Bauer Economist Shares Houston’s 2015 Outlook

Published on May 21, 2015

Gilmer Predicts Solid Long-Term Growth at Institute for Regional Forecasting Spring Symposium

Robert W. (Bill) Gilmer is the director of the Institute for Regional Forecasting at the C. T. Bauer College of Business.

Robert W. (Bill) Gilmer is the director of the Institute for Regional Forecasting at the C. T. Bauer College of Business. See more photos from the event on whereawesomehappens.com.

The Houston economy is likely to see positive, albeit scaled-down, growth in the coming year, according to Robert W. (Bill) Gilmer, director of the Institute for Regional Forecasting at the C. T. Bauer College of Business.

Gilmer presented his forecast this month at the IRF’s Spring 2015 Symposium, which drew nearly 1,000 area professionals from sectors including development, homebuilding and banking. His talk, titled “Good Times or Bad? Oil Still Makes the Difference for Houston,” analyzed the critical role that the industry plays on the city’s economy.

He noted the steep drop in oil prices late last year and first-quarter numbers from this year and predicted that as few as 13,000 jobs will be created by the end of 2015. The difference from his initial prediction of between 40,000 and 50,000 new jobs in 215 is the speed with which oil producers have reacted, and the depth of the downturn.

“The big wheel is turning again here for the Houston business cycle. It always turns from bad to good and then swings from good to bad,” Gilmer said. “This time it’s caused by an unexpected event, without question.”

That unexpected event, he added, was the announcement last year from Saudi Arabian oil leaders and the Organization of the Petroleum Exporting Countries (OPEC) that they were giving up control of the oil market prices, allowing the markets to control themselves. Gilmer said this created tremendous uncertainty for Houston’s economy, had shut down over half the nation’s drilling rigs and initiated thousands of layoffs from energy jobs.

“We are America’s oil headquarters. We produce no oil in Houston, but 39 percent of the oil employees in the state of Texas are here,” Gilmer said. “Three things are really crucial right now — the prospects for oil prices, the continued uncertainty that surrounds those prospects of oil prices, and ultimately the implications for Houston’s jobs and real estate.”

Gilmer said that this oil event is unlike the one Houston saw in 1982, labeling the current state of energy affairs as a “moderate downturn.” This, he said, is due to many positive factors working for the local economy, including a strengthening U.S. economy.

“It’s good to just remind ourselves that despite 1982, despite significant oil-related downturns in 1998 and 2001, based on the growth of personal income, Houston is the most successful large metropolitan area in the United States,” Gilmer said. “It’s just that we have to learn to live with what’s going on in the oil markets from time to time.”

According to Gilmer, factors contributing to the current decline include recessions in Europe and Japan, the growth in demand for oil coming from emerging markets, refinery turnarounds and the excess supply of crude oil. However, despite Gilmer’s assertion that the greatest oil boom and the fracking frenzy are both over now, the eastern part of the Houston metro area will experience tremendous growth, noting the success and expansion of multi-billion dollar petrochemical plant projects in Baytown as well as natural gas construction.

“It is a construction boom. It’s huge, it is unprecedented, it is enormous, and it is going to help Houston a lot. It is a partial counterweight to the damage from upstream,” Gilmer said. “Part of the problem is not that the jobs don’t add up quickly; it’s that they’re temporary jobs, and as soon as they finish the construction project in ’16, ’17 and ’18, they quickly disappear, but they can’t be ignored right now. “

The real estate markets — also caught off guard by the oil price drop — may experience a “pause” that extends into the future as far as 2017 due to these temporary workers who do not demand long-term housing, Gilmer said. The office space and multifamily housing sectors will face some pain due to overbuilding, he added, but retail and industrial space show more stability. In single family housing, Gilmer noted that approximately 20,000 families were locked out of the housing market by high prices and the inability to find the house they wanted.

“The single family market has been distorted for some time by a shortage of developed lots to put new homes on the ground,” Gilmer said. “New home construction is usually the safety valve for the entire housing market, but the safety valve has been broken. This year presents the opportunity to bring large numbers of new lots on-line and clear the back-log of families seeking homes.  The single-family market should remain strong for much of this year, despite the downturn.”

Gilmer will continue to monitor the situation both on the energy job front and real estate before presenting his next set of projections at the IRF’s Fall 2015 Symposium on Nov. 12 at the Hyatt Regency Hotel in downtown.

By Danielle Ponder

Posted Under: Faculty and Staff

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