Editor’s Comment by Ralph Bivins: Bill Gilmer, director of the Bauer Institute for Regional Forecasting at the University of Houston, delivered an incredibly gloomy economic forecast last week. Gilmer told a crowd at the Hyatt Regency that as few as 13,000 jobs will be created in Houston in 2015.
Before we dive into a panic, take a minute to consider Gilmer’s track record. Gilmer’s forecast for last year: He predicted only 65,000 new jobs would be created in Houston in 2014. As it turned out, the Texas Workforce Commission reported 104,700 new jobs were created.
In other words, Gilmer missed by a mile in 2014. He came in a whopping 40,000 jobs too low.
So don’t let his 13,000-job prediction pull you into anxiety. Gilmer was wrong about 2014 and he is wrong again about 2015.
For one thing, the level of construction in Houston is phenomenal. Some 14 million square feet of office space is under construction, more than any other city in the nation. In downtown, a 1,000-room Marriott and several other hotels are being built, employing thousands of construction workers as Houston anticipates the Super Bowl bonanza of 2017.
On the industrial side, Daikin Industries is building a 4 million square-foot HVAC factory on Highway 290 where some 4,000 people will work. Several ethylene plants, valued at more than $5 billion apiece, are being built, creating thousands of construction jobs around the Port of Houston.
We cannot deny the energy industry is going through a shake-out. Layoffs and job cuts are going to be painful. The Halliburton-Baker Hughes merger will kill thousands of jobs and create a lot of vacant office space. Overall, office vacancy is going to be a problem for Houston for the next two or three years. The apartment market is overbuilt, too.
But Houston economy remains fairly healthy, for now, and the declines won’t be as severe as Gilmer is predicting. Houston experienced economic devastation in the 1980s, and believe me, this is not it.
Realty News Report is sticking with the Greater Houston Partnership’s forecast of 63,000 new jobs for 2015. Patrick Jankowski, the economist for the Partnership, says he will issue a downward revision to that forecast. But he shouldn’t. The forecast of 63,000 new jobs sounds like an accurate prediction for Houston in 2015.
Realty News Report editor Ralph Bivins covered business news, real estate, foreclosures, bank failures and Texas economic crash of the 1980s for the Houston Chronicle and the San Antonio Express-News. He won the Texas Headliners Club award for business news coverage in 1988.
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The underlying theme of this editorial is sound, namely that any individual making a forecast is subject to error. Indeed, Nate Silver in his book entitled The Signal and the Noise pointed out that individual economists are right 60% of the time and wrong 40% of the time, but, when the forecasts of multiple economists are combined then this margin is greatly improved toward accuracy. For comparison, political pundits get it correct 50% of the time and wrong 50% of the time, indicating that they do no better than random chance.
If we recognize that Dr. Keith Phillips, of the Dallas Fed Reserve, along with Dr. Gilmer and Patrick Jankowski, are all revising their job forecasts downward, then we can take confidence is such downward revisions. Whether the value for job growth is 3,000, 13,000, 23,000, or 33,000, it is fairly clear that Houston and Texas are likely going to experience job growth, that is still positive, but less than their prior analyses. Any forecast is only as good as the data upon which it is built. If those numbers shift or change, as they have in the case of the underlying variables shaping Houston’s employment (e.g. rate of rig count decline), then the forecast will need to change accordingly.
Quantitative predictions of the future are inherently difficult, and detecting a signal from the noise to make such forecasts can indeed lead to mistakes in detecting the signal for the noise. But, there are few in Houston and Texas as good as Dr. Gilmer and Dr. Phillips, so we should take stock in the direction of their predictions (downward) as well as the magnitude of those predictions, down to 0.5% for Houston by Dr. Gilmer and down 0.5-1.5% for Texas by Dr. Phillips.