Nearly half of the world's workforce is at risk for job losses due to COVID-19, said Patrick Jankowski, senior vice president and research and regional economist at Greater Houston Partnership during a virtual meeting June 16.
“It's pretty severe,” Jankowski said. “It's affecting governments across the world. The world could lose as much as 224 million jobs. That would be like losing all the jobs in the U.S. and all the jobs in Japan, prior to the outbreak."
Coronavirus cases are still rising across the U.S. as all 50 states have made efforts to reopen the economy. As of noon on June 15, the U.S. had 2.1 million confirmed COVID-19 cases, and the virus had claimed over 115,000 lives, according to a GHP report.
“Public officials are trying to balance the need between public health and reopening the economy, but when you've had 42 million Americans file for unemployment, 500,000 Houstonians filing for unemployment insurance and one in every seven individuals being out of work, it becomes a challenge to balance both the public health concern with the economic concern,” Jankowski said.
About half of the countries in the world have requested help from the International Monetary Fund, Jankowski said.
This is an unprecedented amount of countries simultaneously entering a recession, according to the World Bank, which expects the global economy to shrink 5.2% in 2020.
“The concern is, things are going to get worse,” Jankowski said. “They are not going to get better. The economy shrunk by nearly a third this quarter.”
Global trade
The Houston region leads the country’s major metro areas in exports, which accounted for about 17% of Houston’s economic activity in 2017, according to an estimate by the Brookings Institution, a Washington think tank.
“Given the way things have progressed, I wouldn't be surprised if [the region’s exports now account for] about 20%,” Jankowski said. “Houston ties to the global economy are so important and we are seeing a global trade outlook plunge its lowest in a decade.”
The Houston-Galveston Customs District handled 233.1 million metric tons of goods and commodities valued at $174.9 billion in the first nine months of 2019, up an 8.3% and 0.6%, respectively, since the first nine months of 2018, according to GHP research.
Although, regional declines in global trade were a concern before the pandemic as uncertainty grew over the North American Free Trade Agreement, Jankowski said. Trade with Houston’s top trading partner, Mexico, fell by 13% to $22 billion, and trade with China fell by 26% to $15 billion in 2019.
In 2009, there were about 73 trade policies restricting trade, and by 2018 there were 1,500-1,600, Jankowski said.
Houston's economy will suffer until the rest of the world sees growth, he said.
Oil and gas
Now the coronavirus has exacerbated the decline in the region’s exports, including oil and natural gas, and has led to massive layoffs in the energy sector.
It costs about $30 per barrel to cover operating costs of existing wells and over $50 to profitably drill a new one, according to The Federal Reserve Bank of Dallas.
The U.S. Energy Information Administration estimates West Texas Intermediate will stay below $40 per barrel until early 2021 and will not reach the $50 per barrel mark until late 2021.
“The rig count fell to a record low of 229 as of June 12,” Jankowski said. “During the fracking bust it fell to 404, and back when everything was booming, we had 1,931 rigs operating. We shouldn't really count on the oil and gas industry being a driver for Houston's economy anytime soon, if ever. It will remain important, but it won't be like it was in the past.”
Direct foreign investment
The local economy also relies on international companies spending their money in the Greater Houston area.
The global investment could fall by 40%, according to the United Nations.
“We're going to see a lot less foreign direct investment coming into the U.S., Texas, and the Houston area,” Jankowski said. “Foreign direct investment is so important because they are putting capital in the community. When they come here, they employ many good people. They pay taxes.”
There has been at least $36 million in capital investments in the area since 2009 but as globalization slows with the travel limits due to COVID-19, there will be less deals made, Jankowski said.
“It makes it hard for people like me who are trying to recruit companies because a lot of these companies are worried about their own financial health,” Jankowski said. “During a downturn you’re trying to preserve liquidity, laying off people and trying to figure out the most efficient way to operate.
Jankowski concluded his presentation by acknowledging he had only delivered bad news and asking how long is it going to take the U.S. to get back to 42 million jobs.
"Things are going to be challenging for a while," he said
