HOUSTON – (By Michelle Leigh Smith, Realty News Report) – Patrick Jankowski, the Greater Houston Partnership’s Senior Vice President, Research and Regional Economist, says he’s cautiously optimistic about the Houston economy for 2018.
“I’m more excited about 2018 than I was about 2017 – we were dealing with a loss of 28,900 energy jobs, a loss of one in every four in the industry since December of 2014. Oil field equipment manufacturing, considered by many as part of the industry, lost 19,500 jobs, nearly half its workforce,” Jankowski said Friday in a luncheon speech. “The recent upturn in drilling has induced some hiring in oil field services, but exploration and production as well as equipment manufacturing, continues to cut staff. Any job loss ripples through the economy because the energy industry pays better than any other industry in Houston and for the most party, those salaries are spent here.”
He says he is not so bothered by the fact that Houston is not a job leader at the moment. “We were number one for so many years in a row, we should not feel bad when we’re not in front of the pack.”
There are other qualities, he says, that companies are considering when they look at Houston.
Houston’s Big Three Events
Jankowski described 2017 as a year of three defining events – the Super Bowl, Hurricane Harvey and the capture of the crown in the World Series. “We saw how everyone volunteered to show off Houston at its very best during the Super Bowl,” he says. “During Harvey, we saw how people responded with compassion, coming out in their boats or donating clothing and food. And in the World Series victory, we saw how an immigrant from Venezuela was named the Most Valuable Player. We all came together in the spirit of compassion and cooperation. When we make pitches to companies to get them to relocate here, they look at the quality of our workforce and we have three good examples here that show the sort of people who live and work here. That is something the numbers don’t show you.”
Jankowski’s job-growth forecast for 2018 calls for the creation of 45,500 jobs in the nine-county region encompassed by the Greater Houston Partnership. He bases that figure which is 15,000 less than a normal year, on the Energy Department’s prediction that oil will stay below $55 per barrel in 2018.
He says the purpose of his report is to provide a clearer understanding of the trends driving growth or losses to help the business community make better investment, staffing and purchase decisions. “Given the uncertainty surrounding oil prices, geopolitics and the climate in Washington, D.C., the more insight, the better.”
“Expect to see more layoffs in information and construction – we have a quarter of what we had under construction two years ago,” Jankowski told the crowd at the annual Houston Region Economic Outlook forecast at the Royal Sonesta Hotel. For the 12 months ending October 2017, city building permits totaled $5.7 billion, down 21 percent from the $7.2 billion in the 12 months ending October 2016. “Employment will remain flat in energy.”
Yet there are bright spots, positive signs like the fact that the rig count is up by 332 or 55.6 percent from the 597 operating in early December last year. Baker Hughes reports 929 drilling rigs working in North America the first week of December. The spot price for Henry Hub natural gas averaged $3.02 per million BTUs in November, up 18.3 percent from an average of $2.55 in November 2016.
Around one-third of Houston’s Gross Domestic Product is tied directly to oil and gas. “This figure does not include energy’s impact on wholesale trade, transportation, and professional services,” Jankowski says. “Nor does it account for how much of their paychecks energy workers spend at the grocers, in local restaurants or at the drug store. Factor in those expenditures and energy’s impact on local GDP is significantly higher. The U.S. Energy Information Administration (EIA) forecasts West Texas Intermediate to trade on the spot market at $50 per barrel in the first half of 2018 and $54 per barrel in the second. That’s not much improvement over 2017.”
On November 30, OPEC, Russia and nine non-OPEC countries agreed to extend crude production cuts through the end of ’18. The previous agreement was set to expire in March.
In all, 24 countries unanimously voted to hold 1.8 million barrels per day (mb/d) of crude off the global market. The two dozen countries agreeing to the cuts represent more than half the world’s crude capacity. That OPEC needed to enlist the support of so many non-OPEC countries underscores the organization’s inability to control oil markets on its own.
The group also agreed to a compromise that Russia requested. The group will reconvene in June to determine whether the cuts should be lifted earlier than the December deadline. Russia’s cooperation was key since it accounts for one in every nine barrels of global production. Russia worries that crude markets may tighten too quickly, spurring U.S. shale producers to ramp up production, with the benefits of higher prices accruing to U.S. producers and not OPEC, Russia or the other parties in the agreement. Saudi Arabia wants to see additional inventory drawdowns before lifting production cuts. Private inventories in the OECD peaked at 3.07 trillion barrels in Q3/16, slipping to 2.97 trillion barrels in Q3/17, according to the International Energy Agency (IEA).
Kevin Roberts on Real Estate
Jankowski’s optimism was shared by Kevin Roberts, Transwestern’s President, Southwest in a GHP panel discussion before the Friday forecast luncheon when Roberts said, “Houston is truly a gateway city for industrial and is positioned to have strong growth with a world class port and the largest petrochemical complex in the world. The plastics and resin demand has exploded which is creating a need for space. And we have started to see a positive impact based on the Panama Canal expansion with more container coming through Houston. We are also seeing the positive effects of e-commerce. This, combined with a low cost of living, low taxes and a diversified, highly skilled labor base is a big positive.”