Houston recovery expected to be slow

The Texas economy is expected to grow at a faster pace than the nation’s, but the state may not regain all the jobs lost in the pandemic-driven recession in 2021, according to a forecast by the Federal Reserve Bank of Dallas.

The progress of the recovery will be largely determined by the progress in bringing the coronavirus pandemic under control, said Keith Phillips, senior economist at the Dallas Fed. Economic conditions could improve more quickly if vaccinations pick up and infections continue to drop.

Just as doctors don’t fully understand COVID-19’s long-term impacts on the human body, economists face the same conundrum with the pandemic’s enduring impacts on the economy. Phillips calls it “pandenomics” because the 2020’s pandemic-induced recession is different than what economists have seen before.

Phillips cited the job situation as one example. April’s job losses were exponentially greater and quicker than previous recessions, and a partial bounce-back was stronger, but the gains dissipated to more normal levels as the year ended. The state ended 2020 with 430,000 fewer jobs than it began, according to the Texas Workforce Commission.

Phillips noted that while past recessions hammered manufacturing, this one targeted services — particularly, bars, restaurants and hotels — due to widespread closures and social distancing. The energy sector also was hard hit as petroleum demand plummeted along with commuting and air travel.

The oil and gas sector industry has shed nearly 27 percent of jobs during the pandemic while leisure and hospitality lost 17 percent, according to the Dallas Fed. As a result, the Houston metro area, which has a high concentration of oil and gas companies, and San Antonio, which has a large tourism industry, were among the hardest hit early in the pandemic.

Both also are recovering more slowly, according to the Dallas Fed. In the last half of 2020, employment grew 2.2 percent in Houston and 1.3 percent in San Antonio, compared to 5.1 percent in Austin and 3.4 percent in Dallas.

Austin’s job growth was driven by its tech-based economy, Phillips said.

“High tech really benefited

from all this movement online,” Phillips said. “A lot of new laptops demanded; a lot of new technology demanded.”

The Texas economy declined less than the nation in 2020, according to Phillips, which was surprising given the hit the energy sector took. Texas historically outperforms the nation unless the energy sector takes a downturn.

One reason Texas did well is the influx of people and businesses into the state seeking low-density places to live and work, Phillips said. The economy received a boost from booming home sales and construction permits as mortgage rates fell to record lows.

Economic indicators at the end of 2020 were trending up, said Phillips, noting that applications for new businesses spiked in the last half of the year.

“This data suggests that businesses are very entrepreneurial, that despite being hit hard, they're going to rebound,” he said. “A lot of businesses will die, but the same people will come back with other businesses that are more flexible.”

The outlook also is improving because of the recent decline in COVID cases and increasing vaccinations.

“As we go forward with more and more vaccinations,” Phillips said, “it could be a very strong second half of the year in particular.”