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Research Update: Latest Analysis of COVID-19 Impact on Houston Economy

Published Mar 20, 2020 by Patrick Jankowski

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As recently as early March, many economists believed (or perhaps hoped) that if the Federal Reserve cut interest rates and Congress enacted a large fiscal stimulus package, the U.S. could avoid a recession. Two weeks later, interest rates are near zero and Washington is working to inject $1 trillion into the U.S. economy. Unfortunately, that’s all too late. The U.S. is already in a recession, and so is Houston.

Conventional wisdom holds that the U.S. is in a recession when the nation has logged two or more consecutive quarters of declining gross domestic product (GDP). If we stuck with that definition, we’d have to wait until July or October to determine if the U.S. were in a recession. 

The Business Cycle Dating Committee (yes, there is such an organization) of the National Bureau for Economic Research (NBER) embraces a broader definition. The committee looks for a “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, income, employment, industrial production, and wholesale-retail sales.” The official reports on those metrics have begun to trickle out, but one can surmise from media reports that a “significant decline” is already occurring. No need to wait for a committee of experts to pronounce the U.S. is in a recession. The Partnership recognizes that we’re in one.

But, what do the vast majority of economists say?

Every month, the Wall Street Journal asks a panel of 70 or more prominent economists when they expected the next recession. In January, only 10.8 percent of respondents expected one this year. In February, 58.5 percent expected a recession within the next nine months, with 41.5 percent expecting a recession to start in Q2. Those results were gathered before the coronavirus began shutting down restaurants, bars, sporting events and stores. Given the trajectory of recent events, the April survey will likely show the vast majority of the panel believes the U.S. is in a recession.

How bad will it get in 2020? 

•    Moody’s Analytics sees the U.S. economy contracting 1.6 percent in Q1 and 2.5 percent in Q2 before picking up in the second half of the year and exceeding three percent growth in 2021.
•    J.P. Morgan expects GDP to contract two percent in Q1 and three percent in Q2 before bouncing back in Q3.
•    Goldman Sachs sees the economy flat in Q1, contracting five percent in Q2, then growth exceeding three percent in the second half of the year.
•    Markit expects consumer spending to decline through June and the economy to remain in a slump through the end of the year. GDP will contact 5.4 percent in Q2 and 1.9 percent over Q3 and Q4.  IHS forecasts U.S. GDP to grow only 0.8 percent in ’21.

The Partnership is concerned that all the above forecasts, except for IHS market, may be overly optimistic.  Weak global growth, declines in the energy sector, shattered consumer confidence, and a wave of credit defaults and bankruptcies will weigh on the recovery.

What does this mean for Houston?

Any time the U.S. tumbles into a recession, Houston gets bruised and battered. This time Houston’s injuries will be more than superficial.  As noted in March’s Houston: the Economy at a Glance, Russia and Saudi Arabia are dueling over who will control global oil markets. Houston is caught in the crossfire. The collapse in oil prices (trading near $24 a barrel, less than half February’s level) will force another restructuring of Houston’s energy sector, the second in the past six years. Houstonians should anticipate a new round of layoffs and bankruptcies. These losses will be compounded by those brought on by the U.S. recession. 

Houstonians like to embrace the notion that their metro was among the last to enter the Great Recession and was among the first to exit. That’s not going to be the case this time. All three pillars of Houston’s economy—energy, global trade and the U.S. economy—are tottering. The next 12 to 18 months will likely be very rough for Houston.

Visit the Partnership's COVID-19 Resource page for updates, guidance for employers and more information. And sign up for daily email alerts from the Partnership as the situation develops. 

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Houston House returned to Austin for the South by Southwest Conference for its third year, bringing a new group of panelists and industry experts together to deliver a full day of thought-provoking content for over 750 attendees. Houston-based industry leaders and innovators discussed the startup journey, how they’re challenging the status quo in their respective industries to improve products or services, and more. If you were unable to join the Partnership at SXSW, check out our recap of the conversations below.    Demystifying the Startup Journey  Houston House kicked off its day of programming by dispelling the mystique surrounding the startup journey and answering questions about hiring, funding, and finding the right product-market fit. Panelists discussed in-depth how to find and attract the right talent, including cost-effective strategies and solutions for cash-strapped founders, and what they wished they had done differently during their various rounds of funding.  Panelists:  Ted Gutierrez, Co-Founder and CEO, SecurityGate.io  Gaurav Khandelwal, Founder and CEO, Velostics  Simone May, Co-Founder and CTO, Clutch  Moderator: Natalie Harms, Editor, Innovation Map    The Future is Female: Triumphs of Women in Tech  It’s no secret that female founders face a unique set of challenges compared to their male counterparts, especially when funding their next business venture. The panel discussed funding challenges, how they challenge stereotypes in male-dominated industries, and overcoming the feelings of guilt and inadequacy that plague women in business.  “The insecurity women feel that ‘we're not good enough' needs to go. Men don't experience that.” - Lydia Davies, Founder & CEO of TEAMATES  Panelists:  Lydia Davies, Founder and CEO, TEAMATES  Taci Pereira, CEO, Systemic Bio  Janice Tran, Co-Founder and CEO, Kanin Energy  Moderator: Carrie Colbert, Founding and General Partner, Curate Capital    Building a Tech Unicorn  Every tech startup hopes to become the next unicorn, but not everyone makes the cut. Featuring an in-depth conversation with Solugen’s co-founder and CEO, Gaurab Chakrabarti, the panel covered his background growing up in Houston, the surprising marketing campaign that put Solugen on the map, and the journey leading to it becoming a tech unicorn.  Gaurab Chakrabarti, Co-Founder and CEO, Solugen  Moderator: Payal Patel, Principal, Softeq Ventures and Director, Softeq Venture Studio    Click to expand People packed the room at Houston House to hear from Solugen CEO Gaurab Chakrabarti.   Unlocking the Power of AI: Insights & Innovations  Technology and innovation converged in this panel discussing recent developments in artificial intelligence and what the future of business will look like as it becomes more widespread and advanced, including the policies and legislation that may become necessary as AI becomes more intelligent. From song lyrics written in the style of Taylor Swift to how the health care industry is utilizing this technology to better serve its patients, it is clear that we are just beginning to scratch the surface of AI’s capabilities.  “The Ion [in Houston] is going to bring innovation, elevate clean tech energy, and push health care to the next level. That’s why we want to be involved and that’s why you should too.” - Murat Uralkan, Director of Innovation at Houston Methodist Panelists:  Sidd Gupta, Co-Founder and CEO, Nesh  Rob Meadows, Founder and CEO, AI Foundation  Murat Uralkan, Director of Innovation, Houston Methodist  Moderator: Dave Mathews, Principal Venture Capitalist and CTO Advisor, Softeq    Connecting Industries, Empowering Innovation  Ever wondered what it looks like when the brightest minds in different industries come together? The nexus of innovation and collaboration across industries in Houston took center stage in this discussion of how industry leaders can continue to break down traditional barriers and create advancements in everything from biotech to the energy transition.  Panelists:  Barbara Belvisi, Founder and CEO, Interstellar Lab  Moji Karimi, Co-Founder and CEO, Cemvita Factory  Nic Radford, Founder, President, and CEO, Nauticus Robotics  Moderator: Brad Rossacci, Creative Director, Accenture  The Houston House program at SXSW 2023 will be available to stream on-demand soon.  Learn more about Houston’s innovation ecosystem. 
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