Houston’s economy will take a hit
From energy to health care, Houston — already in recovery mode from oil price crash — faces daunting rebuilding task
Hurricane Harvey has temporarily paralyzed a Houston region that represents a vital gear in the U.S. economy — a blow just as the city was mounting a halting recovery from the oil crash of 2014 to 2016.
Moody’s Analytics estimates the storm will result in $30 billion to $40 billion in property damage and about $7 billion in lost economic output as most restaurants, hotels and retailers stay shuttered this week. About half the output should be recovered within a couple of months, but it will take about two years to restore the damaged property, Moody’s Chief Economist Mark Zandi says.
“It says something that Houston is not just an oil town anymore.”
Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston
“It’s absolutely slowing down the recovery,” says Ed Friedman, an economist who covers the area for Moody’s Analytics.
The region plays an outsize role in the U.S. economy. Its projected gross output of $441 billion this year represents about 2.4% of the nation’s economy. But that doesn’t tell the entire story. It’s among the top three hubs for oil refineries. It’s the largest center for chemical production. It boasts the No. 2 shipping port. And it contains two of the nation’s busi- est airports.
Its economy has been healing, if slowly. From December
2014 to December 2016, the oil price plunge wiped out about
77,000 jobs in mining, manufacturing, wholesale trade and professional and business services, says Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston. Only about 7,000 of those positions have been recovered, he says.
Gilmer says a “burst of optimism” propelled hiring last year as OPEC announced oil production cuts, pushing up crude prices. But prices have leveled off below $50 a barrel this year amid abundant output in the U.S. and elsewhere.
The area’s 5.3% unemployment rate is below the 5.7%
peak in January but well above the 4.3% U.S. rate. Auto sales plummeted 30% in the first quarter.
Yet after flat job growth in 2015 and meager gains last year, the area has added 38,000 job so far this year, outpacing the rate of U.S. payroll growth. Gilmer credits a Houston economy that has become increasingly diversified in recent decades. “It says something that Houston is not just an oil town anymore,” Gilmer says.
The metro area is a headquarters base for companies such as Waste Management and food service giant Sysco and provides large regional bases for insurance giant AIG, computer stalwart HP and United Airlines. It also has cultivated a strong health care sector.
Friedman figures the Houston area economy will grow about
1.3% this year vs. the 2% pace it was tracking before Harvey hit. The region’s major industries: Energy: The shutdown of gasoline refineries and shipping lanes in the Houston area is disrupting a significant energy economy. Refineries there account for
2.46 million barrels per day, representing more than 13% of the nation’s refining capacity, according to data from Goldman Sachs and JBC Energy.
The shuttering of local refineries triggered spikes in fuel prices as the energy-rich region reels from ferocious flooding. As rain pounds Texas, some energy production in the Eagle Ford shale oil and gas area could go temporarily offline, analysts warned.
Chemicals: Texas is a leader in chemical production. And about a third of U.S. chemical production has been disrupted by Harvey as large manufacturers shut down plants, according to Bloomberg.
With easy access to oil and gas customers and ports, the industry has thrived in the Houston area. The region has over 535 chemical manufacturing companies, many of them working closely with oil and gas partners, according to the Greater Houston Partnership.
Airports: Aviation is important for the economy in Houston, which is home to two of the USA’s busiest airports, Bush Intercontinental and Houston Hobby. Harvey has dealt a blow to those airports and the airlines serving them. Flight operations were suspended at each during the weekend, and both remained closed Monday — grounding thousands of flights that would have normally carried tens of thousands of passengers.
Shipping: The Port of Houston is the second-largest in the nation. While much of the shipments are tied to the oil, gas and chemical industries, it’s also the 10th-largest port for non-energy products. The storm has brought the facility to a standstill.
Health: Houston has become a thriving center for health care research and services. Texas Medical Center employs more than 100,000, Gilmer says.