Houston Region Economic Outlook Prepared by Patrick Jankowski SVP Research
December 6, 2019
OPEC expands production cuts
OPEC Meets in Vienna Production cuts Additional 500,000 b/d Now holding back 2.1 million b/d
Aramco IPO $1.88 trillion value Russia
OPEC Meets in Vienna Production cuts Additional 500,000 b/d Now holding back 2.1 million b/d
Aramco IPO $1.88 trillion value
Member noncompliance Who’s the boss? Russia or Saudi Arabia
WTYI Crude Spot Price 65
$/Barrel
60
55
50
45
40 1-Oct
15-Oct
29-Oct
12-Nov
Source: U.S. Energy Information Administration
26-Nov
10-Dec
24-Dec
7-Jan
21-Jan
4-Feb
18-Feb
January 15, 2020
U.S. signs China trade deal
U.S. - China Deal (Phase One) U.S. benefits Increased ag, auto, equipment, energy purchases Easier access to financial markets Some IP protections (?)
U.S. - China Deal (Phase One) U.S. benefits Increased ag, auto, equipment, energy purchases Easier access to financial markets Some IP protections (?)
China benefits Halt in any escalation A few tariff reductions
U.S. - China Deal (Phase Two) To be negotiated Role of State-Owned Enterprises Chinese subsidies of exporting industries Further tariff reductions
U.S. - China Deal (Phase One) Things won’t get any worse Consensus that U.S. should challenge China’s worst practices Win for Trump going into the election
Houston’s Top Trading Partners Rank Trading Partner 1 2 3 4 5 6 7 8 9 10
Mexico Brazil China South Korea Netherlands India Germany United Kingdom Japan Colombia All Others Total
$ Billions
% Total
21.7 15.4 14.7 13.5 11.7 10.1 10.0 9.3 9.2 7.0 114.3 $237.0
9.1 6.5 6.2 5.7 4.9 4.3 4.2 3.9 3.9 3.0 48.2 100.0
Houston Trade with China – ’19 $ Billions
12.7 10.3
7.2
4.4
Exports
Source: WISERTrade
Imports '18
'19
January 28, 2020
FOMC leaves interest rates unchanged
FOMC Meeting Too soon to gauge impact of 2019 rate cuts
FOMC Meeting Too soon to gauge impact of 2019 rate cuts Keeping an eye on impact of coronavirus
FOMC Meeting Too soon to gauge impact of 2019 rate cuts Keeping an eye on impact of coronavirus Fed not concerned about a U.S. recession
January 29, 2020
USMCA signed
U.S. Mexico Canada Agreement “One of the worst trade deals in history”
U.S. Mexico Canada Agreement “One of the worst trade deals in history� U.S. benefits Higher North American content in autos Access to Canadian dairy markets Protections for digital, ecommerce Addresses environmental and union concerns
U.S. Mexico Canada Agreement “One of the worst trade deals in history� U.S. benefits Higher North American content in autos Access to Canadian dairy markets Protections for digital, ecommerce Addresses environmental and union concerns
Canada/Mexico benefits Ceases negative rhetoric Eases uncertainty
Houston’s Top Trading Partners – ’19 Rank Trading Partner 1 2 3 4 5 6 7 8 9 10
Mexico Brazil China South Korea Netherlands India Germany United Kingdom Japan Colombia All Others Total
$ Billions
% Total
21.7 15.4 14.7 13.5 11.7 10.1 10.0 9.3 9.2 7.0 114.3 $237.0
9.1 6.5 6.2 5.7 4.9 4.3 4.2 3.9 3.9 3.0 48.2 100.0
Canada #12, $5.6B
Houston Trade with Mexico – ’19 $ Billions 18 16
16.1 14.6
14 12 10
8.8
8
7.0
6 4 2 0 Exports
Source: WISERTrade
Imports '18
'19
January 31, 2020
UK withdraws from the EU
UK Withdraws from EU Political Union January 31 exit
Trade Union December 31 exit
UK Withdraws from EU Political Union January 31 exit
Trade Union December 31 exit
Why? To regain control/sovereignty
Impact on trade and Investment TBD
Houston’s Top Trading Partners – ’19 Rank Trading Partner 1 2 3 4 5 6 7 8 9 10
Mexico Brazil China South Korea Netherlands India Germany United Kingdom Japan Colombia All Others Total
$ Billions
% Total
21.7 15.4 14.7 13.5 11.7 10.1 10.0 9.3 9.2 7.0 114.3 $237.0
9.1 6.5 6.2 5.7 4.9 4.3 4.2 3.9 3.9 3.0 48.2 100.0
Houston Trade with UK – ’19 $ Billions 7
6.6
6 5.2 5 4 2.7
3 2.2 2 1 0 Exports
Source: WISERTrade
Imports '18
'19
January 30, 2020
WHO declares coronavirus public health emergency
Coronavirus Health Emergency Extent of outbreak (as of 3/1/20) 87,137 cases 7,169 outside China
58 countries Every continent but Antarctica
2,977 deaths 104 outside China
Coronavirus Health Emergency Spanish Influenza (January 1918 – December 1920) 500 million infected 20 - 50 million deaths
Severe Acute Respiratory Syndrome (November 2002 and July 2003) 8,098 infected 714 deaths
2018-2019 U.S. Flu Season 35 million illnesses 810,000 hospitalizations 61,000 deaths
Coronavirus Health Emergency Spanish Influenza (January 1918 – December 1920) 500 million infected 20 - 50 million deaths
Severe Acute Respiratory Syndrome (November 2002 - July 2003) 8,098 infected 714 deaths
2018-2019 U.S. Flu Season 35 million illnesses 810,000 hospitalizations 61,000 deaths
Coronavirus Health Emergency Spanish Influenza (January 1918 – December 1920) 500 million infected 20 - 50 million deaths
Severe Acute Respiratory Syndrome (November 2002 and July 2003) 8,098 infected 714 deaths
2018-2019 U.S. Flu Season 35 million illnesses 810,000 hospitalizations 61,000 deaths
Uncertainty Fear Misinformation
Coronavirus Health Emergency % of Hong Kong Population 26.0%
0.3% Residents Concerned They Would Catch SARS
Source: Asian Development Bank
Residents Who Actually Caught SARS
Coronavirus Health Emergency Initial impacts Travel Entertainment Hotels Restaurants Retail Financial markets
Delayed impacts Exports Supply chains Commodities
S&P 500 Index Daily, Not Seasonally Adjusted 3,400 3,300
3,200 3,100 3,000 2,900 2,800
www.who.int
50
Houston Employment Growth 12-Month Moving Total 140 120
Jobs (000s)
100
80 60 40
20 0 -20 '14 Apr Jul Oct '15 Apr Jul Oct '16 Apr Jul Oct '17 Apr Jul Oct '18 Apr July Oct '19 Apr July Oct '20 Source: Texas Workforce Commission 51
U.S. Real GDP Growth Rate, % Change from Previous Quarter 4.0
3.5
3.5
3.2
3.0 2.5
3.5
3.2
3.0
2.3 2.0
2.0
2.2 1.9
2.3 2.0
2.5
2.2
2.0
1.3
1.5
3.1
2.9
2.1
2.1
1.1
1.0 0.5
0.1
0.0 Q4/14
Q2/15
Q4/15
Q2/16
Q4/16
Q2/17
Q4/17
Q2/18
Q4/18
Q2/19
Q4/19
Source: U.S. Bureau of Economic Analysis
52
U.S. Real GDP Average Annual Growth, % Change 2.5 2.3
2.3
2.1
Past 12 Months
2.1
Past 5 Years
Source: U.S. Bureau of Economic Analysis data
Past 10 Years
Past 20 Years
Past 30 Years
U.S. Job Growth 1-Month Net Change 400 350
Jobs (000s)
300 250 200 150 100 50 0 '11
'12
'13
'14
'15
'16
'17
'18
'19
'20
Source: U.S. Bureau of Labor Statistics 54
Global Growth Real GDP, % Change 3.4
3.3
2.9
'19
'20
'21
Source: International Monetary Fund, January 2020 55
Metro Houston Exports $ Billions 151.8 141.4 119.8
126.8
128.8
130.5 109.2
94.5
'10
109.0 91.7
'11
Source: WISERTrade
'12
'13
'14
'15
'16
'17
'18
'19
57
58
59
60
It’s like déjà vu all over again. --Yogi Berra
September 2019
June 2015
62
January 2016
November 2019
63
January 2016
June 2019
64
October 2019
February 2015
65
Déjà Vu Oil Prices ($) Period
Cause
’82 – ’87
Rigs Lost
Energy Jobs Lost
Peak
Trough
#
Oil Price Bust
30.75
12.05
-3,766
83.3
-53,600
-46.3
’90 – ’91
Interest Rate Spike
35.89
14.57
-526
46.3
-13,900
-7.2
’01 – ’03
Enron/911
34.55
19.53
-528
41.3
-13,300
-6.9
’08 – ’09
Great Recession
136.96
39.51
-1,119
44.4
-11,900
-13.6
’15 – ’16 Fracking Bust
106.31
30.32
-1,527
79.1
-92,400
-30.7
’19 – ?
70.98
53.84
-286
26.4
TBD
TBD
New Reality
%
#
%
Note: All losses calculated from the monthly average Sources: U.S. Energy Information Administration, Baker Hughes, U.S. Bureau of Labor Statistics
66
It’s like déjà vu all over again. --Yogi Berra
Office Déjà Vu 1982 – 1986 New Construction 71.7 MSF
Vacancy Rates: (’87): 30.2% (’96): 16.2%
Source: Houston Facts
68
Office Déjà Vu 2011 – 2016 New Construction 33.0 MSF
Availability Rate (Q4/19): 25.9%
Sources: Transwestern, NAI Partners
69
Multifamily Déjà Vu 1981 – 1984 New Units 100,500
1985 – 1991 New Units 9,309 Source: Houston Facts
70
Multifamily Déjà Vu 2013 – 2019 New Units 107,603
Under Construction 22,690
Proposed 28,080 Source: Apartment Data Services
71
Growth has been slower than we’d like.
72
Houston Vehicle Sales 12-Month Moving Total 400
Vehicles (000s)
360
320
280
240
200 '08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
Source: TexAuto Facts by InfoNation 73
Houston Construction Starts 12-Month Moving Total
35 30
$ Billions
25 20 15 10 5 0 '09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
Source: Dodge Data & Analytics 74
Sales Tax Collections, 12 Most Populous Cities* % Change, 12-Month Moving Total 12 9
% Change
6 3 0
-3 -6 * Baytown, Conroe, Friendswood, Galveston, Houston, La Porte, League City, Missouri City, Pasadena, Pearland, Sugar Land and Texas City
-9 -12 '09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
Source: Partnership calculations based on data from the Texas Comptroller of Public Accounts 75
Houston Purchasing Managers Index 70 65 60
55 50 45 40 35 30 '08
'09
'10
'11
Source: Institute for Supply Management - Houston
'12
'13
'14
'15
'16
'17
'18
'19
'20
2020 Employment Forecast
42,300 Jobs 77
Metro Houston Job Growth Annual Change from December to December (000s)
91.3
106.9
117.5 91.0
90.0
82.9
60.2
116.7 73.3 54.2
50.5
39.5
88.0 42.3
21.5
1.5 -1.3
-2.5 -2.4
-11.4
-110.5 '00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
Source: Texas Workforce Commission & Greater Houston Partnership forecast
78
2020 Houston Job Forecast 7,900 6,300
6,200 5,400
5,000
4,700
4,000 1,700
Source: Greater Houston Partnership
1,600
79
2020 Employment Forecast
1,400
1,200
1,100
1,000
1,000
0 -200 -2,000 -4,000
Source: Greater Houston Partnership
80
The 2020s are beginning to look a lot like the 1990s.
81
Oil Prices & Houston Employment Employment
2.5
90
2.4
80
2.3
70
2.2
60
2.1
50
2
40
1.9
30
1.8
20
1.7
10
1.6
0
Jobs, Millions
WTI ($/bbl)
Monthly Oil Prices
100
1.5 '90
'92
'94
'96
'98
'00
Source: Texas Workforce Commission, U.S. Energy Information Administration
82
U.S. Real Gross Domestic Product Growth Rate, % Change from Previous Quarter 8.0 6.0
4.0 2.0 0.0
-2.0 -4.0 -6.0 '90
'91
'92
Source: U.S. Bureau of Economic Analysis
'93
'94
'95
'96
'97
'98
'99
'00 83
Foreign Shipments – Port of Houston Million Short Tons
$, Billions $43.4
120.3
$23.8
63.0
'90 Source: Houston Facts
'00
'90
'00 84
85
VC Funding in Houston (12-Month Total) 700
Jan ’20 $620 M
600
$ millions
500 400 300
200 100 0 '12
'13
'14
'15
'16
'17
'18
'19
'20
'21
Source: Partnership Analysis of Pitcbhook Data
86
Job Growth in the 1990s
Energy 4,500 0.9%
Source: Texas Workforce Commission
Everything Else 515,500 99.1%
87
Don’t write off oil and gas just yet.
Global Oil/Liquids Demand Million Barrels/Per Day
88.5
'10
94.8
'15
Source: BP 2019 Energy Outlook
101.6
104.9
106.4
107.9
107.7
'20
'25
'30
'35
'40
In summary . . . Houston’s challenges Short-Term Coronavirus Global slowdown
Long-term Overbuilt real estate market Managing the energy transition
WHO asks that you . . . Wash your hands frequently
Avoid anyone who’s coughing or sneezing Avoid touching your eyes, nose and mouth If sick, seek medical care early
Stay informed
92
Houston Economic Outlook Prepared by Patrick Jankowski SVP Research