GHP 2010 Houston Employment Forecast
Content
2010 EMPLOYMENT FORECAST
A publication of the Greater Houston Partnership December 14, 2009
The short version of the Greater Houston Partnership’s ’10 employment forecast is that metropolitan Houston, which probably lost nearly 93,000 jobs this year (December to December), will end ’10 with a net gain of 1,900. The good news in this forecast is that Houston comes to next December moving in the right direction. Job losses cease around mid-year, and Q3/10 brings the first blush of job growth in Houston’s nascent recovery.
Houston MSA Employment Forecast 2010
region—not even Houston—has been immune to its effects. Houston, however, was sheltered for another year or so by the sharp run-up in energy prices, which by July ’08 had seen the price of West Texas Intermediate (WTI) crude oil nearly triple, from less than $53 per barrel in early ’07 to more than $147, while Henry Hub natural gas more than doubled, from less than $6 per 1,000 cu.ft. in summer ’07 to more than $13. The stimulative effects of high and rising energy prices shielded Houston for a time from the worst effects of sharply reduced credit. As recession became entrenched in most developed economies in ’08, worldwide energy demand fell— and with it, energy prices tumbled. By the end of ’08, WTI was below $40, Henry Hub natural gas had once again fallen below $6, the world was awash in crude oil, and natural gas was plentiful. Compounding these setbacks, real GDP growth posted the first of four consecutive quarters of contraction in Q3/08, and international trade shrank as credit and demand dried up. Without the shield of high commodity prices, Houston was exposed to the brunt of the worst recession in seven decades. Job growth here slowed rapidly, and then turned negative early in ’09. This year has seen some easing in credit availability, but tight credit remains a constraint on much business activity—especially in commercial real estate, which faces massive refinancing demands in ’10. What of the three long-term drivers? While real GDP growth returned in Q3/09, that growth is far from robust. Most forecasts for ’10 call for 1.9 to 2.7 percent—less than the 3 percent
Sourc es : Es ti ma tes 1 2 /0 5 -10 /09 , Texa s W ork fo rce Co mm iss io n; fore ca sts 11 /0 9 -12 /10 , Gre ate r Ho us to n Pa rtne rshi p
What’s Driving the Houston Economy?
To understand what’s going on in this forecast, let’s set the stage by reviewing how we arrived where we are today. For several years, three external factors have channeled the growth of Houston’s economy: energy prices, the health of the national economy, and the value of the dollar against other major currencies. Those drivers remain operative—but now there’s an added factor in play. August ’07 brought the first blush of what became a crippling worldwide credit crunch. No industry or
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©2009, Greater Houston Partnership
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HOUSTON—2010 EMPLOYMENT FORECAST
growth that’s needed to provide a stimulus to the Houston region.
•
The dollar weakened substantially over the course of ’09, but—in contrast to what happens in an expanding economy—did little to help exports because demand was tepid. A weak dollar should bolster Houston exports when recovery abroad quickens the pace of international trade. Energy prices were a mixed bag in ’09. Throughout the latter half of the year, oil traded at prices higher than supply/demand fundamentals justified, apparently reflecting the anticipation of improved demand as economies return to health worldwide. Natural gas prices, on the other hand, languished (dropping below $2 on occasion) as gas in storage rose to record levels and threatened to reach capacity.
naled expanded production on tap for Q1/10. The tax credit for first-time homebuyers provided a boost to housing. Exports and imports notched solid gains in Q3/09. Improvement in indicators such as these underlies the widespread expectation that the U.S. is likely to see growth in payroll employment in either Q1 or Q2. Houston, the Partnership believes, is likely to follow suit in Q3.
Looking Back at 2009
What happened in Houston in ’09 is largely contained in three stories—upstream energy, construction, and international trade.
Employment, of course, is a lagging economic indicator. When economic conditions start to improve and demand for goods and services begins to revive, employers respond by increasing hours worked, drawing stream energy, con down excess labor capacity without Data are available for two compoadding jobs. When demand grows to struction, and inter nents of this supersector in Houston. the point where extracting more national trade. Oil and gas extraction, which inproduction from current employees is cludes many of the major exploration no longer feasible, the next step often and production firms engaged in multi-year prois to add temporary workers. Only when demand is seen as stable, and downside risks as limited, are grams abroad, has continued to add jobs, and should employers likely to make new hires. end ’09 with an over-the-year gain of 2,100 or so. (The latest data at this writing are for October.) In Houston’s case, a return to sustained job growth Support activities for mining, which in Houston is depends heavily not only on renewed demand for dominated by oilfield service companies, is more energy and for chemicals and plastics products susceptible to short-term shifts in demand, and shed (many of which are used in construction and manufacturing), but also on revived international trade. about 5,100 jobs this year. Together, if these This means that economic recovery elsewhere is a expectations are met, these two industries will have prerequisite for substantial job growth in Houston. contracted 3.3 percent in ’09. Late ’09 saw scattered positive economic signs for We expect construction to have lost 23,300 jobs— the national economy. Consumer spending has imone in nine—this year, accounting for a quarter of proved modestly across much of the nation. Given the region’s net job loss. Steep cuts in construction increased spending, lean inventories suggest that activity have affected other industries, and are alproduction must rise to meet demand—and a shortmost certainly involved in the loss of some 6,400 term leading indicator of industrial production sigDecember 14, 2009 ©2009, Greater Houston Partnership
Upstream energy: The supersector name is “mining and logging,” but nearly all of it in Houston is oil and gas. It’s of particular importance to the region’s economy because average annual pay is well above $100,000—the only industry to break the six-figure barrier—so its employWhat happened in ment level has a disproportionately Houston in ’09 is large impact on industries that delargely contained in pend heavily on discretionary conthree stories—up sumer spending.
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HOUSTON—2010 EMPLOYMENT FORECAST
jobs in fabricated metal products manufacturing and 6,600 in architectural and engineering services. International trade: Houston has long occupied a prominent position in international business. It’s ironic that international trade now appears to have made Houston more vulnerable than the other large Texas metros to the steep worldwide drop in trade induced by limited credit availability. From December ’08 to December ’09, wholesale trade employment in Houston fell about 11.7 percent, costing 16,400 jobs. The related category of transportation that includes warehousing, water transport and rail transport is likely to have shed another 10,000 jobs, down 17.9 percent. Those three stories involve industries that represent more than two-thirds of the job loss we project Houston to have sustained this year—and that tally doesn’t include the effects of upstream energy reductions on such industries as retail trade, food services, entertainment and recreation, and personal services. Accordingly, what happens to them is likely to dominate Houston’s employment picture next year. to be little changed in ’10, averaging about $79 for the year and edging above $81 in Q4. On the other hand, EIA sees total domestic natural gas consumption declining 0.4 percent as some power generation shifts away from natural gas to new coal-fired generation, more than offsetting rising residential, commercial and industrial gas usage. In EIA’s forecast, natural gas prices are pushed higher by declining production, but remain below $5 through Q3, rising to $5.20 in Q4. These inauspicious scenarios for growth in exploration and production activity suggest continuation of this year’s corporate and field layoffs into ’10. Even though most of the majors are involved in multiyear projects that are not strongly influenced by short-term price movements, recently announced job cuts and budget reductions at some leading firms indicate that E&P employment in Houston will decline by nearly 2 percent in ’10. Oilfield services firms, which are likely to have eliminated about 5,100 jobs this year, could easily drop another 1,400 in ’10. Overall, we expect mining and logging employment to decline by 2,300 jobs, or 2.6 percent. This loss, of course, will have ripple effects on industries that depend heavily on consumers’ discretionary spending. Construction: Aside from potential federal stimulus spending and tax incentives, there’s little to spark construction in Houston next year. Except in special cases, strict lending standards pose a daunting challenge to financing most projects of any type. • Single-family residential construction—perhaps buoyed by federal tax credits, but still constrained by strict lending standards—is unlikely next year to see much more than a repetition of this year’s 15,000 or so starts. • At a time when apartments are plentiful, when a difficult job market is compelling some young adults to return to their parental homes, and when financing for new complexes is exceedingly tight, multi-family construction should remain at a low level.
What’s in Store for 2010
On balance, the Houston metro area should eke out a net job gain—1,900 jobs—next year. That’s the end product of gains and losses for individual industries that respond in different ways to economic developments. As we turn to a detailed look at next year (see table, p. 6), we emphasize that the precise numbers in a forecast aren’t as important as understanding the reasons underlying the forecast. Being aware of what drives a forecast allows one to adjust expectations when unanticipated changes occur. Upstream energy: On the assumption that U.S. real GDP grows 1.9 percent (most other forecasts are a bit higher) and world real oil-consumptionweighted GDP grows 2.6 percent next year, the U.S. Energy Information Administration (EIA) expects the price of West Texas Intermediate crude
December 14, 2009
©2009, Greater Houston Partnership
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HOUSTON—2010 EMPLOYMENT FORECAST
• Declining employment has all but eliminated demand for new general purpose office space. • Groundbreaking on new industrial projects, CBRE reports, has fallen “to a near standstill amidst concerns of overbuilding as well as a lack of money to support proposed projects.” • This year’s store closings and decline in consumer spending have dampened retail prospects, and the credit crunch makes prospects for retail construction next year dim. CBRE opines: “New construction should continue to decline rapidly due to the inability of developers to find affordable financing and meet higher preleasing requirements set by lenders.” • Even public works construction is suffering. Despite the prospects for rising enrollments, some local school districts have deferred issuing bonds for new school construction because declining property values threaten tax revenues. Projects for which funding is either already assured or not burdened by credit constraints— METRO’s light rail, for instance—should go forward. While ’09 probably saw the brunt of the hits to construction employment in the Houston region, a further modest decline in ’10 seems unavoidable. The Partnership expects this loss to run to 5,500 jobs, or 3.1 percent, despite a slight uptick in heavy and civil engineering construction. International trade: Unfortunately, the industry definitions used by the Bureau of Labor Statistics to tally employment data don’t permit us to isolate international trade. We gain some insight to what’s going on by looking at wholesale trade and the residual category in transportation and warehousing that includes warehousing, waterborne transportation and rail transportation as primary components. As developed economies worldwide fell into recession, demand for goods declined, and international trade shipments declined precipitously. Oil constitutes a sufficiently large portion of imports to the
December 14, 2009
Port of Houston to mask what happens with other commodities. Excluding mineral fuels, the 12month total volume of Port of Houston imports and exports peaked in August ’08 and then fell 19.0 percent over the next 12 months before posting a slight improvement to a decline of 18.4 percent this September (the latest data available at this writing). Had demand abroad not contracted, the weakening of the dollar in ’09 would have made Houston exports more attractive. With economic growth now accelerating in some Asian economies (e.g., India and China) and returning in some developed economies (e.g., Germany and France), trade volumes should improve—and Houston certainly hasn’t lost its capacity to handle international trade. Q3/09 brought solid gains in imports and exports at the national level, brightening the prospects for further growth in ’10. These prospects underpin the Partnership’s expectation that wholesale trade in Houston next year will regain 5,200 of the 16,400 jobs it lost this year, and that the unpublished conglomerate of industries that includes warehousing, waterborne transportation, and rail transportation will add back 2,900 of the 10,000 jobs it lost this year. What of other industries with large numbers of jobs in Houston?
Houston MSA Job Change by Industry 2008-2010
10 5 0 -5 -10
Net Change (000)
-15 -20 -25
Arts, Entertain & Rec Wholesale Trade Retail Trade Transp, Whsng & Util Prof& Business Svcs Educational Svcs Lodging & Food Svcs Mining & Logging Construction Information Finance & Insurance Health & Soc Assist Other Services Manufacturing Real Est & Rent/Lease Government
2008
2009
2010
Manufacturing declines for a second consecutive year in this forecast—but by only 2.1 percent, versus 7.5 percent this year. About three-fourths of the 4,800 manufacturing jobs expected to be lost in ’10 are in fabricated metal products manufacturing,
©2009, Greater Houston Partnership
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HOUSTON—2010 EMPLOYMENT FORECAST
which is adversely affected by dwindling construction activity. Retail trade, which will have lost a bit more than 10,000 jobs this year, nearly breaks even in ’10, shedding just 400 jobs—less than it lost in ’08. This forecast anticipates rising consumer confidence as job losses abate in the first half of ’10 and gains appear in the second half. An expanding consumer market adds support for retail trade employment: population growth in this decade has consistently exceeded 100,000 persons per year in the 10-county metropolitan area. Professional, scientific and technical services, which saw employment decline about 3.3 percent this year, ends next year almost even as a continued decline into summer is reversed. This sector is buoyed by a second year of 4.0 percent growth in computer systems design and a 2.1 percent gain in legal services. Architectural and engineering services, however, are expected to decline 1.9 percent after a 9.8 percent drop this year, hurt by both the continued decline in construction activity and the less-than-robust outlook for upstream energy. Administrative and support services is expected to reverse this year’s loss of 5,200 jobs with a net gain of 5,400. A solid advance in employment services—a harbinger of growth in permanent jobs—more than offsets mild declines in other fields, including services to buildings. Hiring temporary workers is frequently management’s first response when demands from an improving economy outstrip the production capacity of current staff. Health care and social assistance isn’t immune to recessionary pressures, but its dominant health care component also is driven by the growth and aging of the population it serves. This forecast sees job growth slowing from 2.0 percent this year to 1.6 percent next year. Revenue flows constrain growth in health care, and demand for social services eases in the latter part of the year.
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Accommodation and food services ekes out a net gain of 0.5 percent in ’10. The year is a difficult one for the lodging industry, but an improving regional economy moving toward ’11 should bolster restaurants and other food services. Government should add 4,100 jobs—a 1.1 percent increase—as 4,800 jobs added in public education more than offset a modest decline in other governmental functions. The gains in public education are predicated not only on population growth, but also on the rise in demand for additional education and/ or vocational training that typically occurs in a recession, when laid-off workers and entrants to the work force who can’t find employment seek to upgrade their skills. The forecast for government also recognizes that many political jurisdictions are seeing reduced revenues from property and sales taxes. One of many uncertainties that could alter this forecast is the extent of additional federal actions to blunt the inroads made by this recession. The anticipated expansion in public education in this forecast assumes that funding will be available—something that may depend on federal assistance. Elsewhere, however, this forecast does not assume any additional federal intervention. A wide range of policy actions that have been discussed in recent weeks could provide greater gains or smaller losses than this forecast anticipates across a wide range of industries. The outlook for ’10 isn’t nearly so dire as was the forecast for ’09. We see job losses here continuing well into ’10, but at moderating rates. By the time we reach the final quarter of next year, employment—a lagging indicator—should be on the upswing. Houston’s economy is fundamentally sound, and it’s well-positioned to return to vigorous growth as recession turns to growth across the globe.
©2009, Greater Houston Partnership
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2010 NONFARM PAYROLL EMPLOYMENT FORECAST HOUSTON-SUGAR LAND-BAYTOWN MSA Employment (000) 12/08 Total Nonfarm Payroll Jobs Total Private Goods Producing Services Providing Natural Resources & Mining Construction Manufacturing Wholesale Trade Retail Trade Utilities Transportation & Warehousing Information Finance & Insurance Real Estate & Rental and Leasing Professional & Business Services Educational Services Health Care & Social Assistance Arts, Entertainment & Recreation Accommodation & Food Services Other Services Government 2628.1 2260.6 541.7 2086.4 93.7 203.9 244.1 140.5 277.4 16.1 111.1 36.1 90.8 53.1 384.7 41.3 248.6 24.9 204.1 90.2 367.5 12/09 2535.2 2161.4 496.7 2038.6 90.3 180.6 225.7 124.1 267.2 15.9 100.3 34.3 88.4 52.2 367.5 42.1 253.7 26.1 205.5 87.5 373.8 12/10 2537.1 2159.2 484.0 2053.1 88.0 175.1 220.9 129.3 266.8 15.8 103.5 32.9 86.7 51.9 367.4 43.0 257.7 27.9 206.6 85.7 377.9
Change During Year (000) '08 22.5 19.0 14.5 8.0 7.6 1.1 5.8 3.4 -0.7 0.5 -2.4 -0.7 -1.4 0 2.9 0.4 5.3 -0.2 -1.2 -1.4 3.5 '09 -92.9 -99.2 -45.0 -47.8 -3.4 -23.3 -18.4 -16.4 -10.2 -0.2 -10.8 -1.8 -2.4 -0.9 -17.2 0.8 5.1 1.2 1.4 -2.7 6.3 '10 1.9 -2.1 -12.7 14.6 -2.3 -5.5 -4.8 5.2 -0.4 -0.1 3.2 -1.4 -1.7 -0.3 -0.1 1.0 4.0 1.8 1.1 -1.8 4.1
Pct Change During Year '08 0.9 0.8 2.8 0.4 8.8 0.5 2.4 2.5 -0.3 3.2 -2.1 -1.9 -1.5 0.0 0.8 1.0 2.2 -0.8 -0.6 -1.5 1.0 '09 -3.5 -4.4 -8.3 -2.3 -3.6 -11.4 -7.5 -11.7 -3.7 -1.2 -9.7 -5.1 -2.6 -1.7 -4.5 1.9 2.0 4.8 0.7 -3.0 1.7 '10 0.1 -0.1 -2.6 0.7 -2.6 -3.1 -2.1 4.2 -0.1 -0.5 3.2 -4.0 -1.9 -0.6 0.0 2.3 1.6 7.0 0.5 -2.1 1.1
Sources: Estimates 12/07-10/09, Texas Workforce Commission; forecasts 11/09-12/10, Greater Houston Partnership
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The Greater Houston Partnership is the primary advocate of Houston’s business community and is dedicated to building regional economic prosperity. Visit the Greater Houston Partnership on the World Wide Web at www.houston.org. Contact us by phone at 713-844-3600.
December 14, 2009
©2009, Greater Houston Partnership
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A publication of the Greater Houston Partnership December 14, 2009
The short version of the Greater Houston Partnership’s ’10 employment forecast is that metropolitan Houston, which probably lost nearly 93,000 jobs this year (December to December), will end ’10 with a net gain of 1,900. The good news in this forecast is that Houston comes to next December moving in the right direction. Job losses cease around mid-year, and Q3/10 brings the first blush of job growth in Houston’s nascent recovery.
Houston MSA Employment Forecast 2010
region—not even Houston—has been immune to its effects. Houston, however, was sheltered for another year or so by the sharp run-up in energy prices, which by July ’08 had seen the price of West Texas Intermediate (WTI) crude oil nearly triple, from less than $53 per barrel in early ’07 to more than $147, while Henry Hub natural gas more than doubled, from less than $6 per 1,000 cu.ft. in summer ’07 to more than $13. The stimulative effects of high and rising energy prices shielded Houston for a time from the worst effects of sharply reduced credit. As recession became entrenched in most developed economies in ’08, worldwide energy demand fell— and with it, energy prices tumbled. By the end of ’08, WTI was below $40, Henry Hub natural gas had once again fallen below $6, the world was awash in crude oil, and natural gas was plentiful. Compounding these setbacks, real GDP growth posted the first of four consecutive quarters of contraction in Q3/08, and international trade shrank as credit and demand dried up. Without the shield of high commodity prices, Houston was exposed to the brunt of the worst recession in seven decades. Job growth here slowed rapidly, and then turned negative early in ’09. This year has seen some easing in credit availability, but tight credit remains a constraint on much business activity—especially in commercial real estate, which faces massive refinancing demands in ’10. What of the three long-term drivers? While real GDP growth returned in Q3/09, that growth is far from robust. Most forecasts for ’10 call for 1.9 to 2.7 percent—less than the 3 percent
Sourc es : Es ti ma tes 1 2 /0 5 -10 /09 , Texa s W ork fo rce Co mm iss io n; fore ca sts 11 /0 9 -12 /10 , Gre ate r Ho us to n Pa rtne rshi p
What’s Driving the Houston Economy?
To understand what’s going on in this forecast, let’s set the stage by reviewing how we arrived where we are today. For several years, three external factors have channeled the growth of Houston’s economy: energy prices, the health of the national economy, and the value of the dollar against other major currencies. Those drivers remain operative—but now there’s an added factor in play. August ’07 brought the first blush of what became a crippling worldwide credit crunch. No industry or
December 14, 2009
©2009, Greater Houston Partnership
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HOUSTON—2010 EMPLOYMENT FORECAST
growth that’s needed to provide a stimulus to the Houston region.
•
The dollar weakened substantially over the course of ’09, but—in contrast to what happens in an expanding economy—did little to help exports because demand was tepid. A weak dollar should bolster Houston exports when recovery abroad quickens the pace of international trade. Energy prices were a mixed bag in ’09. Throughout the latter half of the year, oil traded at prices higher than supply/demand fundamentals justified, apparently reflecting the anticipation of improved demand as economies return to health worldwide. Natural gas prices, on the other hand, languished (dropping below $2 on occasion) as gas in storage rose to record levels and threatened to reach capacity.
naled expanded production on tap for Q1/10. The tax credit for first-time homebuyers provided a boost to housing. Exports and imports notched solid gains in Q3/09. Improvement in indicators such as these underlies the widespread expectation that the U.S. is likely to see growth in payroll employment in either Q1 or Q2. Houston, the Partnership believes, is likely to follow suit in Q3.
Looking Back at 2009
What happened in Houston in ’09 is largely contained in three stories—upstream energy, construction, and international trade.
Employment, of course, is a lagging economic indicator. When economic conditions start to improve and demand for goods and services begins to revive, employers respond by increasing hours worked, drawing stream energy, con down excess labor capacity without Data are available for two compoadding jobs. When demand grows to struction, and inter nents of this supersector in Houston. the point where extracting more national trade. Oil and gas extraction, which inproduction from current employees is cludes many of the major exploration no longer feasible, the next step often and production firms engaged in multi-year prois to add temporary workers. Only when demand is seen as stable, and downside risks as limited, are grams abroad, has continued to add jobs, and should employers likely to make new hires. end ’09 with an over-the-year gain of 2,100 or so. (The latest data at this writing are for October.) In Houston’s case, a return to sustained job growth Support activities for mining, which in Houston is depends heavily not only on renewed demand for dominated by oilfield service companies, is more energy and for chemicals and plastics products susceptible to short-term shifts in demand, and shed (many of which are used in construction and manufacturing), but also on revived international trade. about 5,100 jobs this year. Together, if these This means that economic recovery elsewhere is a expectations are met, these two industries will have prerequisite for substantial job growth in Houston. contracted 3.3 percent in ’09. Late ’09 saw scattered positive economic signs for We expect construction to have lost 23,300 jobs— the national economy. Consumer spending has imone in nine—this year, accounting for a quarter of proved modestly across much of the nation. Given the region’s net job loss. Steep cuts in construction increased spending, lean inventories suggest that activity have affected other industries, and are alproduction must rise to meet demand—and a shortmost certainly involved in the loss of some 6,400 term leading indicator of industrial production sigDecember 14, 2009 ©2009, Greater Houston Partnership
Upstream energy: The supersector name is “mining and logging,” but nearly all of it in Houston is oil and gas. It’s of particular importance to the region’s economy because average annual pay is well above $100,000—the only industry to break the six-figure barrier—so its employWhat happened in ment level has a disproportionately Houston in ’09 is large impact on industries that delargely contained in pend heavily on discretionary conthree stories—up sumer spending.
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HOUSTON—2010 EMPLOYMENT FORECAST
jobs in fabricated metal products manufacturing and 6,600 in architectural and engineering services. International trade: Houston has long occupied a prominent position in international business. It’s ironic that international trade now appears to have made Houston more vulnerable than the other large Texas metros to the steep worldwide drop in trade induced by limited credit availability. From December ’08 to December ’09, wholesale trade employment in Houston fell about 11.7 percent, costing 16,400 jobs. The related category of transportation that includes warehousing, water transport and rail transport is likely to have shed another 10,000 jobs, down 17.9 percent. Those three stories involve industries that represent more than two-thirds of the job loss we project Houston to have sustained this year—and that tally doesn’t include the effects of upstream energy reductions on such industries as retail trade, food services, entertainment and recreation, and personal services. Accordingly, what happens to them is likely to dominate Houston’s employment picture next year. to be little changed in ’10, averaging about $79 for the year and edging above $81 in Q4. On the other hand, EIA sees total domestic natural gas consumption declining 0.4 percent as some power generation shifts away from natural gas to new coal-fired generation, more than offsetting rising residential, commercial and industrial gas usage. In EIA’s forecast, natural gas prices are pushed higher by declining production, but remain below $5 through Q3, rising to $5.20 in Q4. These inauspicious scenarios for growth in exploration and production activity suggest continuation of this year’s corporate and field layoffs into ’10. Even though most of the majors are involved in multiyear projects that are not strongly influenced by short-term price movements, recently announced job cuts and budget reductions at some leading firms indicate that E&P employment in Houston will decline by nearly 2 percent in ’10. Oilfield services firms, which are likely to have eliminated about 5,100 jobs this year, could easily drop another 1,400 in ’10. Overall, we expect mining and logging employment to decline by 2,300 jobs, or 2.6 percent. This loss, of course, will have ripple effects on industries that depend heavily on consumers’ discretionary spending. Construction: Aside from potential federal stimulus spending and tax incentives, there’s little to spark construction in Houston next year. Except in special cases, strict lending standards pose a daunting challenge to financing most projects of any type. • Single-family residential construction—perhaps buoyed by federal tax credits, but still constrained by strict lending standards—is unlikely next year to see much more than a repetition of this year’s 15,000 or so starts. • At a time when apartments are plentiful, when a difficult job market is compelling some young adults to return to their parental homes, and when financing for new complexes is exceedingly tight, multi-family construction should remain at a low level.
What’s in Store for 2010
On balance, the Houston metro area should eke out a net job gain—1,900 jobs—next year. That’s the end product of gains and losses for individual industries that respond in different ways to economic developments. As we turn to a detailed look at next year (see table, p. 6), we emphasize that the precise numbers in a forecast aren’t as important as understanding the reasons underlying the forecast. Being aware of what drives a forecast allows one to adjust expectations when unanticipated changes occur. Upstream energy: On the assumption that U.S. real GDP grows 1.9 percent (most other forecasts are a bit higher) and world real oil-consumptionweighted GDP grows 2.6 percent next year, the U.S. Energy Information Administration (EIA) expects the price of West Texas Intermediate crude
December 14, 2009
©2009, Greater Houston Partnership
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HOUSTON—2010 EMPLOYMENT FORECAST
• Declining employment has all but eliminated demand for new general purpose office space. • Groundbreaking on new industrial projects, CBRE reports, has fallen “to a near standstill amidst concerns of overbuilding as well as a lack of money to support proposed projects.” • This year’s store closings and decline in consumer spending have dampened retail prospects, and the credit crunch makes prospects for retail construction next year dim. CBRE opines: “New construction should continue to decline rapidly due to the inability of developers to find affordable financing and meet higher preleasing requirements set by lenders.” • Even public works construction is suffering. Despite the prospects for rising enrollments, some local school districts have deferred issuing bonds for new school construction because declining property values threaten tax revenues. Projects for which funding is either already assured or not burdened by credit constraints— METRO’s light rail, for instance—should go forward. While ’09 probably saw the brunt of the hits to construction employment in the Houston region, a further modest decline in ’10 seems unavoidable. The Partnership expects this loss to run to 5,500 jobs, or 3.1 percent, despite a slight uptick in heavy and civil engineering construction. International trade: Unfortunately, the industry definitions used by the Bureau of Labor Statistics to tally employment data don’t permit us to isolate international trade. We gain some insight to what’s going on by looking at wholesale trade and the residual category in transportation and warehousing that includes warehousing, waterborne transportation and rail transportation as primary components. As developed economies worldwide fell into recession, demand for goods declined, and international trade shipments declined precipitously. Oil constitutes a sufficiently large portion of imports to the
December 14, 2009
Port of Houston to mask what happens with other commodities. Excluding mineral fuels, the 12month total volume of Port of Houston imports and exports peaked in August ’08 and then fell 19.0 percent over the next 12 months before posting a slight improvement to a decline of 18.4 percent this September (the latest data available at this writing). Had demand abroad not contracted, the weakening of the dollar in ’09 would have made Houston exports more attractive. With economic growth now accelerating in some Asian economies (e.g., India and China) and returning in some developed economies (e.g., Germany and France), trade volumes should improve—and Houston certainly hasn’t lost its capacity to handle international trade. Q3/09 brought solid gains in imports and exports at the national level, brightening the prospects for further growth in ’10. These prospects underpin the Partnership’s expectation that wholesale trade in Houston next year will regain 5,200 of the 16,400 jobs it lost this year, and that the unpublished conglomerate of industries that includes warehousing, waterborne transportation, and rail transportation will add back 2,900 of the 10,000 jobs it lost this year. What of other industries with large numbers of jobs in Houston?
Houston MSA Job Change by Industry 2008-2010
10 5 0 -5 -10
Net Change (000)
-15 -20 -25
Arts, Entertain & Rec Wholesale Trade Retail Trade Transp, Whsng & Util Prof& Business Svcs Educational Svcs Lodging & Food Svcs Mining & Logging Construction Information Finance & Insurance Health & Soc Assist Other Services Manufacturing Real Est & Rent/Lease Government
2008
2009
2010
Manufacturing declines for a second consecutive year in this forecast—but by only 2.1 percent, versus 7.5 percent this year. About three-fourths of the 4,800 manufacturing jobs expected to be lost in ’10 are in fabricated metal products manufacturing,
©2009, Greater Houston Partnership
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HOUSTON—2010 EMPLOYMENT FORECAST
which is adversely affected by dwindling construction activity. Retail trade, which will have lost a bit more than 10,000 jobs this year, nearly breaks even in ’10, shedding just 400 jobs—less than it lost in ’08. This forecast anticipates rising consumer confidence as job losses abate in the first half of ’10 and gains appear in the second half. An expanding consumer market adds support for retail trade employment: population growth in this decade has consistently exceeded 100,000 persons per year in the 10-county metropolitan area. Professional, scientific and technical services, which saw employment decline about 3.3 percent this year, ends next year almost even as a continued decline into summer is reversed. This sector is buoyed by a second year of 4.0 percent growth in computer systems design and a 2.1 percent gain in legal services. Architectural and engineering services, however, are expected to decline 1.9 percent after a 9.8 percent drop this year, hurt by both the continued decline in construction activity and the less-than-robust outlook for upstream energy. Administrative and support services is expected to reverse this year’s loss of 5,200 jobs with a net gain of 5,400. A solid advance in employment services—a harbinger of growth in permanent jobs—more than offsets mild declines in other fields, including services to buildings. Hiring temporary workers is frequently management’s first response when demands from an improving economy outstrip the production capacity of current staff. Health care and social assistance isn’t immune to recessionary pressures, but its dominant health care component also is driven by the growth and aging of the population it serves. This forecast sees job growth slowing from 2.0 percent this year to 1.6 percent next year. Revenue flows constrain growth in health care, and demand for social services eases in the latter part of the year.
December 14, 2009
Accommodation and food services ekes out a net gain of 0.5 percent in ’10. The year is a difficult one for the lodging industry, but an improving regional economy moving toward ’11 should bolster restaurants and other food services. Government should add 4,100 jobs—a 1.1 percent increase—as 4,800 jobs added in public education more than offset a modest decline in other governmental functions. The gains in public education are predicated not only on population growth, but also on the rise in demand for additional education and/ or vocational training that typically occurs in a recession, when laid-off workers and entrants to the work force who can’t find employment seek to upgrade their skills. The forecast for government also recognizes that many political jurisdictions are seeing reduced revenues from property and sales taxes. One of many uncertainties that could alter this forecast is the extent of additional federal actions to blunt the inroads made by this recession. The anticipated expansion in public education in this forecast assumes that funding will be available—something that may depend on federal assistance. Elsewhere, however, this forecast does not assume any additional federal intervention. A wide range of policy actions that have been discussed in recent weeks could provide greater gains or smaller losses than this forecast anticipates across a wide range of industries. The outlook for ’10 isn’t nearly so dire as was the forecast for ’09. We see job losses here continuing well into ’10, but at moderating rates. By the time we reach the final quarter of next year, employment—a lagging indicator—should be on the upswing. Houston’s economy is fundamentally sound, and it’s well-positioned to return to vigorous growth as recession turns to growth across the globe.
©2009, Greater Houston Partnership
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2010 NONFARM PAYROLL EMPLOYMENT FORECAST HOUSTON-SUGAR LAND-BAYTOWN MSA Employment (000) 12/08 Total Nonfarm Payroll Jobs Total Private Goods Producing Services Providing Natural Resources & Mining Construction Manufacturing Wholesale Trade Retail Trade Utilities Transportation & Warehousing Information Finance & Insurance Real Estate & Rental and Leasing Professional & Business Services Educational Services Health Care & Social Assistance Arts, Entertainment & Recreation Accommodation & Food Services Other Services Government 2628.1 2260.6 541.7 2086.4 93.7 203.9 244.1 140.5 277.4 16.1 111.1 36.1 90.8 53.1 384.7 41.3 248.6 24.9 204.1 90.2 367.5 12/09 2535.2 2161.4 496.7 2038.6 90.3 180.6 225.7 124.1 267.2 15.9 100.3 34.3 88.4 52.2 367.5 42.1 253.7 26.1 205.5 87.5 373.8 12/10 2537.1 2159.2 484.0 2053.1 88.0 175.1 220.9 129.3 266.8 15.8 103.5 32.9 86.7 51.9 367.4 43.0 257.7 27.9 206.6 85.7 377.9
Change During Year (000) '08 22.5 19.0 14.5 8.0 7.6 1.1 5.8 3.4 -0.7 0.5 -2.4 -0.7 -1.4 0 2.9 0.4 5.3 -0.2 -1.2 -1.4 3.5 '09 -92.9 -99.2 -45.0 -47.8 -3.4 -23.3 -18.4 -16.4 -10.2 -0.2 -10.8 -1.8 -2.4 -0.9 -17.2 0.8 5.1 1.2 1.4 -2.7 6.3 '10 1.9 -2.1 -12.7 14.6 -2.3 -5.5 -4.8 5.2 -0.4 -0.1 3.2 -1.4 -1.7 -0.3 -0.1 1.0 4.0 1.8 1.1 -1.8 4.1
Pct Change During Year '08 0.9 0.8 2.8 0.4 8.8 0.5 2.4 2.5 -0.3 3.2 -2.1 -1.9 -1.5 0.0 0.8 1.0 2.2 -0.8 -0.6 -1.5 1.0 '09 -3.5 -4.4 -8.3 -2.3 -3.6 -11.4 -7.5 -11.7 -3.7 -1.2 -9.7 -5.1 -2.6 -1.7 -4.5 1.9 2.0 4.8 0.7 -3.0 1.7 '10 0.1 -0.1 -2.6 0.7 -2.6 -3.1 -2.1 4.2 -0.1 -0.5 3.2 -4.0 -1.9 -0.6 0.0 2.3 1.6 7.0 0.5 -2.1 1.1
Sources: Estimates 12/07-10/09, Texas Workforce Commission; forecasts 11/09-12/10, Greater Houston Partnership
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The Greater Houston Partnership is the primary advocate of Houston’s business community and is dedicated to building regional economic prosperity. Visit the Greater Houston Partnership on the World Wide Web at www.houston.org. Contact us by phone at 713-844-3600.
December 14, 2009
©2009, Greater Houston Partnership
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