Institute for Regional Forecasting.

Transcription

1 Institute for Regional Forecasting

2 Houston Job Growth Takes a Mid-Year Breather Robert W. Gilmer Institute for Regional Forecasting C.T. Bauer College of Business University of Houston

3 Since the financial crisis the Texas economy has pulled away from the U.S Texas U.S 90 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Federal Reserve Bank of Philadelphia

4 and Houston has pulled away from Texas Houston Texas 90 Jan-04 Feb-05 Mar-06 Apr-07 May-08 Jun-09 Jul-10 Aug-11 Sep-12 Federal Reserve Bank of Dallas

5 Houston is by far the fastest growing major metro in Texas since Houston Austin Texas Fort Worth Dallas San Antonio 90.0 Jan-04 Jun-05 Nov-06 Apr-08 Sep-09 Feb-11 Jul-12 Federal Reserve Bank of Dallas

6 Year-to-date Houston job growth is running at 2.8 percent Note: December to December changes, except 2013 which is annualized year-to-date

7 8 Houston employment shows strength in recovery (3-month percent change at annual rates) 6 4 Houston Jan-07 Apr Jul Oct Jan-08 Apr Jul Oct Jan-09 Apr Jul Oct Jan-10 apr jul oct 11-Jan apr jul oct 12-Jan apr july oct 13-Jan Bureau of Labor Statistics U.S.

8 Job growth slowed beginning mid-year (3-mo percent change, annual rates, s.a.) Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13

9 Purchasing managers index U.S. and Houston compared (s.a.) Houston U.S

10 Houston unemployment rate falls on strong job growth %, s.a. U.S. Houston Bureau of Labor Statistics

11 Is too much good news now driving Houston s economy? Basic v non-basic industries

12 Since 2010,Houston, growth led by mining, Nonfarm Upstream Oil Construction Manufacturing Wholesale Retail Transpt and Utilities Information Finance Prof/Buss Serv Ed and Health Leisure/Hospitality Other Serv Gov't manufacturing, prof services (% change Dec 2009 Dec 2011)

13 Since Dec 2011 growth is much more Nonfarm Upstream Oil Construction Manufacturing Wholesale Retail Transpt and Utilities Information Finance Prof/Buss Serv Ed and Health Leisure/Hospitality Other Serv Gov't broadly based

14 30 Too much good news? Economic base slows, non-basic growth accelerates (3-month change at annual rates, s.a) Base NonBase 5 0-5

15 Slowdown? Yes but healthy growth still likely for Houston 120, ,200 Houston Annual Job Growth Q4/Q4 100,000 80,000 60,000 81,500 61,600 81,200 40,000 20,

16 What makes Houston grow? U.S. economic growth Global growth drives local exports, keeps oil prices high Energy upstream and downstream

17 The U.S. economy has provided little support for Houston

18 Gross domestic product (%-change, annual rates)

19 Job Market Improves Too Slowly, Employment Growth Lags Recovery

20 U.S. payroll jobs still 2.0 million short of prior peak in Jan-06 Dec-06 Nov-07 Oct-08 Sep-09 Aug-10 Jul-11 Jun-12 May-13

21 U.S. Employment Growth In Thousands of New Jobs per Month,1990 to month average Bureau of Labor Statistics

22 What is missing from growth at 15 quarters after the trough? Contribution to GDP (%) 3 Recent Recoveries This Recovery GDP Cons Res Inv Fixed Inv Net Exports Gov t Consumption, housing, and state/local gov t all a drag (%) GDP Cons Res I Non Res I Govt Net X

23 Expect improvements in 2013? Housing market will start to add to GDP State and local government revenues allow them to grow The consumer would have made substantial progress on deleveraging except for $200 billion in new taxes

24 Is the housing upturn finally here? 2,000 1,800 1,600 1,400 1,200 1, Permits Starts '0 1 '0 2 '0 3 '0 4 '0 5 '0 6 '0 7 '0 8 '

25 Housing prices stabilized and turned up over last summer of 2012 (index: 12-mo percent change) Case Shiller FHFA monthly

26 80 Pessimism quickly recedes in new home market (NAHB homebuilder sentiment) Optimism Pessimism

27 Consumer still working to deleverage after housing debt build-up (Ratio of debt to disposable personal income) Jan-00 May-01 Sep-02 Jan-04 May-05 Sep-06 Jan-08 May-09 Sep-10 Jan-12 Federal Reserve Board, BEA

28 University of Michigan Consumer Sentiment Data

29 Retail sales, ex. Autos, Monthly sales ($million) Dec-04 Nov-07 Oct Monthly change at annual rates Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11 May-12 Apr retail sales 6-mo average * Seasonally adjusted data

30 Auto Sales Still In Recovery Million units, annual rate

31 New taxes in 2013 finally catching up with the consumer Payroll taxes rise $126 billion, Bush-era tax cut loss to high-income earners will be $50 billion, and Affordable Care Act adds $24 billion. Total tax increase is $200 billion or 1.6 percent of disposable personal income. Expected real consumer spending to drop by one percent or more in the first half of 2013, but delayed a quarter

32 U.S. GDP growth muddles through at percent in (Percent change 2007 to 2014) 4 Forecast

33 Houston real estate is in trying to catch up with past economic growth

34 Existing homes sales in Houston are back on a strong track (monthly MLS, s.a.) 3000 Jan-00 Jun-01 Nov-02 Apr-04 Sep-05 Feb-07 Jul-08 Dec-09 May-11 Oct-12

35 Home prices did not fall in Houston Dollars like elsewhere in U.S. (median price, s.a.) MLS, Texas A&M Real Estate Center

36 Houston single-family inventory falling 9.0 sharply Months supply at 3.1 in July MLS, Texas A&M Real Estate Center

37 Houston single-family permits began to pick up in 2012 SF Permits 6-mo average Texas A&M Real Estate Center

38 Local Real Estate Development Moving Very Quickly to Catch Up With Past Growth All markets see rent and construction rising, vacancy rates and cap rates falling Apartment construction is focused inside the Loop, but Woodlands/Montgomery County is leading an acceleration in the suburbs Large blocks of office space have disappeared in hottest markets like the Energy Corridor, West Sam Houston, and Woodlands. Retail led by suburbs, especially grocery-anchored strip malls Industrial has lowest vacancy rate in decades

39 Domestic drilling pulls back in

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41 Horizontal Drilling Grows with Shale Gas, Complex Oil Projects 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% % DIR. % HORIZ. % VERT. 10.0% 0.0% 1/5/2007 1/5/2009 1/5/2011 1/5/2013 Baker Hughes

42 Since 2005 U.S. Marketed Natural Gas Production Has Grown Rapidly (Billion cubic feet) DOE/EIA, six month average, seasonally adjusted

43 Natural gas price, 1997-present ($/mcf) Jan-1997 Jun-1999 Nov-2001 Apr-2004 Sep-2006 Feb-2009 Jul-2011 DOE/EIA

44 Is marketed production of natural gas finally peaking? NGMkt seas adj Jan-05 Apr-06 Jul-07 Oct-08 Jan-10 Apr-11 Jul-12 DOE/EIA

45 Natural gas inventories return to normal 80 with help from cold spring? (percent above or below 5-year average) DOE/EIA

46 Natural gas price below $4.50 keeps takes out gas-directed rigs Gas Rigs Gas Price 0 Jan-02 Sep-03 May-05 Jan-07 Sep-08 May-10 Jan Gas Rigs Gas Price $4.50/mcf

47 Oil price above $65/b keeps oil-directed rigs busy Oil Rigs Oil Price Oil Rigs Oil Price $65/b 0 Jan-02 Sep-03 May-05 Jan-07 Sep-08 May-10 Jan-12 0

48 High Oil/Low Gas Price Push Drilling Toward Oil-Directed Activity 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% Oil-Directed Gas-Directed 20.0% 10.0% 0.0% 01/05/07 01/05/09 01/05/11 01/05/13 Baker Hughes

49 U.S. Rig Count Weakens on Low Natural Gas Prices Baker Hughes

50 The frantic edge is off domestic oil exploration and production Capital spending will be flat in 2013, margins squeezed, local hiring has already slowed There is good news offshore, where deepwater drilling continues to improve There is a lot of catch-up on infrastructure on land and offshore that won t show up in the rig count Oil-directed activity now dominates U.S. drilling activity

51 Global drilling is healthy Oil is a global product, easily transported and sold around world Drilling outside North America bounced back strongly after the financial crisis, should be strong in 2013 These markets are important for Houston-based producers and oil-service firms. It is high revenue, high margin work for service companies. Like the U.S., these markets are 80 percent dependent on oil-directed activity

52 International Rig Count Rises Steadily Baker Hughes Excludes Iran and the Sudan

53 Share of foreign oil-directed activity today by region Total Europe Middle east Africa Latin America Baker Hughes Percent Drilling Activity 2013 Q2 Asia Pacific

54 Technology + High Oil Prices Unlock Oil Reserves at a price Dollars/Barrel Where? Deep-water Drilling $50-$85 Gulf of Mexico, West Africa, Brazil Tar Sands $65-$75 Alberta, Venezuela, Russia, Congo Shale Oil $65-$75 North Dakota, Permian Basin, Eagle Ford

55 Who sets the price of oil: Exxon?, the Federal Reserve? the Illuminati?

56 For the last decade world oil prices have been driven by emerging markets Since 2003, all the growth in the global demand for oil has come from emerging markets, especially Brazil, China, and India It has not just been oil, but food, agricultural products, and metals that have seen prices soar China alone accounts for one-third of increased oil demand since China and other Asia are nearly 60 percent.

57 Oil part of a wider commodity price boom since Food Ag Raw Materials Metals Crude Oil 0 International Monetary Fund

58 %/yr The developing world has been the global engine of growth since 2008 (percent GDP growth) IMF World Economic Outlook update, January 2013

59 Where has the emerging market growth come from? They have developed deep and rapidly growing domestic markets They have been good policy actors balanced fiscal budgets, independent central banks, and enormous foreign exchange reserves They are now large markets, this year passing the developed nations in total GDP

60 Growth in the Demand for Oil Comes from the Emerging Markets (million b/d) Global OECD Non-OECD International Energy Agency

61 Percent contributions to oil demand growth since % 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 32.3% China 25.0% Other Asia International Energy Agency 16.9% Middle East 13.7% Latin America 5.6% 5.5% FSU Africa

62 Global Growth Sluggish in 2013 (% GDP Growth) World U.S Europe Japan China India Brazil Source: IMF World Economic Outlook, April 2013

63 Houston s ties to oil and natural gas

64 Houston s upstream exploration jobs now total over 100,000 Producer +Services Producer Employment Bureau of Labor Statistics

65 Annual earnings in upstream oil double the typical Houston job in ($000/worker) Upstream Oil All Jobs Bureau of Economic Analysis Upstream Oil All Houston Jobs

66 260 Houston adds manufacturing jobs since 2003 manufacturing employment (000) Bureau of Labor Statistics

67 Machinery and Fabricated Metal Bring Thousand ,000 Jobs in Houston Machinery Fab Metal Bureau of Labor Statistics

68 But production hours worked fall in in mid Houston US Bureau of Labor Statistics

69 Houston is the capital of a refining and petrochemical complex on the Texas and Louisiana Gulf Coast

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71 Gulf Coast Refining Margin ($/bbl) margin Six-mo avg 5 0 Pace refining margins, Oil and Gas Journal

72 Four of eight largest ethylene complexes in the world are in Houston Company Plant location Capacity (million tpy) Formosa Taiwan 2,935.0 Nova Alberta 2,811.7 Arabian Petrochem Saudi Arabia 2,250.0 ExxonMobil Baytown 2,197.0 ChevronPhillips Sweeny 1,865.0 Dow Netherlands 1,800.0 Ineos Chocolate Bayou 1,752.0 Equistar Channelview 1,750.0 Anlou Saudi Arabia 1,705.0 Equate Kuwait 1,650.0 Oil and Gas Journal, 7/2/2012

73 Natural gas energy content equivalent to $20 per barrel for oil oil $/b nat gas $/b 20 0 Jan-01 Nov-02 Sep-04 Jul-06 May-08 Mar-10 Jan-12 DOE/EIA and calculations of the author

74 70 Ethylene Margins (cents per pound) 60 cents per pound '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '

75 August margins for ethylene were 41 cents per pound in North America, -17 cents elsewhere Feedstock Feedstock 70 Other Variable 50 Margin Fixed Cost Feedstock Margin Margin Etane Naphtha Muse, Stancil Cash Ethylene Margins, Oil and Gas Journal, 2013

76 New ethylene capacity concentrated on the U.S. Gulf Coast Company Location Capacity (mm lb/yr) Start-Up Exxon Baytown 3, Chevron Phillips Baytown Dow Chemical U.S. Gulf Coast 4, Ineos Lake Charles, LA 3, CP Chem Baytown, TX 2, /2017 Braskem/Idesa Mexico 2, Shell Chemical Pennsylvania 2, Formosa Point Comfort, TX 1, LyondellBasell LaPorte, Texas 1, Dow Chemical Hahnville, LA Q4 Williams Lake Charles, LA Q3 Westlake Chemical Lake Charles, LA Ineos Chocolate Bayou, TX

77 Heavy construction to boom in U.S. and on Gulf Coast The American Chemistry Council recently counted 97 chemical project announcements with $77.1 billion in construction cost 7 proposed LNG export terminals Numerous pipelines and processing facilities connect new oil and gas plays to Houston Many general manufacturing announcements for energy, plastics, tires, iron and steel

78 It is an exciting time to be in Houston We have been growing rapidly for nearly a decade, and saw the local economy accelerate after the financial crisis This could last another decade Shale, tar sands, and deep-water drilling mean we can have a serious conversation about energy independence in the U.S. We will need to rework and expand energy infrastructure in pipelines and processing We have a new petrochemical industry to build

79 It all depends on the price of oil? Upstream, yes. The collapse of natural gas prices and weaker natural gas liquids prices put the burden on oil But weak natural gas prices are driving downstream expansion and construction. It could cushion any blow But any threat to oil prices is a prices threat to Houston s current expansion

80 IMF says that medium-term risks to the global economy remain high Europe continues to stagnate or has a financial crisis Fiscal trouble in the U.S. or Japan There is less slack in the advanced economies than thought, and inflation breaks out Unconventional monetary policy backfires There is a sustained slowdown in key emerging markets

81 Where is the price of oil going? Low oil prices pushed Houston into deep recessions in 1982, 1986, 1999, and 2009 The current expansion is again dependent on oil prices, and oil price depends on the health of the global economy No one knows where oil price will be next month or how this ends. Don t bet your business on the price of oil

82 Houston Job Growth Takes a Mid-Year Breather Robert W. Gilmer Institute for Regional Forecasting C.T. Bauer College of Business University of Houston

83 20 Domestic Consumption of Oil is Stable, Production Rising through 2014 (million b/d) Production Consumption 10 8 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 DOE/EIA

84 U.S. Net Imports Fall through 2014 (million b/d) Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 DOE/EIA

85 Good time to look to foreign markets for growth Barclay s forecast year-over-year growth of nine percent outside North America The market is $460 billion, 2.5 times the size of the U.S. market The return of Iraq and 300 rigs has been the story of the last decade Now it is about complex geologies, and deepwater drilling

86 Houston has largest gains in upstream oil employment in Texas, ,000 33,100 30,000 25,000 20,000 15,000 15,240 21,159 Eagle Ford Barnett Permian Basin Houston 10,000 6,970 5,000 0 BLS payroll employment and FRB-Dallas calculations

87 Weekly hours surged for production workers in Houston manufacturing Bureau of Labor Statistics Houston Dallas US

88 Chemical Plants Affected By Hurricane Rita (Percent N.A. Capacity Shut Down at Peak) Ethylene Steam Cracker: 58.5% RG Propylene: 30.7% Benzene: 68.5% Polyethylene: 63.0% Styrene: 85.3% Butadiene: 95.8% Data from CMAI, Inc. and expressed as percent of North American Capacity