628.1 2535.2 2537.1 22.5 -92.9 1.9 0.9 -3.5 0.

Total Private 2260.6 2161.4 2159.2 19.0 -99.2 -2.1 0.8 -4.4 -0.Goods Producing 541.7 496.7 484.0 14.5 -45.0 -12.7 2.8 -8.3 -2.6

Services Providing 2086.4 2038.6 2053.1 8.0 -47.8 14.6 0.4 -2.3 0.

Natural Resources & Mining 93.7 90.3 88.0 7.6 -3.4 -2.3 8.8 -3.6 -2.

Construction 203.9 180.6 175.1 1.1 -23.3 -5.5 0.5 -11.4 -3.

Manufacturing 244.1 225.7 220.9 5.8 -18.4 -4.8 2.4 -7.5 -2.

Wholesale Trade 140.5 124.1 129.3 3.4 -16.4 5.2 2.5 -11.7 4.

Retail Trade 277.4 267.2 266.8 -0.7 -10.2 -0.4 -0.3 -3.7 -0.

Utilities 16.1 15.9 15.8 0.5 -0.2 -0.1 3.2 -1.2 -0.

Transportation & Warehousing 111.1 100.3 103.5 -2.4 -10.8 3.2 -2.1 -9.7 3.

Information 36.1 34.3 32.9 -0.7 -1.8 -1.4 -1.9 -5.1 -4.

Finance & Insurance 90.8 88.4 86.7 -1.4 -2.4 -1.7 -1.5 -2.6 -1.

Real Estate & Rental and Leasing 53.1 52.2 51.9 0 -0.9 -0.3 0.0 -1.7 -0.

Professional & Business Services 384.7 367.5 367.4 2.9 -17.2 -0.1 0.8 -4.5 0.Educational Services 41.3 42.1 43.0 0.4 0.8 1.0 1.0 1.9 2.

Health Care & Social Assistance 248.6 253.7 257.7 5.3 5.1 4.0 2.2 2.0 1.

Arts, Entertainment & Recreation 24.9 26.1 27.9 -0.2 1.2 1.8 -0.8 4.8 7.

Accommodation & Food Services 204.1 205.5 206.6 -1.2 1.4 1.1 -0.6 0.7 0.

Other Services 90.2 87.5 85.7 -1.4 -2.7 -1.8 -1.5 -3.0 -2.

Government 367.5 373.8 377.9 3.5 6.3 4.1 1.0 1.7 1.

Sources: Estimates 12/07-10/09, Texas Workforce Commission; forecasts 11/09-12/10, Greater Houston Partnership

Employment (000) Change During Year (000) Pct Change During Year

____________________________________

The Greater Houston Partnership is the primary advocate of Houstons 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.

Documents

GHP 2010 EconomicForecast