Houston still limping out of the oil downturn
It was still before 11:30, but a steady stream of office workers in starched shirts lined up at Peli Peli Kitchen, a fast-casual South African restaurant in the heart of the Energy Corridor.
The heavy lunch traffic was a relief for the owner, Thomas Nguyen, whose 8-year-old business barely survived a two-year oil downturn that torpedoed the corporate events of nearby energy companies, a major source of revenue for Peli Peli. All around him, Nguyen recalled, restaurants were closing.
“That almost destroyed us,” Nguyen said. “I don’t think we’re out of the woods yet, but it seems like it’s getting a little better.”
That sense of cautious hope characterizes much of the Houston economy, finally on the upswing after the energy bust wiped out some 80,000 jobs in the region. Since the beginning of the year, the Houston area has added about 26,000 jobs, accelerating job growth to an annual rate of nearly 3 percent, compared to 0.3 percent last year, and powering the region’s employment to an all-time high.
But there is certainly reason for caution as oil prices sink. After a steady climb that returned hundreds of drilling rigs to Texas oil fields, spurred new hiring and boosted other industries, such as manufacturing, crude prices have plunged 10 percent this month and 20 percent since a February high of about $54 a barrel.
Oil settled at $43.01 in New York Friday.
So far, local analysts say it’s too soon to worry. Any slide, they added, is unlikely to be as dramatic and wrenching as the oil bust, when prices plummeted from more than $107 a barrel to $26.
That’s “a lot different than going from $51 to $43,” said Patrick Jankowski, head of research for the Greater Houston Partnership. “This is going to slow down a recovery in the oil and gas industry, but it’s not going to derail Houston’s recovery.”
Still, falling oil prices are dampening the outlook of Nguyen and other business owners that provide goods and services to the energy industry and its workers. Nguyen is planning a new location in Katy and another in Austin, and the uncertain economy gives him the willies.
“We’ve been told by a lot of people that we’re idiots, and it’s extremely risky to expand right now. And I don’t disagree,” Nguyen said. “No one’s acknowledging that we’re in a recession. There’s greater impact than people realize.”
The long, halting recovery of Houston’s economy has had the triumphs and disappointments of Shakespearian drama.
For the first year of the oil crash, while mass layoffs hit companies across energy and related industries, it appeared that a strong national economy and petrochemical boom on the east side of Harris County would allow Houston to pull through relatively unscathed.
That optimism started to fade in spring 2016, as a drilling recovery failed to materialize, petrochemical construction projects began to wind down, and an office space glut stalled commercial development. With diminished prospects, many of those who came to Houston to work during the oil boom moved elsewhere.
In 2016, Harris County saw a net outflow of 16,000 people to other parts of the country, after five years of steady gains. That’s important, because population growth is what creates jobs at new hospitals, shopping malls and movie theaters.
“The drilling bust lasted long enough to allow all the momentum from the fracking boom to dissipate and for net migration to slow for the next couple of years,” Bill Gilmer, head of the Institute for Regional Forecasting at the University’s Bauer School of Business, said in an economic update this month. “The result is no quick and easy return to job growth.”
Hope returned in November when OPEC said it would cut production, lifting prices. But U.S. shale companies started pumping oil immediately in response, with technology that allowed them to do it more cheaply and efficiently. The rig count more than doubled in less than a year, adding enough supply to the market to keep prices persistently low.
Larry Davis is president of Industrial Equipment Co., a Houston distributor of machinery for chemical makers, among other manufacturers. He follows events in the Middle East closely – many of his refinery and petrochemical clients are also in oil production. Low crude prices depress their profits, making it difficult for them to place large orders.
“I think they were a lot more optimistic than the market was ready for,” Davis said. “Plus, the efficiency of oil production has gotten so good, so the market’s flooded.”
The company’s workforce shrunk by more than 25 percent, from an oil boom peak of 54 to 40 today. Davis is in the market for a new salesperson, but that’s only to replace one who left, not to expand.
Since November, the manufacturing sector has regained 14,000 of the 43,000 workers it shed over two years. The Houston purchasing managers index, a leading indicator of industrial activity, has pointed toward expansion for eight months in a row after spending two years in negative territory.
But some parts of Houston’s industrial base are still struggling – especially those related to construction, as the boom in petrochemical projects comes to an end.
Joyce Stallings is vice president of sales and manufacturing at Rilco, a Houston company that makes pipe supports for petrochemical and refining plants, many owned by oil companies squeezed by low prices. She said the engineering and construction firms she serves have proposals out, but the projects are stalled, waiting for higher oil prices. So are her sales.
“We are hoping that 2018 will see more of these jobs going forward,” Stallings said, “but as of today it looks pretty bleak.”
Back into gear
While oil and manufacturing may drive Houston’s economy, the majority of Houston’s jobs are in the service sector, from health care to education to food services. Many service businesses, such as airlines and food distribution, have ridden a strong national economy over the past few years.
But the growth rates in those industries have sagged, too, with retail employment in particular showing a dramatic slowdown, possibly reflecting the shift to online purchases that has pushed national chains like Gander Mountain and Sports Authority into bankruptcy.
One type of company that’s doing well: staffing agencies, which typically grow when business is up, but companies don’t have the confidence to make full-time hires. Temporary employment has spiked nearly 20 percent over the past year, with most of the growth coming this spring.
Keith Wolf, managing director at the Houston recruiting firm Murray Resources, said the number of positions they’re trying to fill are at 85 percent of where they were at the peak of the oil boom – many at the oil companies that cut back most drastically and are shifting back into gear. That means job-seekers with certain in-demand skills can afford to be more choosy.
“In the last several months, it has become increasingly difficult as the market has shifted to a candidate-driven market,” Wolf said.
As the downturn has eased and unemployment has declined from its high of 5.9 percent in February, fewer people are seeking help to find work at the Gulf Coast Workforce Solutions, the region’s federally funded network of job centers. The number of people active in their job banks is down 20 percent from this time last year, to 95,000 from 105,000, according to the agency’s director, Mike Temple.
He said he hears about shortages in technical occupations such as system administrators, software developers, instrumentation technicians – all well-paid jobs that require education and experience.
But many of those jobs don’t pay as much as they used to when the oil industry drove demand for technical talent, Temple said. And many people laid off from positions in manufacturing or oilfield services have had to accept work in other industries at lower salaries.
Recently, however, average earnings are growing again in Houston after shrinking during most of 2016, according to the Labor Department, another sign the job market is improving.
‘So much to do’
The number of job seekers also has declined at faith-based career counseling programs like Operation Jobs at Cypress Assistance Ministries, where director Thomas Greuter said he’s seeing fewer engineers and people with doctoral degrees seeking help – the type of folks who found themselves out of work when oil companies slashed payrolls.
Now, he’s seeing the normal flow of people who weren’t necessarily victims of the oil bust but still need new jobs – maybe because they recently moved to town or are simply looking for something better. A stronger economy would be able to absorb those people more quickly.
Geneice Baymon moved here a few months ago from Phoenix after a divorce. She has looked for jobs in call centers, using computers and job leads at Cypress Assistance Ministries. She’s already had one interview.
“I’m sure I’ll land something within the next few weeks,” Baymon said, taking a break from filling out an online survey as part of an application for customer service work at United Healthcare. “There’s so much to do. I see a lot of opportunity.”
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