A publication of the Greater Houston Partnership Volume 19, Number 7 x July 2010
Employment Continues to Recover — Houston-Sugar Land-Baytown Metropo-litan Statistical Area employment grew for the fourth consecutive month, gaining20,200 jobs in May ’10, a 0.8% increase over April ’10. Nearly half the growth,9,500 jobs, occurred in Federal Government, presumably the hiring of Censusworkers, jobs that will disappear this summer. However, private sector employ-ment grew by 10,800 in May and has grown by 31,000 since January, another signthat Houston’s economy is well into recovery. May’s employment report im-
proved the 12-month loss to 22,000 jobs. As recently as December ’09 the 12-month loss exceeded 100,000 jobs.
May was a good month for Texas—every metro area added jobs. The 20,200 inHouston were the most in Texas. Dallas added 13,000 jobs (a 0.6 percent increase),Fort Worth added 6,500 jobs (0.8 percent), San Antonio added 3,400 jobs (0.4
percent), El Paso added 2,300 jobs (0.8 percent) and Austin added 2,000 jobs (up0.3 percent).
Mining and Logging (primarily oil and gas) added 900 jobs in May ’10 and 1,300over the past 12 months. Construction added 500 jobs, only the second month in
the past 24 where employment has not fallen. Manufacturing added 1,100 jobs butremains 8,000 jobs below May ’09 employment levels. Wholesale Trade added500 jobs but remains 4,000 below this time last year. Likewise, Retail added 1,200
jobs but is 1,400 below May ’09.
Healthcare and social assistance continues to add jobs—800 in May ’10 and 9,900over the past 12 months. Arts, Entertainment & Recreation added 2,100 jobs. Ac-commodation & Food Services added 2,300. Professional Services gained 800 jobsand would have gained more if not for the loss of 2,000 jobs in the Accounting,Tax Preparation, and Bookkeeping subsector, presumably workers let go after tax
season.
Employment in several sectors—Transportation, Warehousing and Utilities, Infor-mation, Finance, and Real Estate Rental and Leasing, and Educational Services— was essentially flat in May.
Unemployment Continues to Decline — Houston’s May unemployment ratestood at 8.3 percent and has dropped half a percentage point since January. The
unemployment rate for Austin was 6.9 percent, for Dallas-Fort Worth, 8.1 percent,and for San Antonio 7.1 percent. McAllen had the highest unemployment rate inthe state at 11.2 percent and Midland and Amarillo tied for the lowest at 5.4
percent. The unemployment rate for Texas stood at 8.0 percent and for the UnitedStates at 9.3 percent. (All rates are not seasonally adjusted.)
Oil Prices Weaken — The Friday closing spot market price for West Texas In-termediate crude oil (WTI) averaged $75.24 a barrel in June, up from $69.83 inJune ’09. Since January, WTI has averaged $77.91 a barrel.
In its June forecast, the Energy Information Administration (EIA) projects WTI prices to average $79 per barrel over the second half of this year and rise to $84 bythe end of next. In its previous forecast, EIA expected WTI to average $81 per bar-rel this year and $85 per barrel next. Uncertainty about growth in China and theEuro zone and declines in equity markets have fed fears that the recovery may not
progress rapidly as hoped, thus causing EIA to lower its projections.
Drilling Moratorium Effects — On May 30, in response to the Deepwater Horizon Oil Spill in the Gulf of Mexico, U.S. Secretary of the Interior Ken Salazar issued a moratorium on all deepwater offshore drilling on the Outer ContinentalShelf for a period of six months. A number of organizations have attempted toforecast the impact this will have on the industry and on Houston’s economy.
The Louisiana Mid-Continent Oil and Gas Association estimates the idle rigs costfrom $8.25 million to $16.5 million per day (33 idle rigs times $250,000 to$500,000 per day rate lease). The Energy Information Administration estimateslost production at 26,000 barrels per day in the fourth quarter and 70,000 barrels
per day in 2011. At current and forecast prices, that’s valued at $187.4 million and$2.1 billion, respectively. Wood MacKenzie estimates government royalties andtax payments will be reduced by $420 million to $650 million in 2011. And the en-ergy investment and merchant bank Tudor, Pickering, Holt & Co. estimates that upto 50,000 regional jobs could be lost.
Federal Judge Martin Feldman of the U.S. District Court in the Eastern District of Louisiana in New Orleans has issued an injunction blocking the moratorium.
In his ruling, Judge Feldman wrote, “The blanket moratorium, with no parameters,seems to assume that because one rig failed and although no one yet fully knowswhy, all companies and rigs drilling new wells over 500 feet also universally pre-sent an imminent danger.”
Secretary Salazar has announced he will issue a new order that addressesFeldman’s objections.
The moratorium has affected 18 firms drilling deepwater exploratory wells in theGulf with 16 of those firms having a significant presence in Houston. The 16 firmslease 31 of the 33 deepwater rigs impacted by the drilling ban. These firms mustdecide whether to await Salazar’s next order (and the subsequent appeals), whether to ride out the moratorium (however long it lasts), attempt to renegotiate contracts
with rig operators, or decide whether to move rigs under contract to locationsoverseas, like Brazil or Africa. Moving a rig is expensive and once gone it won’treturn to the Gulf for several years.
When drilling resumes, the industry will operate under stricter safety regulations,higher liability caps, and closer government oversight, all of which will drive upthe cost of finding and producing oil. The higher costs could reduce the industry’sappetite for deepwater drilling, which forms a vital part of our nation’s energy se-curity—and the Houston regional economy.
Effects of Homebuyer’s Tax Credit Fade — Net new home sales totaled 879 in
May ’10—a 44 percent drop from last May, according to a Metrostudy survey. Thedecrease in new home sales was expected as consumers pushed up the date of their
purchase to March and April in order to qualify for the tax credit which expiredApril 30 and required closing papers to be signed by June 30.
The number of homes under construction increased by 422 units from May ’09 and by 288 units from last month. Homes under construction are likely homes that werestarted during the tax credit period and are being finished, rather than new cons-truction to replenish inventory.
Although new home sales dropped significantly in May ’10, sales of existing
homes rose as consumers continued to take advantage of the homebuyer’s taxcredit. (New homes sales are measured at contract signing, while sales of existinghomes are recorded at contract closing.) Single-family closings through the Hous-ton Association of Realtors® (HAR) totaled 5,693, a 19.1 percent increase from ayear earlier.
“The homebuyer tax credit was a real shot in the arm for the Houston real estatemarket, but we are beginning to see sales volume trend toward more seasonallevels now that the incentive has expired,” says Margie Dorrance, HAR chair.
After seven months of over-the-year home price appreciation, pricing has begun tolevel off. The average home price fell 0.9 percent to $209,920 mainly because of slower sales activity of higher priced homes. The number of luxury homes($500,000+) sold rose 5.1 percent in May ’10 while sales of homes priced between$80,000 and $150,000 rose 28.0 percent.
PMI Marks 14 Months of Improvement — The Houston Purchasing ManagersIndex (PMI), a short-term leading indicator of regional production, rose to 59.0 in
May, reports the National Association for Purchasing Management-Houston. Thisreading—the best since June ’08—marks 14 consecutive months of improvementafter the record low of 39.0 recorded last March. It’s also the eighth straight monthabove 50, signaling production gains on tap.
The PMI has a potential range from zero to 100. Readings above 50 indicate that production increases are likely over the next three to four months; readings below50 foreshadow contraction. Because the Houston PMI has been above 50 for eightmonths, production gains already should be occurring in the Houston region.
The employment component recorded its first positive reading since August ’08,with more respondents reporting increases than decreases in employment. Thatmeans that May ’10 is the first time in 21 months that employers in the survey add-ed more staff rather than reduced staff.
The sales component passed the neutral mark in August ’09 and has trended up
ever since. The production component passed the neutral mark in December ’09and has grown continuously. The steady improvement of both components sug-gests the employment gains are real and should continue into the near future. Sev-eral respondents expressed concern that the moratorium on drilling in the Gulf of Mexico and the continuing damage caused by the oil spill will adversely affect theregion’s economy, but to what extent remains uncertain.
Foreign Trade Continues to Grow — The Houston-Galveston Customs Districthandled foreign trade valued at $17.9 billion in April ’10, up 38 percent from $12.9
billion in April ’09, reported the U.S. Census Bureau. Exports totaled $7.7 billion,up 34 percent from $5.8 billion in May ’09. Imports totaled $10.1 billion, up 41
percent from $7.1 billion.
Total trade has been trending upward since bottoming out in February ’09 at $10.8 billion. For the first four months of ’10, trade totaled $65.7 billion, up 32 percentfrom $49.9 billion last year. The gain was led by substantial increases in trade of fuels, chemicals, plastics and cereals.
IHS Global Insights reports that both exports and imports should continue to grow, but imports are outpacing exports as the U.S. recovery pulls in imported finishedgoods and materials. Exports are expected to be subdued as they face headwindsfrom the strengthening of the dollar against the euro.
Airport Passenger Volume Rises — The Houston Airport System served 4.2 mil-lion passengers in May, up 4.7 percent from May ’09. This reflects a 1.7 percentincrease in domestic passengers and a 23.0 percent rise in international passengerscompared to May ’09.
Through the first five months of this year, domestic passenger volume at HAS to-taled 16.26 million and international totaled 3.37 million, up 0.9 percent and 9.4
percent respectively, compared to the same period last year.
Air freight volumes continue to grow. HAS handled 77.6 million pounds of air freight in May, up 22.9 percent from May ’09. Year-to-date, HAS handled 356.0million pounds of air freight, up 17.8 percent compared to the same five monthslast year.
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The Greater Houston Partnership is the primary advocate of Houston’s business communityand 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.
Rig Count Baker Hughes IncorporatedSpot WTI, Spot Natural Gas U.S. Energy Information AgencyHouston Purchasing Managers National Association of Index Purchasing Management –
Houston, Inc.Electricity CenterPoint EnergyBuilding Construction Contracts McGraw-Hill ConstructionCity of Houston Building Permits Building Permit Department, City
of HoustonMLS Data Houston Association of Realtors
Port Shipments Port of Houston Authority Aviation Aviation Department, City of
HoustonCar and Truck Sales TexAuto Facts Report , InfoNation,
Inc., Sugar Land TXRetail Sales Texas Comptroller’s OfficeConsumer Price Index U.S. Bureau of Labor StatisticsHotels PKF Consulting/Hospitality Asset
Advisors InternationalPostings, Foreclosures Foreclosure Information & Listing
Service
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