Houston Updates

Hurricanes, Holidays, and Data Revisions Blur the Crystal Ball: Soft-Landings Likely Still on Track in the U.S. and Houston in 2025

 

December 10, 2024

Did the US economy make the soft-landing? Based on the closely watched payroll employment data, thanks to hurricanes Helene in September and Milton in October, coming data revisions, and growing questions about whether the US is now accelerating, we probably will not know for sure until after the first of the year. Helene landed in Florida on September 26 and Milton on October 19. The typical post-hurricane pattern for employment is storm-related shutdowns reported during the first month, a second-month recovery of storm losses plus a surge in workers for reconstruction, and then one or two months more for jobs to fall back to pre-hurricane trends. After six months of job growth of averaging 147,800 jobs per month, October employment in the US fell to 12,000. November should report the rebuilding surge, and December/January will report the return a trend.

As early as December, we could see residual impact of the storms disappear from our employment data, but the January data release also will bring us the usual large surge in holiday hiring. Then in February, the BLS will make its annual revisions to the jobs data for all of 2024 by (1) discarding the sample data it relied on throughout 2024, and (2) replacing it with an on-going collection administration records on the number of workers eligible for employment compensation, e.g., payroll workers. A major rewrite of history can result — or not. In short, solid confidence in a US soft-landing probably waits for early February.

Houston sits in a different position. Hurricane Beryl came in July, it had the expected impacts on jobs, and the November report should move us well past the storm. Again, the BLS annual revisions come in February, but the Dallas Fed has for many years done a rolling “early benchmark” that does not wait all year to process the administrative records. The Philadelphia Fed has recently adopted this methodology for all 50 states. These early and tentative revisions have been pointing to significantly steeper slowdowns than reported by BLS, with the Houston data likely achieving the soft-landing last summer and the US perhaps by this fall. We will see.

What makes a soft landing?

By a soft landing we mean a broad-based slowing of the economy from rapid growth rates to sustained trend levels. When the Federal Reserve began raising interest rates in 2022-23 it was widely expected that a major US slowdown and perhaps a mild US recession follow 12-18 months later. The economy would take the express elevator down. Instead, the picture of US economic growth in Figure 1 is that of a long slow escalator ride. Month-to-month swings in employment during the slowdown were often large, but a simple three-month moving average makes the downward slide clear.

But the long slowdown alone is not enough, we need for the payroll growth rate to level off at about 125,000 jobs per month or one percent per year as the economy returns from an over-heated condition to trend. Monthly job growth over the first six months before the October storm was 147,000 jobs, and the six months before that had averaged 239,800. Figure 1’s red line wishfully replaces the October storm number with the 125,000 trend.

Houston has led the US descent throughout, taking a separate and faster escalator. (Figure 2) The local economy appears to be softening more quickly than the US with data revisions that cut 20,000 jobs out of job growth from late last year, and further downward revisions in the first and second quarter. Leading into October, growth was right on trend, however, having added about 55,000 jobs at a 1.6 percent annual rate. Because of hurricane distortions, the figure replaces data from July to October with the trend.

Houston’s slower posture compared to the US this year is in part because we include the data revisions from the Dallas Fed early benchmarking. The Dallas Fed revisions have pulled the original Houston estimates down repeatedly throughout this year, and the Philadelphia figures point toward pending revisions that could do the same for the BLS official release in February.

What Do the Experts Say About the US Soft-landing?

We already have raised concerns about the timing and reporting of the US soft-landing, and below we will express further questions about whether it might not happen at all. But first, we need to note that the experts seem convinced that the soft-landing has arrived in the US, and their conclusion is the basis of this forecast of Houston employment and METRO allocations.

Our US forecast contains no recession and for the US sees the economy running at trend or just above as we rely heavily on the short-run US outlook from the Survey of Professional Forecasters. The SPF is the oldest quarterly survey among US economic outlooks. It was compiled and published by the National Bureau of Economic Research from 1960 to 1990, when the Federal Reserve Bank of Philadelphia was asked to take it over. Its results are published quarterly on the Philadelphia Fed website.

The survey response comes from at least 35-40 professional macroeconomic forecasting groups that acknowledge their regular participation, plus an unknown number of others that remain anonymous. Respondents are from academics, consulting, banking, and industry. Compare this to the general survey of National Association of Business Economics membership who may or may not be forecasters or to the heavy financial-analyst participation of the Wall Street Journal’s outlook survey.

In past cycles, the result of the Fed raising interest rates by enough to halt inflation typically has been a recession. Figure 3 shows the results of the Survey for gross domestic product (GDP), the broadest measure of the economy. Despite sharp increases in interest rates through 2022-23, the SPF forecast saw no recession in 2023 and only a long slowdown. Then, even these slow-growth projections turned around and shifted back to normal trend growth for GDP at 1.7-1.9% per year and have remained within the range or just above this year. This latest forecast looks like a soft landing is in the works.

The US jobs data in Figure 4 is of special interest because of Houston. Regional economic data are limited compared to the wide-ranging and detailed data available for the US. In Houston, GDP and personal income figures are published only annually and with a long lag of a year or more, for example. Payroll employment, in contrast, is available for Houston monthly and provides substantial industry detail that allows a broad comparison of Houston to US performance.

Like the GDP data, the 2023 payroll employment forecast for the US was expected to fall back in response to high interest rates in 2022-23, but jobs also peaked along with GDP and general economic activity. These projections remain well below the pre-pandemic levels 150,000 per month. But because of a long-running baby bust in the US, both the BLS and the Congressional Budget Office have projected long-term US growth of only 70-80,000 monthly jobs, making the 125,000 jobs per month shown here look strong. These projections for US job growth have likely been pushed up from 70-80,000 by the surge in cross-border immigration of recent years. We accept 125,000 average in Figure 4 as the medium-term US jobs trend and as an appropriate soft-landing figure through the next 4-5 years.

Consumers Are Key to US Economic Strength

Solid strength in the large US consumer sector is repeatedly cited as the essential key to the current expansion. Our escalator is a nice analogy for the long-lived consumer support from the pandemic stimulus. The trillions in direct pandemic fiscal spending was mostly gone by late 2021 or early 2022. However, consumer spending would continue into 2023 and early 2024 from the extraordinary levels of “excess saving” that simply stacked up in consumer bank accounts. Even after excess savings were gone, the US consumer has somehow continued to spend at high levels and to provide continued US strength.

At the same time, we will find a different story for Houston. We don’t have timely or detailed data at the local level for GDP, personal income, or consumer spending and are forced to rely on substitutes such a local sales taxes. A careful look at inflation-adjusted sales tax figures for the City of Houston show a 7.0% decline over the last 6 quarters and METRO MTA collections fell 4.9%.

But before turning to Houston, and starting with Figure 5, let’s put the whole story together with a series of charts to support continued US consumer strength and its sources. If the key to the US economy has been the consumer since the pandemic began, Figure 5 shows recent developments in the most basic support for consumer spending – inflation-adjusted personal income after taxes. We see this measure trending upward at pre-COVID rates, sharply interrupted three times by COVID stimulus, and then recovering to income levels that run below trend. Income fell back with the end of COVID spending, tried to recover to trend in 2022 and early 2023, but since then inflation-adjusted income growth has struggled to remain on trend.

Meanwhile, inflation-adjusted US spending in Figure 6 staged a same sharp one-time jump after the third-round stimulus. Real spending then remained high, supported by excess savings and economic recovery. The left side of the figure shows both nominal and real spending on retail sales and food service. Unlike income, we see real spending after the 2021 stimulus remaining flat at high levels. The right side of the chart also shows this real consumer spending compared to long-run pre-COVID trends. Spending is now running stronger than trend and waiting for trend growth to catch up.

A soft-landing would see both series — income and spending — reach their proper level of trend growth and then settle in at trend rates. Inflation-adjusted spending is still running hot and well above trend, with real income still struggling to stay on trend. A soft-landing should entail a long, moderate slowdown in spending that has yet to arrive.

Figure 7 shows San Franciso Federal Reserve Bank estimates of the excess saving that accumulated in the wake of trillions of dollars of stimulus spending, as Americans could not spend the cash fast enough and allowed as much as $2.1 trillion dollars to accumulate in personal short-term savings and checking accounts. Once stimulus funds were exhausted, this became the cushion to allow consumers to continue spending at high levels and to provide the long comfortable escalator ride through 2022-23. However, these estimates now show those excess funds were gone by early 2024.

The consumer continues spending at above-trend levels even with stimulus gone, excess savings exhausted, and income barely running at trend levels of growth since early 2023. Figures 8 and 9 show two reasons the higher spending remain possible — spending out of regular saving and borrowing.

Figure 8 shows how the personal saving rate spiked with the pandemic payments, allowing excess savings to accumulate. Despite holding excess savings, the consumer dipped heavily into regular savings early in the pandemic, slowly returned to normal savings rates, then in recent months — with the “excess” gone — again turned to drawing on regular savings.

Figure 9 is about consumer borrowing and debt, showing recent growth in credit card and other forms of revolving debt. The chart on the left shows debt in both real and nominal dollars and adjusted for inflation. This debt has only recently returned to pre-COVID levels and is now rising slowly. On the right, we see that inflation-adjusted debt remains well below typical, pre-COVID growth in consumer credit.

Finally, consumer spending in FY2024 was supported by continued federal deficit spending via the Chips Act, the Inflation Reduction Act and other avenues. The just-ended FY2024 fiscal deficit was $1.8 trillion, an increase of $38 billion or eight percent. This would just be lost COVID stimulus replaced by more stimulus.

Why Is Houston Spending Slowing?

All of the reasons for US spending to run too high — excess savings, borrowing, debt, and deficit spending — are probably fully shared by Houston. Why should we now be showing decline? After looking closely at the US economy’s resistance to this decline, perhaps we should recognize it as a good thing. After all, slowing spending from an over-heated to normal trend is what a soft-landing is all about.

But first a more basic issue. Perhaps in Houston we are simply relying on a faulty measure of spending. We don’t have timely local data on personal income or consumer spending and are forced to rely on sales tax data. Can we really pry specific conclusions out of the very broad-based Houston sales taxes collected by the City of Houston and METRO?

While the US consumer continues to keep real spending above trend, Houston’s inflation-adjusted tax allocations from the Comptroller have steadily continued to fall back since mid- 2023. Figure 10 shows total real allocations for both the City of Houston and METRO MTA. The City revenues are a subset of the METRO tax base which is larger and spreads further into the suburbs. The left side of Figure 10 looks very much like Figure 6 with tax/spending revenues that are shown with and without inflation adjustment.

Both 6 and 10 show the recovery from the pandemic, the jolt to spending that followed the third round of stimulus, and the inflation outbreak. The difference is the long decline in sales/taxes spending after the stimulus ends. Ignoring the hurricane-related surge in the 2024Q3 revenues, from 2023Q1 to 2024Q2 we see a 7.0 percent decline in City inflation-adjusted revenues and 4.9 percent for METRO.

The problems with using the tax data are many. Most important for our purposes, the Figure 10 total is a broad array of both business and consumer taxes — and we are trying to make a specific point about consumers. Using quarterly data from the Texas Comptroller and specific to the Houston metropolitan region (not METRO MTA or the City), the tax revenue can be roughly divided in Figure 11 into consumer spending (52.6%) and general business activity (47.4%).

We did not seasonally adjust the data, so two overlapping four-quarter comparisons are made: 22Q4 to 23Q4 and 23Q2 to 24Q4. Retail Sales make up the biggest share of consumer activity and show a 4.1 percent decline in the latest four quarters. Food service is a small positive at 1.1 percent, and other retail (a mix of amusements, some consumer services, and two other very small contributors) is down only 2.7 percent. Figure 6 for the US, which is showing no decline, compares best to Houston’s retail plus food service in Figure 11 that fell 2.1 percent in Houston.

Declines in real consumer spending appear to be a small but steady factor in Houston’s economy since early 2023. However, there are also on-going declines in tax revenue collected from general business, including manufacturing, mining/oil, as well as “other business” activity such as construction, wholesale trade, finance, business services and others. Figure 11 shows a rapid expansion of oil and manufacturing in 22Q2-23Q2 and a sharp reversal in 23Q2-24Q2. Outside of manufacturing and oil, the 30.6% of total tax revenues related to “other business” are barely shrinking.

The good news from Figure 11 is that the large consumer sector in Houston has likely been gently tapping the brakes for the last 18 months as we headed for a soft landing, and except for oil and a closely-related manufacturing sector the business community has been holding very steady.

While the news probably allays fears of recession in Houston, it still leaves questions about US spending, the US soft-landing, and a possible reacceleration in the US. We deal with oil and manufacturing below.

Monetary Policy Begins the Rate Cuts

On August 17, Federal Reserve Chair Jerome Powell announced that it is time for interest rates to fall, and cuts of a half and quarter point followed in September and October. The policy rate had risen to a range of 5.0-5.5% by July of 2023 in response to a serious outbreak of inflation and we have now seen cuts of 0.75 percent through November of this year.

The Atlanta Fed’s Market Probability Tracker is based on implied policy rates from the US futures market and international swaps, and it expects no further rate cuts this year, two or three cuts of 0.25 percent next year, and projects that rate cuts will be completed at a policy rate near 3.75 percent by year-end 2026.

Figure 12 shows the progress made so far in taming inflation using the Fed’s preferred measure of price change, the Core Personal Consumption Expenditure (PCE) Deflator. The PCE deflator is accepted as a superior measure of price change compared, for example, to the Consumer Price Index. Leaving only the core of the PCE deflator means removing food and energy prices because these large commodities are not responsive to Fed control. If the consumer wants to know how inflation affects daily life in their household, then keeping food and energy is certainly appropriate, but the core measure is uniquely useful as a guide to monetary policy.

Based on 12-month changes, real progress had been made through September with the 12-month inflation rate down from a peak of 5.4 percent in early 2022 to 2.6 percent by September. However, declines have come more slowly in recent months with rates seemingly stuck between 2.6 and 2.8 percent since April.

Slow progress on inflation as the policy rate nears the Fed 2.0 percent target is not unusual and helps explain the slow, two-year decline expected in the Atlanta Fed’s Market Probability Tracker. This period is often referred to as “the last mile.” It does not help speed progress along in the current case that the readings on GDP growth for the first two quarters of this year were well above trend at 2.8 and 3.0 percent or that real consumer spending continues to run above trend.

The second part of the Fed’s inflation fight is its commitment to firmly anchor expected price increases at near two percent. High or rising expectations can trigger more inflation if consumers demand future wage increases to protect their incomes. Inflation can become a self-fulfilling prophecy.

Figure 13 shows that evidence on price expectations is mixed. Consumers — always the pessimists in these surveys — see inflation on a steady three-percent path for several years to come. More encouraging is the latest issue of the Survey of Professional Forecasters that sees 2.4 percent core PCE inflation in the fourth quarter of this year, 2.2 percent next year, and a stable 2.0 percent in 2026. Financial markets, as judged by the behavior of inflation-protected bonds, have sharply pushed up five- and ten-year inflation projections since September. Five-year inflation expectations, for example, are up from 1.9 to 2.4 percent based on a mix of election-outcome certainty and fiscal policy uncertainty.

One large bank that shares the same views on Fed rate policy as outlined above by the Atlanta Fed expects to see a ten-year treasury rate near 4.3 percent at the end of this year and 4.0 at the end of 2025. The five-year note will be 4.2 percent at the end of this year and 3.9 next year. Conventional mortgage rates should be 6.8 and 6.3 percent.

Oil and the Weakness of 2024

Post-COVID oil prices increased to $70/b by late 2021, drawing strength throughout the early post-pandemic era from a rapidly improving global economy, stronger travel demand, and increased power generation. Then, in 2022 OPEC+ intervened in oil markets and cut oil production enough to maintain $80 oil prices in the face of a weakening global economy. OPEC+ had hoped to begin reducing the cuts and expanding oil production in 2024-25, but instead it has been forced to maintain these cuts due to Chinese economic weakness and oil production increases in Brazil, Guyana, and the US.

There are still active cuts today of 5.9 million barrels of oil per day or 5.7 percent of global demand; 3.7 million barrels are from the official OPEC+ framework and 2.2 million are “voluntary” cuts from several countries led by Saudi Arabia. Despite the price cuts, oil prices have recently fallen back to near or below $70 per barrel and bringing weakness in the rig count, frac spreads, and local oil employment.

Oil prices have weakened to near $70 per barrel over the past four months and dipped under $70 repeatedly throughout October and November. The critical line is $65 per barrel which marks the long-run marginal cost of oil or the price where the typical fracking producer must begin to cut production.

Our oil puzzle for today is the recent neck-snapping reversal in oil field activity as indicated by business sales in Figure 11 with declines this year following the rapid expansion in 2023. This reversal was an important test of American oil’s new financial model and needs perspective.

After three rounds of sharp declines in American oilfield activity between 2014 and 2020, each led by OPEC cutting oil prices, US producers took $300 billion in fracking assets through the bankruptcy courts. The first lesson learned by US producers was that they are a high-cost source of oil with a marginal cost of $65 per barrel. OPEC flooding oil markets with cheap oil is very bad.

The right side of Figure 15 shows the third round of these OPEC cuts which was the decline forced by the pandemic plus the Russia-Saudi oil war. This combination left the US producer with a business model that was unworkable and with no available financing after Wall Street turned its back on the industry. The solution was a new business model and radical departure from the past – they would be a value stock that diverts an off-the-top 30 to 40 percent of operating cash flow directly to investors through dividends or to strengthen their balance sheet. They would be a smaller but much more conservative industry. Investors were often told by these companies that as long as OPEC holds reserves off the market, they will not expand production but use the cash to reward investors.

Following the 2020 production collapse in the US, Figure 15 shows the recovery of 3.1 million barrels by May 2023. It was a long and slow recovery on any comparison, but the first nine months of 2023 bought the fastest period of the recovery. OPEC in an important sense gave permission in 2023 to speed the recovery along. As OPEC talked openly of beginning to reduce the extent of their cuts in 2024 and 2025 and to expand production as the global economy improved. Producers responded with new production, but when the Chinese economy turned slack, OPEC’s $80 oil target began to falter.

Looking back at Figure 11, we can again see the sharp and recent turnaround in sales taxes generated by Houston’s oil and manufacturing sector. As the restoration of 2024-25 production cuts became less likely, American companies were suddenly out of step with both OPEC and the commitments US producers had made to their Boards of Directors. The reversal and turnaround of business taxes in Figure 11 was these companies getting back in step with OPEC.

This combination of a new financial model and strict attention to OPEC spare capacity explains why there was no rush back to the oil fields after 2020. (Figure 16) The rig count fell to near 760 before COVID arrived, and then rigs fell hard to an all-time low of 253 in the Saudi/Russia oil war. Recovery saw a brief return to 780 working rigs before falling yet again, and they are now down by just over 20 percent. Frac spreads are the more modern measure of activity in the oil fields, but they tell much the same story — well down from pre-COVID levels and close to five percent below levels of last fall.

Increasingly mixed in with this story of fewer rigs and wells are rapid gains in fracking technology and productivity, best symbolized by the now-routine extension of lateral wells in the Permian Basin by two miles or more. Longer laterals require fewer rigs and fewer wells, and they produce more oil at a lower cost per barrel.

The challenge for the best of these producers is how to spend the money from high prices and large productivity gains while OPEC+ is voluntarily withholding 5.6 million barrels per day of capacity off the market. The answer so far has been that the most successful of the producers — mostly the largest public companies with the biggest technology advantages — are buying the weaker companies. Merger provides scale economies, strengthens the economic position of the company, enriches management and stockholders, and does not force large new supplies of oil onto the market. The last 18 months have seen over $100 billion in such mergers, mostly concentrated in the Permian Basin. In 2025, DOE forecasts US oil production of 13.5 million barrels per day, a small increase from 13.2 million in May of this year.

Oil-related employment in Houston has behaved much the same way as the rig count – slower and lower despite healthy oil prices. (Figure 17) After losing 42,900 upstream oil jobs to the 2018 credit crunch, the COVID pandemic, and Saudi/Russia oil war, the return of these jobs continues at a slow pace. Only 25,500 oil jobs are back so far or 58.6 percent. If we begin counting from the end of the fracking boom in 2014, Houston has lost about 60,000 jobs in oil production, services, fabricated metal, and machinery. Again, this slow recovery in jobs is just one more sign of a cautious domestic oil industry.

Houston Economy Now

We have already looked at the two data series that can tell us most about the local economy – payroll employment and local sales tax allocations. Both point to a soft-landing at this point. After preliminary benchmark adjustments by the Dallas Fed and moving past Hurricane Beryl, Houston’s payroll employment seems to have reached a steady trend growth rate. And if consumer spending is the key to the post-pandemic economy — not too hot, not to cold — Houston’s consumer sales taxes have been slowly contracting as they return to trend from an overheated pandemic economy. This section looks at several other local economic variables and how they fit into this story.

Figure 18 shows the unemployment rate in Houston, which peaked during the pandemic lockdowns at 13.9 percent and has now returned to 4.4 percent. The rate fell as low as 4.1 percent in October 2023 and then has slowly risen to 4.4 percent. A loosening of the labor market is to be expected as the metro area moves to a soft landing, but this small increase in the unemployment rate would be well short of any negative cyclical reading. The right side of the figure shows a modest rise in total unemployment of about 15,000 workers — the number unemployed as opposed to the rate — or an increase of 9.2 percent. Again, this looks like a healthy loosening that comes with the last stages of a soft landing.

The Houston Purchasing Managers Index (PMI) is shown for the Houston economy (manufacturing plus all other sectors) in Figure 19. It shows a long slow weakening of the local economy after early 2022 and a leveling off in recent months. The line between expansion and contraction is 45.0, so we see a return to steady growth at levels that are out of recessionary readings. It is a picture that looks much like the rest of our soft-landing charts for Houston.

There is also a separate manufacturing index for Houston. Our sales tax data indicated great strength in manufacturing in 2023, followed by a quick turn to weakness in 2024. This data shows a long slowdown in manufacturing after 2022 that by 2023 turns to weakness with off and on contraction that continues to today. It is a manufacturing story that does not match up well with the 2023 sales tax figures or oil production, both of which were strong in 2023.

Locally, both housing and autos will benefit from lower interest rates this year. Both were hurt in different ways by the pandemic and responded differently. Autos for example struggled in 2021 and 2022 to deliver product due to chip and other materials due to shortages that choked supply chains. (Figure 20) The big supply kinks now have been worked out, local auto sales rose through late 2022 and early 2023, but then declined steadily since the middle of last year. Hurricane Beryl has distorted auto sales since July — and they are steadily higher through October — and we would expect to see fewer sales and declining sales through the rest of this year.

Auto and truck prices remain high — still about 25 percent above pre-COVID levels — but prices peaked in early to mid-2023 and have been falling slowly even if we ignore inflation. Once we recognize that CPI inflation is up by more than 20 percent since 2020, real prices for autos have been falling steadily and are now only a few percent-points higher than pre-COVID levels. There is little visible price impact from Beryl.

Existing home sales were a local pandemic bubble that burst as mortgage rates began to rise in 2022. (Figure 21) Existing home sales in Houston fell hard during lockdown months but recovered quickly with a check from the federal government and zero interest rates. Housing became a major element of the 2021 financial boom, as sales in Houston rose as much as 42.9 percent above pre-pandemic levels, only to fall hard after the Fed rate hikes began. Sales briefly fell 39.8 percent below pre-COVID levels in 2023, briefly recovered to above pre-COVID levels, but have since slipped back again as mortgage rates have remained high.

Existing home prices surged from $250,600 for the typical unit to $343,500 during the boom period, or by 37.1 percent. So far, the sharply falling sales have pulled prices down by only 2.5%. Like autos, inflation counts for a big part of the surge in home prices, and local history says prices could hang on to a large part of the nominal gains in years to come. However, measured against general inflation trends since 2020 Houston real home prices are only up by about 15 percent since 2020.

Houston’s Economic Outlook

The chief drivers of Houston’s job growth are the US economy and oil markets. Fed monetary policy plays a key role in the outlook via the US outlook, and the Federal Reserve is cutting rates and has laid out a path to more rate cuts ahead. We assume the Fed recognizes that there is still work to do, and carefully sticks to its two-percent inflation target. Further, we assume post-election politics do not result in meaningful short-run efforts to pump up the economy. We follow the Survey of Professional Forecasters assumptions that the US remains on trend growth through 2025-26 for both GDP and employment. No recession is indicated.

For oil, the new financial model for large public oil companies is widely implemented, assuming 30-40 percent of producer cash flows are diverted to stockholders to finance drilling. The result is a smaller and more stable upstream oil industry in Houston.

Oil prices likely remain near $65-$70 per barrel or lower than we have seen since late 2021, with prices in a range of $65-$75 through the rest of 2024 and 2025. Any projection of oil prices further into the future is highly speculative, and a return to $65 per barrel is the best guess by late 2025 and after.

To pull the forecast together, we use a high, medium, and low outlook for planning purposes. (Figure 22) We use the price of oil as the vehicle to spread the outlook from low to high employment levels. For current planning, the low oil price is set near $40 per barrel and the high at $80. The medium price is $65 per barrel or the long-run marginal cost of oil.

Figure 23 is an overview of how economic fundamentals play out over the longer run for low, medium, and high cases. This is our forecast of Houston’s economic future through calendar year 2029. We saw the COVID lockdowns end, a long recovery to pre-pandemic employment levels and beyond, and a meaningful slowdown through the second half of this year and into 2025. After the 2024-25 return to the basics, Houston returns to a medium trend of 55-60,000 jobs each year through 2029.

Figure 24 is the 2024-2029 forecast of Houston’s payroll employment stated in annual changes and measured Q4 over Q4 each year. Under the medium $65 forecast the Houston outlook for 2024 is 55,900 reflecting the US soft landing and a return to trend for Houston payroll employment.

We expect to see 55,900 jobs this year based on $65-$70 oil. If oil prices had continued to average near $80 per barrel — as they did from 2021 and into the first half of this year — then we look at the $80 or high forecast column in Figure 24 and find 2024 job growth at a slightly higher 57,200 jobs. If $80 oil prices could carry into next year, it would mean 60,600 jobs in 2025, better than the 46,700 that seem a more likely outcome. The $65 price is the long-run marginal cost of oil, always the best guess for oil price forecasts once we reach past 9-12 months into the future.

Written by:

Robert W. “Bill” Gilmer, Ph.D.

December 10, 2024

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