With a possible recession earlier this year in the rearview mirror, the Greater Houston area’s economic outlook could include a slow year ahead and a solid recovery in the future, according to local economic experts.

“We are still in significant contraction,” said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston C.T. Bauer College of Business. “We are not in recession, or perhaps we already have had a recession earlier this year and we didn’t know it.”

Gilmer spoke at an oil and gas symposium Nov. 10 hosted by the Institute for Regional Forecasting—University of Houston C.T. Bauer College of Business. It was at the Hyatt Regency in Houston.

He said the Greater Houston area has gone from its biggest oil boom to its biggest oil bust in a period of 18 months.

Houston has lost 80,000 local oil-related jobs since December 2014. Offsetting the energy sector losses are added positions in the food services, health care, retail trade, public education, entertainment and accommodations industries. Houston has added nearly 27,000 jobs in the service sector—nursing, teaching—in the past two years, Gilmer said.

Service sector job strength coupled with petrochemical construction on the east side of Houston, has kept the Houston economy above water, he said.

The strength of the U.S. economy, with 1.7 percent job growth per month, is holding up the lagging Houston economy as well, Gilmer said.

He said once the price of oil reaches $65 a barrel an economic recovery will come next, which depends on the number of oil rigs actively drilling for oil.

“If the rig count turned up early this year, we could see the energy jobs come back early or in the middle of 2017,” Gilmer said.

Real estate, office space

Houston has experienced a slowing real estate market since 2012 in regard to existing home sales, Gilmer said.

“If you look at the averages in Houston, nothing’s happened since 2012 in Houston real estate and existing home sales,” he said. “It turned flat in 2014 and has been flat since that time.”

Energy executives are not moving to the area, and the job growth is gone, Gilmer said, although starter homes are lining the Grand Parkway, and there has been strong activity in land development and lot supply.

Suburbs, such as Pearland, Sugar Land and Kingwood, are seeing low inventories, and The Woodlands has seen its home values drop by $50,000-$60,000, he said.

“The Woodlands is the one place you can see things have really cooled off in a big hurry,” Gilmer said. “The [ExxonMobil] bubble has burst.”

Gilmer said the Houston area is experiencing large vacancies in office space with culprits, such as the ExxonMobil development in Springwoods Village in Spring, causing a spur of office space development that has far exceeded demand.

“The worst damage that we did—we started 14.5 million square feet [of office space] about six months before the oil bust started,” Gilmer said. “Leasing activity is basically dead in the water.”

Analysis for 2017

Gilmer’s economic forecast includes a slow year in 2017 with a subsequent recovery.

“It’s going to be a slow [upturn] in drilling activity that really makes things happen and really saves us this year,” he said. “We’re going to see activity shift again.”

It is early yet for significant signs of a recovery in Spring and Klein, yet news of a recovery could help businesses lose a sense of fear and take on risks, said Barbara Thomason, Houston Northwest Chamber of Commerce president.

An oil industry recovery will mean stabilization of jobs, eventual job growth and more dollars funneled into the community to maintain or increase property values which could result in more jobs, she said.

“A recovery will be a psychological boost to our business community,” Thomason said. “[Business owners] are tired of uncertainty and reports of the energy industry being depressed.” 

Houston’s overall labor market growth is not as worrisome as it was in the ’80s, Gilmer said.

“In the 1980s, Houston lost 17 percent of its jobs, or a total of 225,000,” he said.

Houston is twice as big in population as it was in the 1980s and would have to lose 450,000 jobs to match a
17 percent decline, he said.

“We’ve come back to about $45 a barrel, and that marks the point where the service companies say it’s over,” Gilmer said. “Things are picking up. However we’re going to have a long slow grind in front of us.”