Link to Article: http://www.houston.org/pdf/research/quickview/Economy_at_a_Glance.pdf
On the Cusp of a Recovery? — This month marks the second anniversary of the collapse in global oil prices. West Texas Intermediate, the U.S. benchmark for light, sweet crude, peaked in mid-June of ’14, then tumbled nearly 75 percent over the next 21 months. Brent crude, the European benchmark, followed the same path. Their plunge shredded exploration budgets, decimated the rig count, and triggered a wave of energy company layoffs. In Metro Houston, the industry lost 70,000 jobs.1
Two years on, the industry is in the nascent stages of a recovery. Oil prices have trended upward since February. The North American rig count appears to have stabilized in late May. And layoff announcements, once as common as mosquitos in August, have subsided (though not halted completely). The worst may be over for the oil industry, which is welcome news since the broader economy has begun to show signs of stress.
A few examples:
Metro Houston retail sales have slipped from $35.4 billion in Q4/14 to $32.0 billion Q4/15, a drop of 9.8 percent. Source: Texas Comptroller of Public Accounts
Wage growth has stagnated. The average weekly wage paid to Houston-area workers was $1,300 in Q4/14 and $1,307 in Q4/15. Adjusted for inflation, that represents a 0.4 percent decline. Over the previous 10 years, wage growth averaged a 3.0 percent increase per year. Source: Quarterly Census of Employment and Wages
April year to date, local auto sales are down 13.2 percent compared to the same period in ’15. Source: TexAuto Facts, published by InfoNation, Inc. of Sugar Land
Average apartment occupancy in Houston fell to 89.7 percent in May. Below 90 percent is considered a renter’s market. Of the 2,648 apartment communities in Houston, 341 now offer floorplan specials, 236 offer free rent, and 23 offer other incentives to lure new tenants. Source: Apartment Data Services
Through the first four months of this year, City of Houston building permits are $400 million off last year’s pace. Source: City of Houston
May year to date, sales tax receipts have fallen in 38 of the 113 cities in the metro area that collect the tax. Source: Texas Comptroller of Public Accounts
Local bank deposits fell from $242.6 billion in ’14 to $214.7 billion in ’15, a drop of 11.5 percent. Source: Federal Deposit Insurance Corporation
In spite of the forces aligned against Houston, the region managed to eke out 15,200 jobs in ’15. Momentum from the boom years offset the losses in the oil patch. That momentum, however, has played out.
The few big wins Houston has logged so far this year—Daikin’s 4-million-square-foot facility in Cypress, FedEx’s new distribution hub near Bush Intercontinental, Mitsubishi Heavy Industries’ U.S. headquarters in Greenway Plaza—won’t reverse the inertia holding back Houston’s growth.
For Houston to prosper, the oil patch needs to grow again. Fortunately, signs have emerged that the energy industry may be on the cusp of a recovery. WTI, which fell to $26.19 per barrel in February, rose steadily through the spring, closing above $51 in early June. Research conducted by Wood MacKenzie found a large number of firms would become cash flow neutral, i.e. their incomes match their expenses, once crude reaches $53 per barrel. The decline in the U.S. rig count has slowed in recent weeks. The fleet lost no rigs the last week of May and added four rigs the first week of June.
During Halliburton’s Q1 earnings call, Chairman David Lesar said he expected the rig count to bottom out in Q2 and that there would be an upswing in the second half of the year. In May, daily U.S. crude production dropped by 200,000 barrels. U.S. production is now down one million barrels from its April ’15 peak.
The U.S. Energy Information Administration (EIA) forecasts domestic production to fall another half a million barrels next year. Simmons & Company expects non-OPEC supply outside of the U.S. to drop another 600,000 barrels this year, and that’s on top of the U.S. production declines mentioned earlier. Granted, some of the declines may be offset by increases in OPEC production.