http://www.houston.org/pdf/research/quickview/Economy_at_a_Glance.pdf

A publication of the Greater Houston Partnership                                                       

Volume 22, Number 7 • July 2013

Where are we now? — July marks the middle of the year and provides an excellent vantage point to assess the region’s economic health and outlook for the remainder of the year. This issue of Glance looks at 10 key indicators—employment, oil and gas prices, exploration ac- tivity, construction, sales tax collections, home sales, vehicle sales, foreign trade, air traffic and the local Purchasing Managers Index. What follows is a brief discussion of what those indicators suggest about the near-term outlook for Houston’s economy.

Employment Growth Cooling— The Houston-Sugar Land-Baytown Metro Area added 91,600 jobs in the 12 months ending May ’13, a 3.4 percent increase, according to data re- cently released by the Texas Workforce Commission (TWC). That’s down from 106,000 jobs and a 4.0 percent annualized rate for the 12 months ending April ’13.

The slip in Houston’s growth rate is not unexpected, nor is it something to fret over. Employment in Houston has grown between 3.8 and 4.5 percent (annual rate) since May ’12, a pace clearly not sustainable. Over the past 10 years, employment growth in Houston has averaged 2.0 percent annually. Woods & Poole forecasts em- ployment to grow 2.1 percent annually through ’20. Economist Ray Perryman forecasts employ- ment to grow 2.4 percent annually through ’17. And the Partnership’s forecast issued in Decem- ber called for growth of 2.8 percent this year. Houston’s 3.4 percent annualized rate is still twice the nation’s current rate of 1.6 percent. And though our growth has slowed, Houston ranks as the second-fastest growing major metro area. Fur- thermore, since the bottom of the recession, Hou- ston has added 304,900 net new jobs, an increase of 12.3 percent in total employment in the region. Only the New York metro area, with three times Houston’s population, has added more jobs. No other major metro has grown faster than Houston. Employment is higher now than at any point in Houston’s history

Employment Growth Rates 20 Most Populous U.S. Metro Areas

Metro Area                               % Change May ’12 – May ’13 Dallas                                                3.6 Houston                                            3.4 Tampa                                               2.9 Phoenix                                             2.7 Boston                                               2.5 Minneapolis                                       2.5 Seattle                                               2.1 Atlanta                                               2.0 San Francisco                                   1.9 Baltimore                                           1.9 San Diego                                          1.6 New York                                           1.6 DC                                                     1.6 Chicago                                             1.4 Los Angeles                                       1.3 Miami                                                 1.2 Detroit                                                1.1 Riverside                                           1.0 Philadelphia                                       0.9 St. Louis                                            0.7 Source: U.S. Bureau of Labor Statistics

HOUSTON—THE ECONOMY AT A GLANCE

Where the Base Goes, Everyone Follows — A basic rule of economics holds that a re- gion’s economic base must grow for its secondary sectors to grow. The base includes those industries that export goods and services outside the region. In Houston, the economic base includes energy, most local manufacturing, and a substantial amount of engineering. Bits and pieces of other industries also compose part of the base, but for the purpose of this discus- sion, the base includes only those three.1 As businesses in the base pursue opportunities out- side the region, new money flows into the region. That inflow supports growth in the sec- ondary sectors. In Houston, secondary sectors include retail, restaurants, real estate, health care, and so on. Another way to look at this—the base drives the economy while the second- ary sectors ride in the back seat. The chart below illustrates how job growth (or loss) in Houston’s secondary sectors lags growth in the economic base. It also shows that job growth in Houston’s base peaked about this time last year and has been cooling off ever since. Job growth in the secondary sectors should soon slow as well. This suggests a gradual slowdown in overall employment growth should occur in the near future. Again, this is not something to fret over. As Bill Gilmer, di- rector of the Institute for Regional Forecasting at the University of Houston recently said in the Houston Chronicle: “It means that Houston will only be growing twice as fast as the rest of the country instead of three times as fast.”