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Economy at a Glance

How recent fluctuations in the energy industry, global trade and the U.S. economy affect Houston's economy now and in the near future
Published on 9/11/19
Economy at a Glance - September '19

This month’s edition of the Greater Houston Partnership's Houston: The Economy at a Glance provides an in-depth analysis of how recent shifts in the energy industry, global trade and the U.S. economy affect Houston's economy now and in the short-term. We also present forecasts of the likelihood of an upcoming recession and global growth rates.

Houston: The Economy at a Glance is a free monthly publication, which offers the latest data along with expert commentary on the Houston region’s economy.

To subscribe to Glance, please click here.

 

THREE GROWTH ENGINES

Three engines drive Houston’s growth: oil exploration, foreign trade and the U.S. economy. The region receives help from population gains, but that’s tied to job growth. Large construction projects, like the recent petrochem boom, assist as well. But for the most part, Houston relies on the big three—energy, trade and the U.S. economy.
Lately, energy hasn’t contributed much to Houston’s growth.

  • The industry lost 93,000 jobs during the fracking bust. So far, less than half of the jobs have been recovered.
  • The U.S. rig count topped 1,083 in December ’18 but slipped to 898 as of early September. 
  • Crude rose to $75 per barrel in October ’18, prodded by U.S. sanctions on Iran. Surging U.S. production, waivers for countries buying Iranian crude, and fears of a global slowdown have sent prices to the mid-$50s.
  • The U.S. oil field service sector has laid off 8,900 workers so far this year. Locally, the sector peaked in May and has cut 1,200 jobs since.
  • The law firm Haynes and Boone reports that 36 North American exploration and service firms filed for bankruptcy within the first eight months of this year. That figure compares to 40 in all last year. 

The U.S. and global economies must remain healthy for Houston to continue growing. But those engines are sputtering as well. The World Bank, the International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD) all forecast slower growth this year. 

Global Growth

 

The U.S.-China trade war shoulders much of the blame for the global slowdown. Tariffs and other barriers have made imports more expensive, disrupted supply chains, and cast uncertainty over hiring and investment decisions. 

The trade war isn’t the only factor slowing growth, however. Most of the world’s largest economies face other challenges as well. For example:

  • The stimulus from the 2017 U.S. Tax Cuts and Jobs Act has faded and the strong dollar has made U.S. goods and services more expensive overseas.
  • China is struggling to shift from an economy driven by exports and large capital projects to one driven by innovation and consumer spending.
  • Japan and South Korea are in a trade dispute over Seoul’s alleged sales of equipment and supplies to North Korea.
  • The turmoil over Brexit has sapped business confidence in the United Kingdom.
  • Germany, a major auto exporter, has struggled with new emissions standards imposed by the European Union.
  • Ongoing political instability plus high levels of public debt weigh on the economies of Brazil and Italy. 
  • India is dealing with weak domestic investment, sluggish domestic consumption, and a drier than normal monsoon season that’s affecting the nation’s agricultural sector.
  • In Russia, state control of the economy is increasing, particularly in energy and finance, adding to the inefficiencies of the system.
  • Uncertainty over the fate of the U.S.-Mexico-Canada Agreement (USMCA), the replacement for the North American Free Trade Agreement (NAFTA), weighs on growth in Canada and Mexico.
  • Mexican president Andrés Manuel López Obrador is seen as less business-friendly than his predecessor, impacting hiring and investment in his country.
  • Political unrest in Turkey has made foreign corporations reluctant to invest in the country.
  • The Saudis are balancing production cuts to maintain oil prices with the need to produce enough crude to sustain its economy.

In summary, 18 of the world’s 20 largest economies are forecast to have slower growth in ’19 than the year before. 

Global Growth2

 

Global Impact on Houston

The global slowdown is being felt locally. Year-to-date, exports are down to 10 of Houston’s top 20 destinations: Canada, Chile, China, Italy, Mexico, Peru, Saudi Arabia, Singapore, U.A.E and Venezuela.  Shipments to Mexico, Houston’s #1 trading partner, have slipped $1.3 billion, or 14.1 percent. Exports to China, Houston’s #2 trading partner, are off $3.1 billion, or 54.5 percent. If not for substantial increases in trade with Brazil, India, Netherlands and South Korea, exports would have fallen below last year’s pace. That’s already happened with imports, primarily due to reduced trade with China, Iraq, Mexico and South Korea.

 

Customs

 

Houston is more vulnerable to a global slowdown now than before. An oft-cited study by The Brookings Institution found that the share of Houston’s gross domestic product (GDP) tied to exports nearly doubled from 8.9 percent in ’03 to 17.3 percent in ’17. That same study found that more than 330,000 local jobs are tied to exports. Houston led the nation in exports in ’19, with more than $120 billion shipped abroad. Houston’s closest competitor, New York, shipped only $99.2 billion. And the Partnership’s 2019 Global Houston report identified more than 7,000 Houston-area companies selling abroad. 

U.S. Outlook

The National Association for Business Economics (NABE) recently asked its members about the timing of the next recession. The majority of respondents expect a U.S. recession within the next two years. 

nabe

 

The latest data seem to support their pessimism. The U.S. created only 130,000 jobs in August. Job growth has averaged 158,000 per month thus far this year, below the average monthly gain of 223,000 in ’18. Industrial production, which includes the output of all U.S. mines, factories and utilities, has fallen 1.4 percent since December. Business investment appears to have peaked in Q1/19, slipping 1.6 percent in Q2/19.

Continue reading this month's Economy at a Glance for more on the mid-year economic update, tariffs, venture capital invested in the region, and projections related to Houston's future. 

Economy
Executive Partners