Effects of oil bust expected to worsen
Houston region forecast to lose 40,000 net jobs through 2017
The oil bust is spreading to the broader Houston economy, suggesting at least two years of job losses, sluggish growth, and softening home sales before the region sees a rebound, according to a new forecast from the University of Houston.
The forecast, presented Tuesday by economist Bill Gilmer, is considerably darker than projections made just six months ago, when it looked like the oil crash would bottom out in 2015 and the region would continue to add jobs, albeit at a slower pace.
Instead, prices and production continued their free-fall, nearing the proportions of the epic oil bust of the 1980s and rippling into retail, restaurants, real estate and other sectors supported by the wages, salaries and spending of the local energy industry, the forecast said.
The headline number: a projected 40,000 net jobs lost in Houston through 2017.
“I hope you didn’t come looking for a lot of good news today,” Gilmer told the audience of about 800 business people downtown. “It’s going to be very difficult for a lot of the sectors that have been providing job growth here to continue to do so in the future.”
Oil prices began their slide in the summer of 2014, plunging from more than $100 a barrel to less the $30 in February, leading to production cuts, bankruptcies, and widespread layoffs in the industry. While prices have since rebounded, closing above $48 a barrel
in New York on Tuesday, it will likely be months before production begins to pick up, and months — or years — after that before any significant hiring in the industry resumes, said Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.
The intensity of the crash has been unprecedented, Gilmer said. In the 1980s the number of rigs in operation plunged 82 percent over four years; this time, the rig count has plunged nearly that much — 79 percent — but in just two years.
“This has come harder and faster than anything we have ever seen before, in terms of damage to the American oil industry,” said Gilmer.
The question now is how much longer that damage will stay contained to the energy industry and directly connected sectors, such as manufacturing.
The Houston economy has benefited from a strong U.S. economy, which has provided markets for national companies headquartered here, such as the retail chain, Men’s Wearhouse and the food distributor Sysco Corp. It has also been bolstered by the strength of its petrochemical and refining industries, which have benefited from the low prices of oil and natural gas, their feedstocks.
But the support from those sectors is beginning to weaken as their rapid growth slows. Some $50 billion worth of refinery, petrochemical and LNG plants are underway, providing thousands of construction jobs, but that activity will peak over the next two years.
In 2017, nearly $23 billion in such projects are scheduled to be completed, according to the forecast. That will plunge to less than $5 billion in 2018.
“Our argument has been until this point that those two forces were going to be just enough to offset the negative (from oil production) and that we would break away from recession,” Gilmer said. “It’s an argument that’s getting harder and harder to make, because we’re running out of time.”
All of that suggests another shoe could drop on the Houston economy, as the kind of jobs that have been making up for the layoffs in oil and gas begin to disappear as well. The unemployment rate in the Houston area, 4.9 percent in March, has climbed more than a half-percentage point in a year. The housing market is beginning to soften, with sales and prices essentially flat, and building permits for single family homes slipping. The vacancy rate for apartments is also starting to climb.
So, when do things get better?
It could be a few years,
Gilmer said. The futures market — one of the best indicators of where oil prices are heading — sees the price of oil staying below $51 per barrel through 2019. Gilmer said prices would need to reach about $65 in order for companies to start producing at significantly higher levels and hiring significantly more workers.
Even then, Gilmer doesn’t expect the industry will ever return to the number of jobs it once had. Producers have gotten more efficient, meaning fewer people are required.