2022 | Houston Economic Outlook

Key Takeaways

• Jobs recover from pandemic
• Unemployment low
• Energy sector jobs increase
• Crude prices expected to continue to increase
• Port Houston sets records

Houston Highlights

The Houston MSA 2021 population grew by 467,000 during the last five years to over 7.2 million and is projected to grow by almost 589,000 over the next five years. Houston’s racial diversity is twice as high as the national average.

Houston’s unemployment rate and job growth made huge improvement between 2020 and 2021, recovering most jobs lost during the pandemic.

The U.S. and North America rig count has improved, but is about half of historical counts. West Texas Intermediate (WTI) crude prices began to increase back to pre-pandemic prices during 2021. Currently, with demand outpacing supply due to many economic factors, including the Russian and Ukrainian war, prices are expected to increase at an accelerated rate.

Natural gas prices are higher now than they’ve been over the last few years due to colder than normal temperatures, but the EIA forecasts prices to stay relatively flat during 2022.

Airport passenger traffic rose in 2021 as did exports, and area homes sales set a record.

Houston’s GDP fell as expected between 2019 and 2020, but is expected to recover in 2021. Unfortunately, the local GDP number will not be released until December 2022.

	Population

	Jobs

Executive Summary

Commentary by Patrick Duffy | President, Houston

Last year we made a few projections and discussed a few concerns we saw on the horizon. In reviewing those comments, it seems we hit the big picture in the center of the target.

We projected that oil and gas demand would continue to increase as supply lagged, causing prices to recover and reinvigorating our economy’s oil and gas (upstream) sector. Oil is currently hovering near $100 per barrel (up from $40 last year) and natural gas is now approximately $4.50 per 100,000 Btu, up from $2.45 a year ago. The combination of supply constraints in the U.S., OPEC holding the line and most recently, the Russian invasion of Ukraine will keep supply near current levels. The rest of the world continues to reopen their economies in a post-pandemic recovery which suggests that these high prices are here for the mid-term. While these high prices are a huge tax on most of the economy, they present an opportunity in Houston for our energy sector to ramp back up, hire, drill and provide the needed supply to the world. In addition, the energy sector in Houston is a major needle mover in commercial real estate, especially in the office sector.

We also projected that the massive Federal spending and easy money policies of the Federal Reserve and other central banks would stoke inflation. Inflation that started to flare in mid-2021 and considered to be “transient” is likely a great deal less transient than hoped. The Fed is now calling for a series of rate increases and a decrease in quantitative easing programs such as purchasing bonds used to keep rates artificially low in a clear signal that they are concerned about ongoing inflation. Higher interest rates combined with high energy prices will have a dampening effect on economic growth for the country.

Fiscal Policy (Government Spending) seems to have hit a speed bump with the inability of the Biden administration to push through their “Build Back Better” plan that projected to inject trillions more in government spending (over the base budget of approximately $3.5 trillion). No one expects spending to decline (excluding onetime Covid stimulus), but the rate of increase should be somewhat muted through the mid-term elections. If our Federal Government continues to spend well over revenues, this will negatively impact the Federal Reserve’s efforts to slow inflation.

The migration of companies from California (a trend we called to continue last year) seems to have picked up steam over the past year. Companies are fleeing many “Blue” states in favor of Texas and other sunbelt, lower tax, lower regulation states. Texas was the number one destination for one-way U-Haul rentals in 2021. California literally ran out of U-Haul vehicles to rent. The high regulation, high tax, and, to a considerable degree, intense Covid lock-down regulations have caused many to reconsider the value proposition of California, New York and Illinois in particular.

Supply chain issues (now a mainstream term) have highlighted shortfalls with our systems in the U.S. and with our global suppliers. One outcome of the difficulties in the past 18 months is a trend toward more goods moving south to north, from the Gulf of Mexico ports into the interior of the country and then east/west vs. what had been a heavy reliance on west to east from the California ports. We believe that this trend will accelerate based on the distribution centers under construction or planned in the country’s central regions, including Texas, that are served by several north/south rail lines and more port options around the Gulf of Mexico. This trend bodes well for industrial demand near the ports and in the country’s center.

The Houston market is projected to have fully recovered all jobs lost during the Covid recession by the end of 2022 and real estate activity supports that assumption. 2021 saw record absorption in industrial, multi-family and single-family product. Retail returned to strong occupancy with muted new development and is expected to see slow increases in new project development this year. The office market continued to lag as the work-from-home alternative is still an open question for many. However, we have seen an increase in activity in the office sector, and, especially if the oil and gas companies gear up, we expect that recovery to accelerate. We have intentionally avoided speculation on the impact of the Russian invasion of Ukraine. Still, this event is severely destabilizing and if escalation and/or involvement of a larger theater follows, the future will be challenging to predict. We pray that cooler heads prevail and world leaders find a way to avoid what could become WWIII.

Market Employment

Houston’s employment sector gained 151.800 jobs annually in 2021, an increase of 5.1%. According to the U.S. Bureau of Labor Statistics, the unemployment rate decreased from 7.6% in December 2020 to 4.8% in December 2021. Houston’s industry sectors that posted the largest annual gains include Mining and Logging (17.9%), Other Services (13.1%) and Leisure and Hospitality (8.5%). Looking ahead, Houston’s job growth is expected to increase 4.5% between 2021 and 2026.

Houston is home to 24 Fortune 500 companies with another 17 on the Fortune 1000 list. A partial list of Houston’s largest employers are listed below.

Houston’s Largest Employers

Houston's Major Industries

			The Houston Ship Channel complex and its more than 200 public and private terminals, collectively known as the Port of Houston, is the nation’s largest port for waterborne tonnage and an essential economic engine for the Houston region, the state of Texas and the U.S. The Port of Houston supports the creation of nearly 1.35 million jobs in Texas and 3.2 million jobs nationwide. Economic activity totals $339 billion in Texas, which is 20.6 percent of Texas’ total gross domestic product (GDP) – and $801.9 billion in economic impact across the nation.
			Houston is the Energy Capital of the World and is home to more than 4,000+ firms in the region with more than 40% of the nation’s base manufacturing petrochemical capacity. Houston has hosted the Offshore Technology Conference every year since 1969. The conference brings together professionals to exchange ideas to advance scientific and technical knowledge for offshore resources and environmental matters.
			Houston’s airport system consists of 3 airports, supports more than 190K regional jobs and contributes more than $36.4 billion to thelocal economy. The airport system served more than 45M passengers in 2021, almost double the 22.3M served in 2020, but still below the annual average of 60M.
			The Texas Medical Center (TMC), the World’s Largest Medical Complex (1,345 acres) consists of 61 member institutions. TMC’s workforce consists of more than 106K employees. The TMC sees 8M+ patients annually including 16K international patients. In 2021 the TMC began construction on the world’s largest life science campus, the 37-acre TMC3.
			NASA’s Johnson Space Center resides on a 1,700-acre campus and employs around 11K. Major employers within the complex include some notable companies such as The Boeing Company, Lockheed Martin and Jacobs Engineering. Ellington Airport began construction on the 153-acre Phase 1 Houston Spaceport in 2019. Recently Collins Aerospace, Intuitive Machines and Axiom Space announced plans to build facilities in the development.