Economy at a Glance – September 2024

Economy at a Glance September 2024

The oil and gas industry no longer determine Houston’s fate. Other sectors, like aerospace, life sciences, global trade, logistics, and advanced manufacturing now play significant roles. However, traditional energy remains important, and it will for some time.

And as the world moves to a low-carbon energy future, Houston has positioned itself to lead the transition. All these shifts have made Houston less vulnerable to the boom-and-bust cycles of the past and laid the foundation for future growth.

The region boomed in the first half of the ’10s. From January ’10 to December ’14, Houston created 457,500 jobs, nearly as many as it creates in a typical decade.

The metro area was one of the few bright spots in a nation struggling to recover from the Global Financial Crisis. The U.S. lost nearly 8.7 million jobs during the meltdown. The unemployment rate hit 10.0 percent. Lenders foreclosed on 3.8 million homes. Over 320 banks failed.

Houston wasn’t immune. The region lost 110,000 jobs; its unemployment rate peaked at 8.7 percent. Foreclosures weren’t as severe a problem, though. Texas lending laws limited the scope of home equity loans, which was the root of the crisis elsewhere. Only eight banks failed in the Lone Star State.

It took more than four years for the nation to return to pre-recession employment levels. Houston, helped by the fracking boom, recouped all its losses in 25 months, the first major metro to do so. New York needed three and half years, Los Angeles five, and Chicago nearly six.

With limited opportunities in their hometowns, Americans flocked to Houston. From July ’10 to July ’15, over 240,000 people moved here from elsewhere in the U.S. Inter¬national migration also ramped up. Nearly 180,000 arrived from abroad. U-Haul named Houston as the “Top Destination City” for its trucks and trailers six years in a row.  In ’12, Forbes ranked Houston as the “Coolest City to Live in America,” which drew even more newcomers to the region. In ’13, Business Insider identified Houston as the “Best City in America” based on job creation, ethnic diversity, and cost of Living.

The energy industry fueled the boom; improvements in fracking fueled the industry. Fracking, which involves pumping sand and water into shale formations shattering the rocks, and releasing the oil and gas trapped inside, reversed a decades-long decline in U.S. crude pro¬duction. Output peaked at 9.7 million barrels per day (b/d) in ’70, then fell to 5.0 million b/d in ’08. By the end of ’14, fracking brought U.S. output back above 8.8 million b/d.

U.S. output continued to grow. Every new barrel produced by fracking displaced a barrel imported from abroad. Investors poured billions into the industry. Oil and gas companies went on a hiring spree. From December ’09 to December ’14, upstream energy employment in Houston grew by more than 40 percent. The industry accounted for roughly one in every five jobs created over the period.

The fracking boom spurred growth throughout Houston.

• At the peak, nearly 18 million square feet of office space was under construction, well above the annual average of 4.5 million square feet prior to the boom.
• Local auto dealers sold a record 373,000 new cars, trucks, and SUVs in ’14.
• Residential brokers closed on a then-record 91,300 homes in ’14. For perspective, home sales topped 102,000 in ’23, but in a market that has added a million residents since then.

To paraphrase Ernest Hemingway, when things go badly, it happens slowly at first, then it happens all at once. That was true for the oil and gas industry. U.S. production continued to grow while global oil demand softened and geo¬political risks eased in the Middle East. Oil prices began to drift lower. The spot price for West Texas Intermediate (WTI) peaked at $108 per barrel in June of ’14, then began an irreversible decline. The pace of hiring in the energy industry began to taper off that summer, then flattened in the fall. The domestic rig count peaked at 1,931 in September then ratcheted downward.

By November, oil traded near $74 per barrel on global markets, a 32 percent drop from five months earlier. Many hoped OPEC would cut production to prop up prices as it had done so in the past. But at a Thanksgiving Day meeting in Vienna, Saudia Arabia refused to reduce output, abandoning its role as the market’s swing producer and hand¬ing control of prices back to the market. Crude entered a freefall. By January, WTI traded below $45 per barrel. By January ’16, it traded below $30.