Houston Economy at a Glance

A publication of the Greater Houston Partnership Volume 27 Number 5 – June 2018

Based on last year’s growth, Houston will overtake TableA publication of Contents of the Great er Houston Partnership Chicago, butVolume not for 26 another Number 34 12 years – December. In ’52, when2017 the Houston vs Chicago ...... 1 Class of ’18 reaches middle age, Houston will become the nation’s third most populous city. A Few Words About Our Neighbors ...... 3 CITY POPULATION GROWTH Employment Update ...... 5 Houston Chicago Snapshot — Key Economic Indicators ...... 6 Pop as of 7/1/10 2,099,256 2,697,661 Economic Indicators Summary Table ...... 7 Gap, Hou v Chi 598,405 Year Net Population Change Houston Nonfarm Employment ...... 7 ’11 26,194 9,009 HOUSTON VS. CHICAGO ’12 34,374 11,319 The City of Houston added 8,235 residents last year, the ’13 38,420 6,493 smallest increase for the city since ’07. Houston’s popu- ’14 40,551 2,051 lation growth peaked in ’15 and has trended down since. ’15 43,440 -1,379 Slower growth for the city was expected, given the per- ’16 22,247 -4,879 sistent weakness in the local economy. Population esti- ’17 8,235 -3,825 mates for the metro area, discussed in April’s Houston: The Pop as of 7/1/17 2,312,717 2,716,450 Economy at a Glance, display a similar trend. 1 Gap, Hou v Chi 403,733 The media quickly pounced when the U.S. Census Bureau Source: Partnership calculations based on U.S. Census released the data in May, reporters proclaiming the date Bureau data Houston overtakes Chicago as the nation’s third most No Better Than a Ouija Board populous city had been pushed into the distant future. They were right, but for the wrong reason. But there’s a problem with the prognostications to ’25 and to ’52. They are what economists refer to as a “naïve As recently as ’15, when momentum from the recent boom forecasts,” i.e., using current data to extrapolate the future carried Houston forward, the city added over 43,000 without establishing what drives growth and then residents. Chicago lost about 1,400 that year. The math adjusting accordingly. A Ouija board would produce the seemed simple enough. With a gap of only 442,000 same result. residents separating the Bayou City from the Windy City, Houston would overtake Chicago in less than 10 years, To use a sports example, predicting Houston’s future which at the time placed the transition around ’25. growth based on a few data points is like using the first four games of the Texans ’17 season (2 wins, 2 losses) or the The gap has narrowed since then. Only 404,000 residents Astros record in August (10 wins, 17 losses) to predict how separate the two cities today. Houston’s growth, however, each team would finish the year. For those who don’t has slowed to a trickle, and Chicago’s population continues recall, the Texans finished 4-12, the Astros won the Major to leak away. The home of the Bears, Bulls, Cubs and League Baseball’s World Series. Blackhawks lost 3,800 residents in ’17, about 0.1 percent of the city’s population. Houston’s growth fell to about one-fifth its previous peak.2 Again, the math seems simple.

1 The U.S. Census Bureau’s population estimates are for the 12 months ending July 1, 2017. 2 Houston Mayor Sylvester Turner disagrees with the Census’ estimate for Houston and intends to challenge the Bureau.

June 2018 Economy at a Glance ©2018, Greater Houston Partnership 1 Demographers separate population growth into two The Importance of Job Growth components, the net natural rate of increase (i.e., resident From July ’10 to July ’15, the recent peak of the city’s births minus resident deaths) and net migration, (i.e., population boom, metro Houston created more than movers into the region minus movers out of the region). A 420,000 jobs. Through migration and net natural increase, more informed forecast takes into account all factors and the region added about 720,000 residents, of whom events that might impact those components. 183,000 settled in the city. That suggests for every 2.3 jobs Yay! The Natural Increase! the region created, the city gained one new resident. Those jobs didn’t need to be inside the city to add to Houston’s The city has nearly 600,000 female residents between the population. Data from the Census Bureau indicate that ages of 15 and 50―what the Census Bureau considers to about a third of all job holders who reside in the city work be childbearing years. In ’16, the latest year for which data outside the city. are available, nearly 39,000 women gave birth to at least one child. The Bureau doesn’t provide data on deaths at METRO HOUSTON GROWTH the city level, but at the metro level deaths offset births by Jobs Population Year about 40 percent, which suggests a rate of natural increase (Dec – Dec) (Jul – Jul) for the city of about 24,000 residents per year. Houston '10 49,800 95,225 added fewer than 9,000 residents in ’17, suggesting more '11 83,000 110,528 people moved out of the city than moved into the city last '12 118,800 125,779 year. That’s not surprising given the lack of job growth '13 90,000 145,827 through July of last year, which coincides with the time '14 116,700 167,309 frame for the Bureau’s estimates. '15 -2,500 167,325 The city’s population gains in ’08, ’10 and ’16 also fell well '16 -2,200 133,823 below what one would expect based on the natural rate of '17 62,900 94,417 increase, suggesting more residents moved out of Houston Sources: U.S. Census Bureau and Texas Workforce than into Houston in those years. Commission While the female population continues to grow, fertility If the regional-jobs-to-city-population ratio holds true, rates (i.e., the number of births per 1,000 women of child- metro Houston needs to create 920,000 jobs for the city to bearing age) have slipped over time. A natural increase of add another 400,000 residents, the gap Houston must 24,000 may be the norm for Houston for the near future. close if it’s to overtake Chicago. That’s the equivalent to two decades of growth for the region. Admittedly, the Good, Good, Good, Good Migrations formula is an oversimplification, but it underscores the While net natural increase is important, infants and importance of regional job growth to the city’s population toddlers aren’t ideal consumers. They don’t buy vehicles, growth. purchase homes, order furniture or dine out (unless No Longer a Bargain they’re with their parents). Nor do they participate in the workforce. But their parents do, which is why migration is It’s no coincidence that states with the highest living so important to Houston. costs—California, New York and Illinois—send a large number of residents to Houston each year. And cities with What spurs someone to pack a U-Haul and head for some of the lowest living costs (and a healthy job market) Houston? The desire to live closer to one’s family. The enjoyed strong population gains last year. desire to escape harsh winters. Access to quality health care. A cool restaurant and bar scene. A chance to start Houston, however, is not as affordable as it once was. over in a new city known for welcoming newcomers. But According to the Council for Community and Economic two factors—job growth and affordability—tend to have Research (C2ER), the cost of living in Houston (excluding the greatest influence. taxes) was 12.3 percent below the national average in ’07 but only 1.8 percent below in ’17. 3 Incidentally, the rise in

3 C2ER is a Washington-based organization, that among other things, gathers data and reports on living costs in the nation’s major metro areas.

June 2018 Economy at a Glance ©2018, Greater Houston Partnership 2 the cost of living in Houston coincides with years of robust What Needs to Happen economic growth. Growth won’t occur without significant investments in the Escalating housing costs, which account for about 28 city. To accommodate an additional 400,000 residents, the percent of an average household budget, have driven the city will need to: increase. According to the Federal Housing Finance • Develop an additional 160,000 housing units, Agency, the purchase price of a single-family home in metro Houston has risen 59.4 percent since Q1/07. And • Upgrade the streets to carry another 200,000 vehicles, according to C2ER, Houston apartment rents are up 53.0 • Build enough campuses to educate an additional percent over the same period. By comparison, average 80,000 school-age children, wages in metro Houston are up only 27.1 percent over the • Expand utilities, including water, sewer, gas and same period, according to the Texas Workforce electricity, Commission. • And nurture a business climate that entices new firms to relocate in the region and existing firms to expand A Series of Assumptions their current operations, creating the jobs needed to So, when might Houston overtake Chicago to become the drive population growth. nation’s third most populous city? That depends on several Houston also needs to deal with issues of flooding, image, factors aligning: restructuring of the oil industry, Washington’s efforts to • Assuming the region’s job growth returns to its long- limit immigration, and threats to international trade. term annual average of 2.0 percent, the region should Inevitably, the U.S. will suffer another economic downturn add approximately 60,000 jobs per year. in the next 10 years, impeding the city’s growth. To sum it • Assuming job growth holds steady at 60,000 per year, up, Houstonians have a host of challenges to deal with the region should add 100,000 to 125,000 residents before the Bayou City overtakes the Windy City as the per year. nation’s third most populous in the U.S., and that’s not likely to occur for at least another 20 years. • Assuming the city captures about one-fourth of the region’s population gains (its share over the past An Addendum to the Above decade), Houston should add 25,000 to 30,000 residents per year. The Chicago Metropolitan Agency for Planning (CMAP) forecasts population, households and employment for the • Assuming Houston maintains that pace of population Chicago metro area. CMAP expects the city of Chicago’s growth uninterrupted, and population to reach 3,092,262 in ’40. The Houston- • Assuming that Chicago’s population remains flat . . . Galveston Area Council (HGAC), the planning agency for The City of Houston would reach 2.7 million residents, this region, forecasts population, employment, and Chicago’s population today, sometime around ’32. household growth for the Texas Gulf Coast. HGAC projects However, a number of factors are likely to push out that Houston’s population to reach 3,045,030 by that year. date. Based on those two forecasts, in ’40 Houston still fails to overtake Chicago as the nation’s third most populous city. • If Chicago experiences any growth—the city added 4,000 residents per year in the early part of this A FEW WORDS ABOUT OUR NEIGHBORS decade―that could push the date out to the late ‘30s. • If population growth in the city slows precipitously—in Of the 123 cities in the nine-county metro Houston area, seven of the past 20 years the city of Houston has 104 gained population last year, according to the U.S. added fewer than 10,000 residents—the date would Census Bureau. Houston led the way, followed by be pushed into the early ’40s. Pearland, League City and Conroe. • If a “black swan” event occurs that precipitously slows Pearland and Pasadena have a race of their own, with the Houston’s growth, it could delay Houston overtaking city off State Highway 288 fast approaching the city off Chicago further into the future. 4 State Highway 225 in population. Fewer than 34,000 residents separate the two, with Pearland logging healthy

4 “Black swan” describes an event that comes as a surprise, has a major effect, and is rationalized afterwards with the benefit of hindsight. The global financial collapse which brought on the Great Recession or the flooding associated with Hurricane Harvey are examples of such events.

June 2018 Economy at a Glance ©2018, Greater Houston Partnership 3 population gains over the past seven years and Pasadena’s at 24,100. February, March and April job growth have more population growing only marginally. than offset the 41,300 jobs lost in January. The U.S. Census Bureau estimates are for populations as of Year to date, the bulk of Houston’s job growth has occurred July 1, 2017, so they don’t reflect the impact Hurricane in a handful of categories: construction (6,500 jobs), Harvey had on the region. The surge in out-of-state employment services (e.g., contract workers) (4,700 jobs), workers helping with recovery efforts may add to the services to buildings (e.g., janitorial and landscaping) population, while the exodus of people whose homes were (3,800 jobs), health care (3,500 jobs), fabricated metal destroyed may pull down the numbers. Houstonians won’t products manufacturing (3,000 jobs) and other services know for another year the impact of Harvey on the region’s (3,000 jobs). population, and we won’t know for another 20 years if Through April, mining machinery manufacturing (i.e., oil Houston will really overtake Chicago. field equipment) has added 1,600 jobs and support HOUSTON METRO AREA POPULATION GROWTH, activities for mining (i.e., oil field services) has added 900 . By 20 LARGEST CITIES Engineering services has cut 400 jobs and oil and gas Ranked by Current Population extraction (i.e., exploration and production) has shed. A Population as of Change Since '10 number of sectors have experienced year-to-date losses, City 7/1/2010 7/1/2017 # % the most significant being 12,000 jobs in retail. Houston 2,099,256 2,312,717 218,284 10.4 Readers are cautioned, however, that the data for April Pasadena 149,527 153,520 4,213 2.8 have a few anomalies. TWC reports that leisure and Pearland 94,075 119,940 26,820 28.8 hospitality (i.e., hotels, restaurants and bars) added 6,900 League City 84,077 104,903 21,340 25.5 jobs in April. A typical April would see only 2,000 to 2,500 Sugar Land 79,096 88,485 9,885 12.6 jobs added. Administrative support added 3,200. Over the Conroe 65,265 84,378 19,448 30.0 past 25 years, this category has averaged 1,600 jobs in April. Baytown 71,865 76,804 5,095 7.1 Missouri City 67,065 74,497 7,809 11.7 April’s report pushed Houston’s employment numbers to Galveston 47,795 50,497 2,754 5.8 a new record, 3,097,500. When TWC releases data for Texas 45,292 48,558 3,467 7.7 May, the region will likely top 3.1 million. Friendswood 36,006 39,839 3,945 11.0 Houston's unemployment rate was 4.2 percent in April, Rosenberg 32,048 37,661 5,785 18.1 down from 4.6 percent in March and 4.8 percent in April La Porte 33,872 35,371 1,565 4.6 ’17. Texas’ unemployment rate was 3.8 percent in April, Deer Park 32,106 33,891 1,881 5.9 down from 4.1 percent in March and 4.1 percent in April Lake Jackson 26,818 27,473 641 2.4 ’17. The U.S. rate was 3.7 percent in April, down from 4.1 Alvin 24,314 26,474 2,235 9.2 percent in March and 4.1 percent in April ’17. Dickinson 18,751 20,359 1,682 9.0 Angleton 18,821 19,544 718 3.8 % Workforce Unemployed Bellaire 16,957 18,797 1,886 11.2 April '17 March '18 April '18 Stafford 17,781 18,315 593 3.3

4.8 4.6 Source: U.S. Census Bureau 4.1 4.1 4.1 4.1 EMPLOYMENT UPDATE Metro Houston created 22,600 jobs in April, according to the Texas Workforce Commission (TWC). That’s the best April on record. Houston always experiences significant job losses the first month of each year as employees hired for the holiday Houston Texas U.S. season, contracted to assist with year-end deadlines, or Note: The rates are not seasonally adjusted. subject to corporate restructuring in the new year are laid Source: Texas Workforce Commission off. The most recent report places year-to-date job growth

June 2018 Economy at a Glance ©2018, Greater Houston Partnership 4 SNAPSHOT — KEY ECONOMIC INDICATORS Aviation — The Houston Airport System Inflation — Consumer prices in the Houston-The handled 18.0 million passengers through April of Woodlands- Sugar Land metro area grew 2.4 this year, up 4.0 percent from the 17.3 million percent from April ’17 to April ’18. In the 12 handled during the same period in ’17. Year to date, months ending April ’18, the energy index rose 9.5 percent. international passenger volume totaled 3.7 million, up 2.9 Food prices rose 1.3 percent over the same period. percent from 3.6 million the previous year. Domestic Natural Gas — The spot price for Henry Hub volume totaled 14.3 million, a 4.3 percent increase from natural gas averaged $2.80 per million BTUs in 13.7 million in ’17. May, down 12.5 percent from the average of Building Permits — City of Houston building $3.15 in April ’17. EIA forecasts the Henry Hub spot price to permits totaled $468.2 million in April ’18, down average $3.01 this year and $3.11 in ’19. 3.5 percent from $485.0 million in April ’17. Purchasing Managers Index — The Houston Commercial permit values decreased 27.4 percent to Purchasing Managers Index (PMI), a short-term $190.8 million and residential permit values increased 24.9 leading indicator for regional production, percent to $277.4 million. registered 56.6 in April, up slightly from 56.5 in March. Business-Cycle Index — Growth in the Houston Readings above 50 signal economic expansion in Houston Business-Cycle Index was a roaring 7.6 percent over the next three to four months. Readings below 50 during the three months ending in April ’18, signal contraction. above its longer-run average of 3.2 percent. Annualized Rig Count — Baker Hughes reports 1,059 drilling growth in the index since September ’17 has been a robust rigs were working in the U.S. during the last week 7.5 percent, likely buoyed in part by a strong post-Harvey of May. That’s up 151 rigs, or 16.6 percent, from stimulus and higher oil prices. the 908 the same week in May last year. The rig count has Construction — Construction starts in Houston trended upward since early November. totaled $1.575 billion in April, a 45.0 percent Trade — Through March of this year, $52.6 increase from $1.086 billion in April ’17. Through billion in goods and commodities passed through the first four months of ’18, starts totaled $6.001 the Houston/Galveston Customs District, up 12.9 billion, down 2.1 percent from $6.130 billion for the percent from $46.6 billion over the same period in ’17. corresponding period in ’17. Exports totaled $31.4 billion, up 17.7 percent. Imports Crude Oil — West Texas Intermediate (WTI), the totaled $21.3 billion, up 6.6 percent. U.S. benchmark for light, sweet crude, traded Vehicle Sales Houston-area auto dealers sold between $66.80 and $72.86 a barrel in May ’18 26,980 new vehicles in April ’18, up 19.9 percent versus $45.55 to $51.12 per barrel in May ’17. The U.S. from the 22,504 sold in April ’17. Used vehicle Energy Information Administration (EIA) forecasts WTI to sales rose 10.9 percent from 67,657 in April. average $65.58 this year and $60.86 next year. Home Sales — In April, Houston’s residential real estate market rebounded from a sluggish March. Single-family home sales, average price paid and STAY UP TO DATE! pending sales rose both month-to-month and year-to-year. Total sales volume topped $26.6 billion in the For past issues of Economy at a Glance, please click here. 12 months ending April ’18, a record for the region. If you are a not a member of the Greater Houston Foreclosure sales continue to trend downward and now Partnership and would like to subscribe to Economy at a account for less than 2.0 percent of all transactions. Glance, please click here and enter your email address. For information about joining the Greater Houston Part-

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STAY UP TO DATE! HOUSTON ECONOMIC INDICATORS YEAR-TO-DATE TOTAL or MONTHLY DATA YTD AVERAGE* Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Apr '18 991 789 25.6 966 * 742 * 30.2 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Apr '18 66.25 51.06 29.7 63.76 * 51.48 * 23.9 Spot Natural Gas ($/MMBtu, Henry Hub) Apr '18 2.69 2.88 -6.6 3.00 * 3.04 * -1.3 UTILITIES AND PRODUCTION Houston Purchasing Managers Index Apr '18 56.6 56.5 0.2 55.9 * 53.5 * 4.5 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Apr '18 4,523,275 4,564,799 -0.9 18,562,169 18,165,442 2.2 CONSTRUCTION Building Permits ($, City of Houston) Apr '18 468,156,818 484,964,178 -3.5 1,758,754,025 1,981,018,370 -11.2 Nonresidential Apr '18 190,800,631 262,986,485 -27.4 901,303,249 1,268,100,834 -28.9 New Nonresidential Apr '18 57,003,855 54,158,695 5.3 378,071,506 413,620,108 -8.6 Nonresidential Additions/Alterations/Conversions Apr '18 133,796,776 208,827,790 -35.9 523,231,743 854,480,726 -38.8 Residential Apr '18 277,356,187 221,977,693 24.9 857,450,776 712,917,536 20.3 New Residential Apr '18 236,861,798 194,469,151 21.8 680,826,641 616,774,096 10.4 Residential Additions/Alterations/Conversions Apr '18 40,494,389 27,508,542 47.2 176,624,135 96,143,440 83.7 Multiple Listing Service (MLS) Activity Property Sales Apr '18 8,453 8,045 5.1 28,570 27,728 3.0 Median Sales Price - SF Detached Apr '18 240,000 228,000 5.3 229,588 0 222,250 * 3.3 Active Listings Apr '18 36,882 38,345 -3.8 34,976 * 36,612 * -4.5 EMPLOYMENT (Houston-The Woodlands-Sugar Land MSA) Nonfarm Payroll Employment Mar '18 3,072,000 3,009,500 2.1 3,055,200 * 2,988,667 * 2.2 Goods Producing (Natural Resources/Mining/Const/Mfg) Mar '18 527,500 512,000 3.0 524,867 0 508,133 * 3.3 Service Providing Mar '18 2,544,500 2,497,500 1.9 2,530,333 0 2,480,533 * 2.0 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Mar '18 4.6 5.2 4.7 * 5.5 * Texas Mar '18 4.1 4.5 4.1 * 4.8 * U.S. Mar '18 4.1 4.6 4.3 * 4.9 * TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Mar '18 4,007,711 4,240,660 -5.5 11,025,502 11,203,051 -1.6 Air Passengers (Houston Airport System) Mar '18 4,935,456 4,692,517 5.2 13,312,917 12,937,463 2.9 Domestic Passengers Mar '18 3,899,763 3,731,091 4.5 10,516,167 10,229,589 2.8 International Passengers Mar '18 1,035,693 961,426 7.7 2,796,750 2,707,874 3.3 Air Freight (metric tons) Mar '18 43,907 37,796 16.2 120,465 106,176 13.5 CONSUMERS New Car and Truck Sales (Units, Houston MSA) Apr '18 26,980 22,504 19.9 99,856 92,440 8.0 Cars Apr '18 8,494 7,266 16.9 29,704 31,079 -4.4 Trucks, SUVs and Commercials Apr '18 18,486 15,238 21.3 70,152 61,361 14.3 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Q3/17 28,181 28,049 0.5 85,311 81,914 4.1 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Apr '18 225.1 219.9 2.4 224.400 * 219.200 * 2.4 United States Apr '18 250.5 244.5 2.5 249.200 * 243.700 * 2.3 Hotel Performance (Houston MSA) Occupancy (%) Q4/17 72.5 57.2 66.7 * 62.3 * Average Room Rate ($) Q4/17 110.06 99.03 11.1 107.96 * 104.67 * 3.1 Revenue Per Available Room ($) Q4/17 79.82 56.66 40.9 71.96 * 65.20 * 10.4 SOURCES Aviation City of Houston Department of Aviation Building Construction Contracts Dodge Data & Analytics Car and Truck Sales TexAuto Facts Report , InfoNation, Inc., Sugar Land TX City of Houston Building Permits Public Works & Engineering Planning & Development, City of Houston Consumer Price Index U.S. Bureau of Labor Statistics Electricity CenterPoint Energy Employment, Unemployment Texas Workforce Commission Hotels CBRE Houston Purchasing Managers Index Institute for Supply Management-Houston MLS Data Houston Association of Realtors  Port Shipments Port of Houston Authority Retail Sales Texas Comptroller’s Office Rig Count Baker Hughes Incorporated June 2018 Economy at a Glance ©2018, Greater Houston Partnership 6

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Apr '18 Mar '18 Apr '17 Mar '18 Apr '17 Mar '18 Apr '17

Total Nonfarm Payroll Jobs 3,097.5 3,074.9 3,013.0 22.6 84.5 0.7 2.8 Total Private 2,683.0 2,659.9 2,600.2 23.1 82.8 0.9 3.2 Goods Producing 534.1 527.7 510.6 6.4 23.5 1.2 4.6 Service Providing 2,563.4 2,547.2 2,502.4 16.2 61.0 0.6 2.4 Private Service Providing 2,148.9 2,132.2 2,089.6 16.7 59.3 0.8 2.8

Mining and Logging 78.2 77.8 77.0 0.4 1.2 0.5 1.6 Oil & Gas Extraction 35.8 36.1 37.6 -0.3 -1.8 -0.8 -4.8 Support Activities for Mining 40.8 40.1 38.0 0.7 2.8 1.7 7.4

Construction 227.9 227.2 215.7 0.7 12.2 0.3 5.7

Manufacturing 228.0 222.7 217.9 5.3 10.1 2.4 4.6 Durable Goods Manufacturing 145.8 141.4 135.9 4.4 9.9 3.1 7.3 Nondurable Goods Manufacturing 82.2 81.3 82.0 0.9 0.2 1.1 0.2

Wholesale Trade 169.9 168.2 164.6 1.7 5.3 1.0 3.2

Retail Trade 312.5 312.7 306.0 -0.2 6.5 -0.1 2.1

Transportation, Warehousing and Utilities 142.5 142.9 140.0 -0.4 2.5 -0.3 1.8 Utilities 16.6 16.4 16.4 0.2 0.2 1.2 1.2 Air Transportation 21.2 21.1 21.6 0.1 -0.4 0.5 -1.9 Truck Transportation 25.5 25.4 24.9 0.1 0.6 0.4 2.4 Pipeline Transportation 11.5 11.9 11.8 -0.4 -0.3 -3.4 -2.5

Information 31.0 31.5 32.5 -0.5 -1.5 -1.6 -4.6 Telecommunications 13.3 13.6 13.7 -0.3 -0.4 -2.2 -2.9

Finance & Insurance 100.4 101.1 100.3 -0.7 0.1 -0.7 0.1

Real Estate & Rental and Leasing 61.7 60.6 57.5 1.1 4.2 1.8 7.3

Professional & Business Services 506.2 503.4 476.4 2.8 29.8 0.6 6.3 Professional, Scientific & Technical Services 232.7 233.3 221.0 -0.6 11.7 -0.3 5.3 Legal Services 25.7 25.6 25.0 0.1 0.7 0.4 2.8 Accounting, Tax Preparation, Bookkeeping 28.2 28.7 28.4 -0.5 -0.2 -1.7 -0.7 Architectural, Engineering & Related Services 66.7 66.6 64.9 0.1 1.8 0.2 2.8 Computer Systems Design & Related Services 32.4 32.2 31.6 0.2 0.8 0.6 2.5 Admin & Support/Waste Mgt & Remediation 231.1 227.9 213.1 3.2 18.0 1.4 8.4 Administrative & Support Services 219.8 216.9 201.2 2.9 18.6 1.3 9.2 Employment Services 96.2 95.3 79.7 0.9 16.5 0.9 20.7

Educational Services 60.4 60.2 59.4 0.2 1.0 0.3 1.7

Health Care & Social Assistance 327.9 325.0 325.4 2.9 2.5 0.9 0.8

Arts, Entertainment & Recreation 34.4 33.3 33.6 1.1 0.8 3.3 2.4

Accommodation & Food Services 289.8 284.0 282.8 5.8 7.0 2.0 2.5

Other Services 112.2 109.3 111.1 2.9 1.1 2.7 1.0

Government 414.5 415.0 412.8 -0.5 1.7 -0.1 0.4 Federal Government 29.0 29.0 28.7 0.0 0.3 0.0 1.0 State Government 87.1 86.4 86.0 0.7 1.1 0.8 1.3 State Government Educational Services 52.0 51.3 51.6 0.7 0.4 1.4 0.8 Local Government 298.4 299.6 298.1 -1.2 0.3 -0.4 0.1 Local Government Educational Services 210.8 212.6 209.0 -1.8 1.8 -0.8 0.9

SOURCE: Texas Workforce Commission

A publication of the Greater Houston Partnership Volume 27 Number 1 – January 2018

Table of Contents come from the plastics and chemical plants along the A publication of the Greater Houston Partnership Houston VolumeShip Channel. 26 Number 12 – December 2017 Job Growth to Pick up in ’18 ...... 1 • The value of U.S. manufacturing output exceeded $6.1 Mixed Year for Real Estate ...... 2 trillion in ’14, and more than 6.2 trillion cubic feet of Energy Outlook Improves ...... 3 natural gas was consumed in the process. Much of that gas is found, produced and delivered by companies Post-Harvey Job Growth ...... 4 based in Houston. Snapshot — Key Economic Indicators ...... 5 • Americans drove more than 3.2 trillion miles in ’16. One-fourth of the nation’s refining capacity is located Houston Nonfarm Employment ...... 7 on the Texas Gulf Coast. Editor’s Note: What follows is a summary of the Greater The consensus among economists is that U.S. GDP, ad- Houston Partnership’s ’18 employment forecast released justed for inflation, will grow 2.4 percent or more in ’18, on DecemberAverage 8, Daily 2017. Production, For the full Signatories forecast, toalong the with and that’s good for Houston. Houston Economic“Declaration Highlights of, an Cooperation”* analysis of economic and demographicOPEC trendsMb/d over Non the -OPEC past 10 years,Mb/d see GLOBAL TIES www.houston.org/economyAlgeria 1.11 . Azerbaijan 0.84 Global trade is important to Houston because the region’s Angola 1.71 Bahrain 0.05 international ties are as strong as its domestic ties. JOBEcuador GROWTH TO PICK0.55 UBruneiP IN ’18 0.18 TheEq. Partnership’s Guinea employment0.14 Kazakhstan forecast for this year 1.88calls • Metro Houston ranks second only to New York in value forGabon the region to create0.23 approximately Malaysia 45,500 jobs. Growth0.71 of exports. • Nearly 5,000 Houston-area companies are engaged in willIran be driven primarily3.55 by theMexico strength of the U.S. 2.47 and global commerce. globalIraq economies and4.42 Houston’s Oman links to them. While1.26 turmoil in the energy industry has for the most part sub- • Global trade supports nearly 450,000 jobs in the re- Kuwait 2.88 Russia 11.34 sided, the forecast doesn’t anticipate the sector con- gion. Libya 0.39 Sudan 0.25 tributing to job growth in ’18, but neither does it detract • The Port of Houston ranks first in the U.S. in foreign fromNigeria overall expansion.1.47 Only twoSouth sectors, Sudan construction andNA tonnage. informationQatar , are forecast0.65 to finishNon -theOPEC year Total with fewer18.98 jobs • Many of Houston’s public companies derive a sig- thanSaudi they Arabia started with.10.42 All remaining % of World sectors are expected19.6% nificant portion of their revenues from their overseas to expand,U.A.E. some robustly,3.05 others OPEC modestly, + Non-OPEC in ’18. 51.79 operations. The average is 30 percent, but companies such as Halliburton and Oceaneering receive more U.S.Venezuela. GROWTH 2.24 % of World 53.4% OPEC Total 32.81 World Production 96.96 than half their revenues from international sales and Though% of WorldHoustonians often33.8% hate to admit it, Texas is part of operations. the U.S., and when the nation prospers, that’s good for * “Declaration of Cooperation” is the formal name for the Oxford Economics forecasts world GDP to grow 3.0 percent Houston. Why? Because the nation buys more of what agreement among the 24 countries to cut production in ’18, and that’s good for Houston. HoustonSources: sell U.S.s. A Energyfew examples: Information Administration, ENERGY • InternationalDetroit produced Energy moreAgency, than Tradingeconomics.com 18 million light-duty Postautomobiles-Harvey Rebound and trucks ...... in ’16. A typical...... family 4 car Approximately one-third of Houston’s GDP is tied directly contains 150 pounds of rubber, 200 pounds of fluids, to oil and gas. This figure doesn’t include energy’s impact Goneand to 250 Texas pounds ...... of plastics. These...... components 3likely on wholesale trade, transportation, and professional ser- The Outlook for ‘18 ...... 6 vices. Nor does it account for the spending of energy Snapshot — Key Economic Indicators ...... 5 January 2018 Economy at a Glance ©2018, Greater Houston Partnership 1 workers at the grocers, in local restaurants or at the drug construction and information. Employment growth will be store. Factor in those expenditures, and energy’s impact on flat in upstream energy. 1 local GDP is significantly higher. The U.S. Energy Infor- mation Administration (EIA) forecasts West Texas Inter- Metro Houston Job Growth mediate to trade on the spot market in the low $50s most December to December, 000s of the year, not reaching the mid-$50s until Q4/18. That’s 118.8 118.2 not much improvement over ’17, when crude averaged 91.0 83.1 90.4

$49 per barrel much of the year. Houston needs oil at $60 50.3 45.2 or better for several quarters if the energy sector is to spur 21.3 18.7 29.7 additional economic growth for Houston. 0.2 The forecast is based on several assumptions: '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 (F) (F) • U.S. GDP grows 2.4 percent or more, adjusted for inflation. -110.5 • U.S. job creation averages 200,000 jobs per month, Source: Texas Workforce Commission (historical); sustaining domestic demand for what Houston pro- Greater Houston Partnership (forecast) duces. • Any unrest in oil-exporting countries has a minimal COMMERCIAL REAL ESTATE: A MIXED YEAR impact on prices. Houston’s office market finished ’18 with 2.0 million • The Federal Reserve’s increases in interest rates have square feet of negative absorption, according to CBRE. JLL no detrimental effect on the economy. places the figure slightly higher, at 2.7 million; NAI, slightly • The global economy grows at its current pace or better. lower at 1.6 million. The Central Business District, • The ongoing political turmoil in Washington has mini- Uptown/Galleria, Greenspoint, Energy Corridor and mal impact, if any, on business or consumer confi- Southwest submarkets were the worst hit, accounting for dence. the bulk of the space thrown back on the market, according • Any appreciation in the dollar against other currencies to data reported by JLL. Fortunately, office construction has a negligible impact on exports. remains subdued, with only 1.6 million to 2.2 million • The price of WTI generally holds above $50 per barrel, square feet under construction. Sublease leasing activity and any dip below $50 proves transitory. ticked up as well, notes JLL, helping reduce sublease in- • Houston continues to attract residents from other ventory by 2.3 million square feet. Total available sublease cities, states and countries. space stood at 9.3 million square feet at the end of ’17. Both CBRE and NAI reported positive absorption in Q4/17. If any of these assumptions prove wrong, the Partnership’s Taken together, construction, Q4 absorption, and the drop forecast would need to be revisited. in sublease space suggest the worst may be over for the FORECAST IN A NUTSHELL office market. The effective vacancy rate is still between 20 and 25 percent, and given current leasing activity, the The Partnership’s forecast calls for job growth in 14 sec- market will remain soft for some time. tors: oil field services, manufacturing, wholesale trade, retail trade, finance and insurance, real estate, business, The industrial market fared better, absorbing 7.0 million professional and technical services, educational services, square feet of space, according to CBRE. JLL places ab- health care, administrative services, arts and entertain- sorption at 7.6 million square feet. The vacancy rate has ment, accommodation and food services, other services, inched up from 4.9 percent at year-end ’15 and 5.1 percent and government. Job losses will continue in two sectors: at year-end ’16 to 5.5 percent year-end ’17. JLL estimates that 4.6 million square feet of space was under

1 WTI traded between $55 and $58 in the weeks leading up to the forecast. Few analysts expected crude to breach $60 per barrel. The forecast initially assumed WTI would hold above $50 per barrel and was more concerned with the price dipping below $50. The current $60-plus price for WTI may prove transitory, but if the price holds for several quarters, the region may see growth in energy employment again.

January 2018 Economy at a Glance ©2018, Greater Houston Partnership 2 construction in Q4/17. CBRE places the amount much ENERGY OUTLOOK IMPROVES higher, at 8.5 million. Given the current pace of leasing activity, JLL’s construction data suggest a continuing tight Prospects for the energy industry look better in ’18 than it market, while CBRE’s suggest industrial vacancy rates may has in several years. tick up this year. The global economy remains healthy. All 45 countries 4 The retail sector absorbed 2.0 million square feet of space monitored by the OECD are growing, a phenomenon that in ’17, well below the 4.0 million absorbed in ’16 but above has occurred only three times in the past 50 years. The the 10-year average, reports CBRE. The overall occupancy OECD forecasts global GDP to grow 3.6 percent in ’17, rate of 94.1 percent slipped from 94.3 percent in ’16. strengthening to almost 3.8 percent in ’18. Average asking rates ticked up, from $23.81 per square Demand for crude continues to rise. The International foot in ’16 to $25.30 in ’17 on a triple-net basis.2 Energy Agency estimates that oil demand rose by 1.5 HOUSING MARKET HOLDS COURSE million barrels a day in ’17 and will increase another 1.3 million barrels in ’18. The U.S. Energy Information John Burns Real Estate Consulting forecasts single-family Administration (EIA) expects demand to grow by more home sales, new and existing, to tick up in ’18 as the local than 1.6 million barrels this year. economy moves closer to full recovery. Home values will Crude inventories have begun to shrink, albeit slowly. Since continue to appreciate modestly, but housing affordability reaching a record high of 3.09 billion barrels in July ’16, remains a concern as moderate appreciation continues to total OECD liquid fuels inventories have fallen to 2.95 outpace recent wage growth in the region. billion barrels in November ’17. In the U.S., about 100 The market currently has a 3.9-month supply of resale million barrels have been pulled from storage tanks since homes, meaning the number of months it would take to the end of Q1/17. deplete current active inventory for the single-family The November ’17 agreement between OPEC, Russia and market based on the prior 12 months’ sales activity. The other non-OPEC producers to extend production cuts is typical home is on the market 55 days before closing, notes holding. A December Reuters survey found that OPEC the firm. The 10-year average is 47 days. Currently, about members have so far exceeded adherence to the curbs. 12 percent of all closings are above list price. The 10-year Declines in Venezuelan output helped OPEC maintain its average is 15 percent. target, but additional cuts by Gulf exporters indicate a METRO HOUSTON SINGLE-FAMILY HOUSING OUTLOOK strong commitment to the deal. (December to December) Oil prices continue to trend upward. West Texas Inter- ’17P ’18 ’19 Existing Homes mediate, the U.S. benchmark for light, sweet crude, aver- Appreciation 4.5% 4.7% 4.0% aged $55.26 per barrel in Q4/17, up 12.4 percent from Sales 84,600 83,200 81,900 $49.14 in Q4/16. New Homes Expectations are for crude prices to continue rising. Appreciation 0.6% 2.1% 2.4% Though unlikely to soar above $100 per barrel, they’re also Sales 27,590 28,000 30,500 Affordability unlikely to plunge below $30. A Wall Street Journal survey Housing Cost to Income Ratio3 29.9% 31.7% 32.7% of 15 investment banks suggests that Brent crude, the Source: John Burns Real Estate Consulting international oil-price gauge, will average $58 a barrel in

2 Tenant agrees to pay all real estate taxes, building insurance, and maintenance on the property in addition to normal fees expected under the agreement (rent, utilities, etc.). 3 “Housing Cost to Income Ratio” assumes the purchase of a home at 80 percent of the market’s median-priced existing home with a five percent down payment and a 30-year, fixed-rate mortgage. Payment includes PITI plus mortgage insurance. The annual payment is then divided by the market’s median income. 4 The Organisation for Economic Co-operation and Development is an intergovernmental economic organization with 35 member countries, founded in 1961 to stimulate economic progress and world trade. Its members include all the developed countries plus several of the larger emerging markets.

’18, up from an average of $54 in ’17. The banks expect WTI replacement of goods damaged in Hurricane Harvey. to average $54 a barrel in ’18, up from $51 in ’17. Transportation, warehousing and utilities grew by 2,600 jobs, the largest November job gain for the sector since Judging by their capital spending plans, U.S. producers are 1990, the earliest data are available. The rise of online now more optimistic. The Federal Reserve Bank of Dallas retailers has increased demand for workers to package and Q4/17 survey of U.S. energy firms found 51 percent of re- deliver goods. Several distribution centers recently opened spondents expect their firm’s capital spending to slightly in Houston, including Amazon’s 855,000 square foot increase in ’18 compared with ’17, 19 percent expect sig- facility. nificant increases, and 23 percent expect spending to be near ’17 levels for ’18. Only seven percent expect to Professional and business services also experienced strong decrease spending in 2018 compared with 2017. growth in November, adding 3,400 jobs. Architectural and engineering services accounted for 1,300 of that increase. U.S. producers are benefiting from both higher prices and An area of concern is in employment services, which lost higher production. The EIA forecasts domestic production 2,200 jobs. It is yet to be seen if that decline is due to to average 10.3 million b/d in ’18, up from 9.3 million in contract workers being converted to full-time workers or ’17. That level would surpass the previous record of 9.6 contracts being terminated. million b/d set in ’70. Health care posted a loss of 1,700 jobs, with ambulatory And energy stocks, which had fallen out of favor with the health care centers shedding 1,600 jobs. After an explosion investing community, have begun to recover. The S&P of ambulatory care centers over the past few years, the Energy Index, which includes shares of 35 energy com- sector is undergoing a period of contraction. Also, TWC S&P Energy Index estimated ambulatory care centers added 4,200 jobs in October, the strongest one-month gain on record, so 800 November’s data may reflect an attempt to correct for an 750 overestimation. 700 650 After the disruption from Hurricane Harvey, the region’s 600 job market has rebounded. From September ’17 to 550 November ’17, Houston gained 40,500 jobs, more than the 500 37,300 jobs added in the same period a year earlier. Some 450 sectors still have not fully regained their footing. In 400 particular, leisure and hospitality lost 11,400 jobs from 350 September to November this year, when typically, the sector loses only 5,600 jobs during these months.

Source: Investing.com Houston’s unemployment rate was 4.3 percent in No- panies, 32 with significant operations in Houston, has risen vember, up from 4.1 percent in October but down from 5.2 42.7 percent since its January ’16 trough. percent in November ’16. Unemployed persons must be actively seeking work to be counted as unemployed. POST-HARVEY JOB GROWTH Houston’s unemployment rate fell from 4.8 percent in Metro Houston created 15,700 jobs in November, September to 4.1 percent in October, the region’s largest according to the Texas Workforce Commission. That’s September to October drop on record. The sharp drop in slightly above the 25-year average of 11,700 jobs for a the rate in October and the subsequent uptick in November. When recession years are removed from the November most likely reflect people whose job searches long-term average, November’s job growth is typical for were interrupted in the wake of Harvey but were resumed the month. Over the 12 months ending November, the a month later. Houston region added 48,500 jobs, a 1.6 percent increase.

Retail trade recorded the strongest gains in November, adding 7,900 jobs. The increase is expected, given seasonal Patrick Jankowski and Jenny Philip contributed to this issue hiring for the holidays plus shopping related to the of Houston: The Economy at a Glance.

SNAPSHOT — KEY ECONOMIC INDICATORS Aviation — The Houston Airport System handled of $3.59 in December ’16. EIA forecasts the Henry Hub spot 49.2 million passengers through November of price to average $3.12 next year. ’17, down 1.2 percent from 49.9 million over the Purchasing Managers Index — The Houston same period in ’16. HAS handled 393,738 metric tons of air Purchasing Managers Index, a short-term lead- freight, up 3.9 percent from 379,054 metric tons handled ing indicator for regional production, registered over the same period in ’16. 52.8 in November, up from 49.3 in October. Readings Building Permits — For the 12 months ending above 50 signal economic expansion in Houston over the November ’17, City of Houston building permits next three to four months. Readings below 50 signal totaled $6.0 billion, down 12.4 percent from $6.8 contraction. The region’s PMI finally pushed above 50 after billion in the 12 months ending November ’16. Residential three consecutive months pointing to contraction. permits were up slightly by 0.8 percent to $2.3 billion and Rig Count — Baker Hughes reports 924 drilling commercial permits dropped 18.9 percent to $3.7 billion. rigs were working in the U.S. during the first Business-Cycle Index —The Houston Business- week of January. That’s up 259 rigs, or 38.9 Cycle Index ticked up in November, employment percent, from the 665 in early January last year. The rig totals surpassed pre-hurricane levels, and count peaked at 958 in late July, then briefly declined, but energy employment increased. Taken together, these data has trended upward since early November. buttress a positive outlook for Houston. Sales Tax Collections — City of Houston sales tax Construction — Construction starts in the metro allocations were $56.2 million in December ’17, area totaled $16.83 billion through November up significantly from $47.8 million in December ’17, up 10.1 percent from $15.28 billion over the ’16. For the full year, the city collected $638.7 million in same period in ’16, as reported by Dodge Data and sales and use taxes, up from $630.2 million in ’16. Analytics. All the growth occurred in the nonresidential Trade — Through October ’17, $157.3 billion in sector, which rose 25.9 percent. goods and commodities passed through the Crude Oil — West Texas Intermediate, the U.S. Houston/Galveston Customs District, up 18.6 benchmark for light, sweet crude, traded be- percent from $132.7 billion over the comparable period in tween $55.79 and $60.46 a barrel in December ’16. Exports totaled $88.0 billion, up 17.3 percent. Imports ’17, versus $49.85 to $54.01 per barrel in December ’16. totaled $69.3 billion, up 20.2 percent The U.S. Energy Information Administration (EIA) forecasts Vehicle Sales — Local auto dealers sold 30,670 WTI to average $52.77 next year. vehicles in November ’17, a 35.3 percent jump Home Sales — Houston-area home sales totaled from November ’16, according to TexAuto Facts, 7,270 in November ’17, up 4.9 percent from published by InfoNation, Inc. of Sugar Land. Strong demand November ’16, according to the Houston for replacement vehicles from Harvey continues to bolster Association of Realtors®. For the 12 months ending November ’17, total property sales rose to 94,301, up 3.4 percent from the same span last year. STAY UP TO DATE! Inflation — Consumer prices in the Houston- For past issues of Economy at a Glance, please click here. Galveston-Brazoria metro area (Brazoria, Cham- If you are a not a member of the Greater Houston bers, Fort Bend, Galveston, Harris, Liberty, Partnership and would like to subscribe to Economy at a Montgomery, and Waller Counties) grew 2.3 percent from Glance, please click here and enter your email address. October ’16 to October ’17. Core inflation rose 1.6 percent. For information about joining the Greater Houston Part- Natural Gas — The spot price for Henry Hub nership, call Member Engagement at 713-844-3683. natural gas averaged $2.81 per million BTUs in The Key Economic Indicators table is updated whenever December, down 21.6 percent from the average any data change — typically, six or so times per month. If you would like to receive these updates by e-mail, usually accompanied by commentary, please click here. January 2018 Economy at a Glance ©2018, Greater Houston Partnership 5

STAY UP TO DATE! sales, though 12-month totals still lag previous years. November ’17, down 3.1 percent from the same period last Dealers sold 293,614 vehicles for the 12 months ending year.

HOUSTON ECONOMIC INDICATORS YEAR-TO-DATE TOTAL or MONTHLY DATA YTD AVERAGE* Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Dec '17 930 634 46.7 881 * 509 * 73.1 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Nov '17 56.64 45.66 24.0 50.25 * 42.34 * 18.7 Spot Natural Gas ($/MMBtu, Henry Hub) Nov '17 3.01 2.55 18.0 3.00 * 2.42 * 24.0 UTILITIES AND PRODUCTION Houston Purchasing Managers Index Nov '17 52.8 50.5 4.6 51.7 * 46.3 * 11.7 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Nov '17 4,656,911 4,435,638 5.0 54,128,833 52,745,494 2.6 CONSTRUCTION Total Building Contracts ($, Houston MSA) Nov '17 1,158,225,000 912,987,000 26.9 16,827,828,000 15,282,096,000 10.1 Nonresidential Nov '17 528,305,000 283,111,000 86.6 8,524,241,000 6,768,432,000 25.9 Residential Nov '17 629,920,000 629,876,000 0.0 8,303,587,000 8,513,664,000 -2.5 Building Permits ($, City of Houston) Nov '17 642,387,340 392,251,070 63.8 5,569,237,147 6,211,158,376 -10.3 Nonresidential Nov '17 336,240,574 258,260,846 30.2 3,429,269,150 4,210,903,492 -18.6 New Nonresidential Nov '17 51,439,072 116,288,135 -55.8 1,271,475,514 1,685,042,023 -24.5 Nonresidential Additions/Alterations/Conversions Nov '17 284,801,502 141,972,711 100.6 2,157,793,636 2,525,861,469 -14.6 Residential Nov '17 306,146,766 133,990,224 128.5 2,139,967,997 2,000,254,884 7.0 New Residential Nov '17 243,778,971 95,800,710 154.5 1,682,929,928 1,537,063,498 9.5 Residential Additions/Alterations/Conversions Nov '17 62,367,795 38,189,514 63.3 457,038,069 463,191,386 -1.3 Multiple Listing Service (MLS) Activity Property Sales Nov '17 7,270 7,145 1.7 86,452 83,679 3.3 Median Sales Price - SF Detached Nov '17 225,725 224,995 0.3 227,964 0 219,662 * 3.8 Active Listings Nov '17 36,318 36,151 0.5 39,700 * 35,894 * 10.6 EMPLOYMENT (Houston-The Woodlands-Sugar Land MSA) Nonfarm Payroll Employment Nov '17 3,070,100 3,021,600 1.6 3,035,909 * 2,997,382 * 1.3 Goods Producing (Natural Resources/Mining/Const/Mfg) Nov '17 530,900 519,000 2.3 530,427 0 530,955 * -0.1 Service Providing Nov '17 2,539,200 2,502,600 1.5 2,505,482 0 2,466,427 * 1.6 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Nov '17 4.3 5.2 5.2 * 5.2 * Texas Nov '17 3.7 4.5 4.5 * 4.6 * U.S. Nov '17 3.9 4.4 4.6 * 4.9 * TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Nov '17 3,465,226 3,524,280 -1.7 40,500,912 41,327,038 -2.0 Air Passengers (Houston Airport System) Nov '17 4,641,554 4,437,929 4.6 49,240,020 49,855,816 -1.2 Domestic Passengers Nov '17 3,795,614 3,577,243 6.1 39,032,495 39,245,282 -0.5 International Passengers Nov '17 845,940 860,686 -1.7 10,207,525 10,610,534 -3.8 Air Freight (metric tons) Nov '17 37,589 36,831 2.1 393,739 379,054 3.9 CONSUMERS New Car and Truck Sales (Units, Houston MSA) Nov '17 30,670 22,660 35.3 269,548 275,395 -2.1 Cars Nov '17 9,579 7,315 31.0 90,304 99,632 -9.4 Trucks, SUVs and Commercials Nov '17 21,091 15,345 37.4 179,244 175,763 2.0 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Q4/16 32,775 33,876 -3.3 124,078 118,639 4.6 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Nov '17 223.213 218.2 2.3 220.564 * 216.200 * 2.0 United States Nov '17 246.669 241.353 2.2 244.992 * 239.878 * 2.1 Hotel Performance (Houston MSA) Occupancy (%) Q1/17 63.7 65.8 61.8 * 67.1 * Average Room Rate ($) Q1/17 116.12 109.83 5.7 106.06 * 108.16 * -1.9 Revenue Per Available Room ($) Q1/17 74.00 72.28 2.4 65.79 * 72.62 * -9.4 SOURCES Aviation City of Houston Department of Aviation Building Construction Contracts Dodge Data & Analytics Car and Truck Sales TexAuto Facts Report , InfoNation, Inc., Sugar Land TX City of Houston Building Permits Public Works & Engineering Planning & Development, City of Houston Consumer Price Index U.S. Bureau of Labor Statistics Electricity CenterPoint Energy Employment, Unemployment Texas Workforce Commission Hotels CBRE Houston Purchasing Managers Index Institute for Supply Management-Houston MLS Data Houston Association of Realtors  Port Shipments Port of Houston Authority Retail Sales Texas Comptroller’s Office Rig Count Baker Hughes Incorporated January 2018 Economy at a Glance ©2018, Greater Houston Partnership 7

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from 17-Nov 17-Oct 16-Nov 17-Oct 16-Nov 17-Oct 16-Nov

Total Nonfarm Payroll Jobs 3,070.1 3,054.4 3,021.6 15.7 48.5 0.5 1.6 Total Private 2,647.3 2,634.1 2,606.6 13.2 40.7 0.5 1.6 Goods Producing 530.9 527.9 519.0 3.0 11.9 0.6 2.3 Service Providing 2,539.2 2,526.5 2,502.6 12.7 36.6 0.5 1.5 Private Service Providing 2,116.4 2,106.2 2,087.6 10.2 28.8 0.5 1.4

Mining and Logging 86.6 86.3 85.7 0.3 0.9 0.3 1.1 Oil & Gas Extraction 44.1 44.3 48.0 -0.2 -3.9 -0.5 -8.1 Support Activities for Mining 40.4 40.2 35.9 0.2 4.5 0.5 12.5

Construction 213.4 212.4 215.4 1.0 -2.0 0.5 -0.9

Manufacturing 230.9 229.2 217.9 1.7 13.0 0.7 6.0 Durable Goods Manufacturing 147.7 146.4 134.5 1.3 13.2 0.9 9.8 Nondurable Goods Manufacturing 83.2 82.8 83.4 0.4 -0.2 0.5 -0.2

Wholesale Trade 159.9 160.4 163.4 -0.5 -3.5 -0.3 -2.1

Retail Trade 316.4 308.5 314.3 7.9 2.1 2.6 0.7

Transportation, Warehousing and Utilities 141.8 139.2 140.6 2.6 1.2 1.9 0.9 Utilities 15.9 16.0 16.2 -0.1 -0.3 -0.6 -1.9 Air Transportation 21.4 21.6 21.6 -0.2 -0.2 -0.9 -0.9 Truck Transportation 24.7 24.6 24.7 0.1 0.0 0.4 0.0 Pipeline Transportation 11.0 10.9 10.9 0.1 0.1 0.9 0.9

Information 32.0 31.4 33.1 0.6 -1.1 1.9 -3.3 Telecommunications 13.6 13.5 14.1 0.1 -0.5 0.7 -3.5

Finance & Insurance 101.2 101.8 100.0 -0.6 1.2 -0.6 1.2

Real Estate & Rental and Leasing 59.4 58.5 55.9 0.9 3.5 1.5 6.3

Professional & Business Services 486.6 483.2 473.0 3.4 13.6 0.7 2.9 Professional, Scientific & Technical Services 222.8 219.4 216.5 3.4 6.3 1.5 2.9 Legal Services 25.2 25.2 24.8 0.0 0.4 0.0 1.6 Accounting, Tax Preparation, Bookkeeping 25.4 25.3 25.1 0.1 0.3 0.4 1.2 Architectural, Engineering & Related Services 67.5 66.2 65.0 1.3 2.5 2.0 3.8 Computer Systems Design & Related Services 33.4 32.8 32.5 0.6 0.9 1.8 2.8 Admin & Support/Waste Mgt & Remediation 227.1 227.2 219.9 -0.1 7.2 0.0 3.3 Administrative & Support Services 215.5 215.5 208.0 0.0 7.5 0.0 3.6 Employment Services 90.4 92.6 81.7 -2.2 8.7 -2.4 10.6

Educational Services 62.1 61.9 59.6 0.2 2.5 0.3 4.2

Health Care & Social Assistance 333.4 335.1 326.1 -1.7 7.3 -0.5 2.2

Arts, Entertainment & Recreation 32.6 33.7 32.7 -1.1 -0.1 -3.3 -0.3

Accommodation & Food Services 283.1 283.9 281.7 -0.8 1.4 -0.3 0.5

Other Services 107.9 108.6 107.2 -0.7 0.7 -0.6 0.7

Government 422.8 420.3 415.0 2.5 7.8 0.6 1.9 Federal Government 29.0 29.0 28.6 0.0 0.4 0.0 1.4 State Government 85.6 85.2 85.2 0.4 0.4 0.5 0.5 State Government Educational Services 51.1 50.7 50.6 0.4 0.5 0.8 1.0 Local Government 308.2 306.1 301.2 2.1 7.0 0.7 2.3 Local Government Educational Services 218.6 216.6 212.7 2.0 5.9 0.9 2.8

SOURCE: Texas Workforce Commission

A publication of the Greater Houston Partnership Volume 26 Number 3 — March 2017

A Clearer Picture Emerges — Metro Houston created 18,700 jobs in ’16, according to the benchmark revisions issued in early March by the Texas Workforce Commission (TWC).1 That’s up from TWC’s initial estimate of 14,800 jobs for the year. The Partnership’s forecast called for Houston to create 21,900 jobs in ’16. The Partnership’s forecast was off by 3,200 jobs, or the equivalent of 0.1 percent of the more than 3.0 million jobs in the region. Houston had a brief spell—June, July and August of last year—when job growth turned slightly negative. The region lost 3,800 jobs in the 12 months ending August ’16, the lowest point of the downturn. Job growth has trended upward since.

Metro Houston Payroll Employment 12-Month Change Total Employment 3.1 150

3.0 100

2.9 50 2.8 0 2.7

-50 MonthChange (000)

2.6 - 12 2.5 -100

NonfarmPayroll Employment (000,000) 2.4 -150 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: Texas Workforce Commission

The revised employment data show that the worst is over. Other indicators support that point.  The Houston Purchasing Managers Index registered 54.2 in February, signaling economic expansion in metro Houston for the fifth consecutive month.  February home sales set a record for the month. The 12-month moving sales total is at an all-time high, and foreclosures are near their lowest point since ’09, when the Partnership first began tracking the data.  The North American rig count has risen 90 percent over the past 10 months, from a nadir of 404 in May ’16 to 768 the first week of March ’17.

1 Metro Houston includes Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller Counties.

March 2017 ©2017, Greater Houston Partnership Page 1  Houston finished the year with 3,036,000 jobs, the highest level of employment in Hous- ton’s history. Why Revise the Data? — Each month, when TWC reports employment data, the estimates come from a sampling of businesses known as the Current Employment Survey (CES). Like all surveys, the CES is subject to error. Throughout the year, TWC gathers data from records based on unemployment insurance tax reports. TWC uses these data to revise its job estimates and issues its “benchmark revisions,” which contain a more accurate depiction of employment trends over the past 21 months. Trends evident in this year’s revisions:  Energy job losses in the downturn proved to be worse than initially reported.2 From De- cember ’14 to December ’16, the sector cut 81,100 jobs, which is 13,700 more than first reported. The total loss equates to one in every four jobs in Houston’s energy sector. Two- thirds of those losses occurred in ’15, the remainder in ’16.  Oilfield services employment appears to have stabilized, adding 1,100 jobs since August ’16, but exploration still struggles, cutting 3,000 jobs over the same period.  Construction employment peaked at 222,600 in October ’15. Contractors have cut 14,300 jobs since then. The Partnership’s forecast for ’17 calls for construction to lose as many as 16,000 jobs this year.  The recent boom in chemical construction has begun to pay dividends. As those plants start up, they have begun to add jobs—1,600 since December ’14. These jobs have a high multiplier, each supporting five to eight additional jobs in the community.  Wholesale trade, trucking and employment services (sectors closely tied to energy) lost 9,100 jobs in the downturn.  Real estate and finance have combined for an additional 6,000 jobs over the past two years. The bulk of those jobs were in finance.  If not for the loss of nearly 11,000 engineering jobs, professional and business services would have recorded job gains during the downturn. Employment in this field is down 2,700 jobs since December ’14.  Job growth in retail, health care, and accommodation and food services was less robust than previously thought: 76,800 jobs in the initial reports, 55,700 jobs in the revisions.  Hiring in employment services (i.e., contract workers) has trended upward since January ’16. Growth in employment services tends to lead growth in other sectors. As the economy improves, employers often bring on contract workers prior to hiring permanent staff.  The government sector added 22,400 employees over the past two years, three-fourths of them at school districts and state-funded colleges and universities.

2 As defined here, the energy sector includes exploration and production, oilfield services, oil field equipment manufacturing, fabricated metal products and engineering.

March 2017 ©2017, Greater Houston Partnership Page 2  The first year of the oil price collapse proved to be worse than originally thought. TWC revised job growth downward, from 15,200 initially to 200 jobs in the benchmarks. Given that the energy sector cut more than 50,000 jobs that year, and that wholesale trade, trucking and employment services cut another 9,000, the fact that Houston finished the year without a net job loss is remarkable. The year finished with the local unemployment rate at 5.3 percent, up from 4.6 percent in December ’15. The rate is not seasonally adjusted. Going Global — On May 22, the Partner- ship will host its third annual Houston’s Global Economy, an event that looks at the role trade, foreign investment, and the region’s international community plays in the region’s economy. Keynoting the event will be Dr. Stuart Mackintosh, Executive Director of the Group of Thirty. The Group of Thirty is an international think tank composed of senior figures from central banking, finance and academia. The think tank’s membership includes Paul Volcker, Ben Bernanke, Mario Draghi and Paul Krugman. Mackintosh will present the global economic outlook. A panel of local business leaders will discuss how they are positioning their firms to prosper in the global economy. The Partnership will present its latest research on Houston’s ties to the global economy. Additional details about the event and how to purchase tickets will be posted at the Partnership’s website in April. Oil Patch Update — The earnings season is about over and most publicly traded oil and gas firms have released their results for ’16. It should surprise no one that last year was a difficult one for the industry. Nineteen of the two dozen energy firms listed in the table below reported losses for the year. The firms included in the table were chosen because they are representative of Houston’s upstream energy industry. SELECTED HOUSTON ENERGY FIRMS, EARNINGS PER SHARE, FULLY DILUTED, CALENDAR YEARS Earnings Per Share - $ Earnings Per Share - $ Earnings Per Share - $ Firm Firm Firm ’16 ’15 ’16 ’15 ’16 ’15 Anadarko -5.90 -13.18 FMC 1.56 3.66 Oceaneering 0.25 2.34 Apache -3.71 -27.4 Halliburton -6.69 -0.79 Oil States -0.92 0.56 Baker Hughes -6.31 -4.49 Hess -4.94 -3.93 Schlumberger -1.24 1.63 BP 0.60 -35.39 Marathon -0.85 -1.28 Shell 0.58 0.31 Chevron -0.27 -2.45 Nabors -3.64 -1.29 Southwestern -6.32 -12.25 ConocoPhillips -2.66 -1.40 Newfield Exp -6.36 -21.18 Superior Energy -5.85 -12.33 EOG -1.98 -8.29 NOV -6.41 -1.99 Tesco -2.73 -3.43 ExxonMobil 1.88 3.85 Occidental -0.75 -10.23 Weatherford -3.82 -2.55 Source: Company press releases

March 2017 ©2017, Greater Houston Partnership Page 3 The industry responded by cutting jobs. Outplacement firm Challenger Gray & Christmas estimates the industry has shed more than 300,000 jobs worldwide during the downturn. In Hou- ston, the industry cut more than 80,000 jobs. ’17 promises to be a better year for the industry.  The U.S. Energy Information Administration (EIA) expects West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, to average $53.49 in ’17. Last year, WTI averaged $43.29 a barrel.  Oil consumption continues to grow. The International Energy Agency (IEA) estimates crude demand grew 1.6 million barrels per day (MMbbl/d) in ’16 and forecasts consumption to grow 1.4 MMbbl/d in ’17.  The Oil & Gas Journal projects that U.S. upstream spending will surge 37.8 percent this year to $120 billion. Simmons & Company expects upstream capital spending to increase as much as 60 percent this year.  Many oil field services firms, hoping to recapture concessions made during the downturn, expect to raise prices for the first time in several years. Various media and analysts reports suggest that costs, depending on the service and location, will rise 10 to 20 percent this year.  The North American rig count continues to rise. The fleet stood at 768 the first week of March, up from 489 the same week in March ’16. The industry has added 110 rigs since January 1.  The agreement by the Organization of the Petroleum Exporting Countries and several large producers to cut output by about 1.8 MMbbl/d seems to be holding. The British consulting firm Energy Aspects estimates OPEC compliance approaches 97 percent. The recovery remains fragile, however.  An EIA report in early March that U.S. crude stockpiles have risen to record levels sent the spot price for WTI below $50/barrel for the first time since November ’16.  The OPEC production cuts are holding primarily because Saudi Arabia has reduced its output by more than was stipulated in the agreement. The agreement lasts only through June 30 of this year, at which time the cartel will assess its effectiveness and decide whether to extend the cuts. Most analysts assume they will.  U.S. production continues to grow, offsetting some of OPEC’s production cuts. U.S. crude output averaged an estimated 8.9 MMbbl/d in ’16, and EIA forecasts U.S. output to average 9.2 MMbbl/d in ’17 and 9.7 MMbbl/d in ’18. Ironically, the industry has begun to discuss the possibility that global oil supplies will struggle to keep pace with demand after ’20, risking a spike in prices, unless major new projects are approved. Oil demand will rise in the next five years, passing the symbolic 100 MMbbl/d threshold in ’19 and reaching about 104 MMbbl/d by ’22, the IEA notes. The agency estimates the world consumed 97.3 MMbbl/d in Q4/16.

March 2017 ©2017, Greater Houston Partnership Page 4 But low oil prices have forced many firms to cancel plans for large-scale investments around the world. Energy Aspects estimates more than $300 billion in projects have been postponed or cancelled, removing six MMbbl/d in potential supply. Production from U.S. shale will be able to fill part of the gap, but significant investment in conventional resources is needed as well. Without that investment, the world could face another crude shortage in five years, caus- ing prices to spike and the boom-bust cycle to start again.

*Former Soviet Union Source: Energy Aspects

Location, Location, Timing — Houston’s housing market continues to perform well despite the weak economy. Brokers closed on 6,111 homes in February ’17. That’s the best February on record. For the 12 months ending February ’17, brokers closed on 91,564 homes. That’s the best 12-month period on record. Houston, however, is slowly shifting from a seller’s to a buyer’s market. Home prices rose only 4.0 percent over the past 12 months.3 That rate compares with double-digit price increases at the height of the boom. An alternate measure, the Freddie Mac House Price Index, suggests that home values have been flat since mid-year ’16. John Burns Consulting forecasts home values to slip 0.4 percent this year.

3 Reflects the median price for a single-family home. To account for seasonal influences, the calculation is based on the median price averaged over the previous 12 months.

March 2017 ©2017, Greater Houston Partnership Page 5 The number of homes listed for Houston-Area Home Sales sale in the Houston Association 12-Month Total of Realtors® Multiple Listing Service database in February 100 was up 12 percent compared to 90 February last year.4 80 Single-family inventory was 70

3.5 months in February, up 60 Home Home Sales (000) from the record low of 2.5 50 months in January ’15, the peak 40 of the sellers’ market.5 Conven- '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 tional wisdom holds that six Source: Houston Association of Realtors months of inventory represents a balanced market. For perspective, housing inventory across the U.S. stands at a 3.6-month supply according to the National Association of Realtors. The time it takes for the average home to sell continues to creep up, from 45 days during summer ’15, the peak of the buying frenzy, to 66 days in February. MetroStudy forecasts Houston builders will start 26,500 single-family homes this year, down about 2,500 from the 25-year average. Though starts will dip, Houston should still rank second in total housing starts. Dallas-Fort Worth will likely rank first.

We’re Different — Houstonians are more likely to live in larger homes and have lower housing costs than their counterparts in competing metros, but they also tend be somewhat less satisfied with their neighborhood, perceive their neighbors as having more petty crime, rate local transit services poorly, and be more concerned about potential natural disasters. That’s according to the U.S. Census Bureau’s 2015 American Housing Survey, the agency’s biennial review of the nation’s housing characteristics. The survey gathers data on housing quality, neighborhood characteristics, ownership and rentals costs, moving trends and food insecurities. The bureau conducts the survey to provide a better understanding of housing conditions to policy makers, academics and economists. The survey looks at 15 of the nation’s largest metro areas plus a handful of smaller metros. Details on how Houston compares with several peer metros and across several categories appear below. The full survey can be found here.

4 Again, based on a 12-month average. 5 Reflects he number of months it will take to deplete current inventory for the single-family homes market based on the prior 12 months’ sales activity.

HOUSING CHARACTERISTICS, HOUSTON VS. SELECTED LARGE METROS Los Phila- Characteristics Houston Atlanta Boston Chicago Dallas Miami Phoenix Seattle Angeles delphia Total Units (000s) 2,501.9 2,239.2 1,917.3 3,812.1 2,686.7 4,585.1 2,508.2 2,455.4 1,860.0 1,530.0 Median Home Size (sq ft) 1,700 1,800 1,500 1,462 1,550 1,300 1,300 1,540 1,600 1,500 Lot Size % Lots 1/8 – 1/4 acre 55.7 18.4 26.5 43.7 59.3 59.5 54.4 19.9 60.2 43.7 % Lots 1/4 – 1/2 acre 14.8 31.8 23.6 19.2 15.8 10.8 12.7 17.5 12.1 17.7 % 1/2 – 1 acre 4.4 18.3 16.6 5.1 4.1 2.1 3.1 9.7 2.7 6.3 Median Housing Costs Monthly Total Costs - $ 984 1,026 1,402 1,039 1,004 1,370 1,133 1,072 1,013 1,307 Median As % of HH Income 20 20 21 21 20 26 27 20 20 21 Monthly Mortgage - $ 865 854 1,362 935 825 1,507 933 1,000 890 1,262 Monthly Rent 795 820 1,100 863 800 1,200 1,050 850 810 1,100 Opinion of Neighborhood (% agreeing with statement) Has Good schools 81.1 78.1 83.7 79.6 82.1 75.8 78.0 76.0 76.4 77.9 Has Lots of Petty Crime 24.2 13.9 14.1 17.8 16.1 24.6 18.8 15.6 19.6 21.5 Has Good Transit Service 34.6 28.0 64.8 64.2 35.2 70.6 56.7 62.4 47.0 61.5 High Risk Natural Disaster 18.1 2.6 4.4 8.9 4.6 8.3 19.0 4.8 5.4 4.0 Overall Opinion of Present Neighborhood (1 = worst, 10 = best) % Rating 10 23.4 30.9 32.8 25.7 24.1 23.2 30.2 28.1 29.4 20.7 % Rating 7 - 9 54.8 53.4 52.1 57.8 56.9 55.9 52.3 53.4 53.5 60.5 % Rating 4 - 6 14.9 10.9 10.3 10.7 12.9 14.8 12.5 4.2 12.3 12.5 % Rating 1 - 3 3.0 1.9 1.2 2.7 2.3 2.1 2.0 2.4 1.8 1.4 Source: U.S. Census Bureau’s 2015 American Housing Survey Note: Some percentages do not add up due to nonrespondents. Back in the Top 10 — Houston exhibited strong economic growth in the aftermath of the Great Recession, according to a new report by the Brookings Institution. The study, released by the Brookings Metropolitan Policy Program, measured economic performance in three categories—growth, prosperity and inclusion—between ’10 and ’15 in the largest 100 metropolitan areas. Among these, Houston ranked fifth in growth, second in prosperity and 64th in inclusion. Each category is measured by the percent change in the following indicators: Growth Prosperity Inclusion Between ’10 and ’15, Hou- Gross Metropolitan Product Productivity Median Wage ston’s gross metropolitan Number of Jobs Average Annual Wage Relative Poverty Rate product (GMP) increased Jobs at Young Firms Standard of Living Employment Rate 28.5 percent, the second- highest rate in the country. The job count grew 16.7 percent and the number of jobs at young firms, suggesting strong entrepreneurial impact, increased by 11.3 percent. Houston ranked among the top 10 metros across each indicator in the prosperity category, which captures changes in wealth and income. Houston’s productivity increased 10.1 percent, the standard of living, 14.9 percent, and average annual wage, 8.4 percent.

The only category where Houston failed to rank among the top 10 was under inclusion, where it ranked 64th. Inclusion indicators measure how the benefits of growth and prosperity are distributed among individuals. While Houston’s employment rate increased by 3.1 percent and median wages increased by 7.5 percent, the relative poverty rate also increased by 5.3 percent—the fifth worst rate among all metros.

BROOKINGS INSTITUTION GROWTH RANKINGS The good news is that the employment rate in- Rankings Metro Area creased for all racial/ethnic groups and for Growth Prosperity Inclusion Houston 5 2 64 those in all educational attainment levels (e.g., Dallas 11 15 55 high school diploma only, some college/asso- Atlanta 20 59 40 ciate degree or bachelor’s degree or higher). Miami 21 71 23 The bad news is that the relative poverty rate Boston 36 29 57 increased for all racial/ethnic groups except New York 41 65 67 Chicago 49 41 41 Asians, and for those whose highest level of ed- Los Angeles 52 25 36 ucation is a high school diploma, some college, Washington, DC 65 93 86 or an associate degree. Philadelphia 75 54 74 Source: Brookings, Metro Monitor Overall, Brookings found that metros with a focus on advanced industries and research/technology, such as energy, tended to fare better than others. And even though Houston showed strong performance in GMP, job growth, wage increases, productivity and employment rates, some groups were left behind.

Patrick Jankowski, Jenny Philip, and Nadia Valliani contributed to the March issue of Houston: The Economy at a Glance.

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Aviation — The Houston Airport System handled 4.33 million passengers in January ’17, down 2.4 percent from the 4.44 million handled in January ’16. Domestic passengers totaled 3.37 million, down 2.0 percent from 3.44 million. International passengers totaled 965,114, down 3.7 percent from 1.0 million. Building Permits — City of Houston building permits totaled $637.9 million in January ’17, up 59.4 percent from $400.1 million in January ’16, according to the latest data released by the City’s Department of Public Works & Engineering Planning & Development Services. The reading marks the first over-the-year increase since June ’16. For the 12 months ending January ’17, city building permits totaled $6.9 billion, down 14.8 percent from $8.0 billion in the 12 months ending January ’16.. Construction Starts — Construction starts in the Houston region totaled $1.274 billion in January, a 26.1 percent drop from $1.724 billion in January of ’16, according to the latest report from Dodge Data & Analytics. Residential starts rose 2.8 percent while nonresidential starts fell 44.7 percent.

Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 2.5 percent nationwide from January ’16 to January ’17, according to the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) increased 2.3 percent since January ’16. Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 54.2 in February, signaling economic expansion in metro Houston for the fifth consecutive month, according to the latest report from the Institute for Supply Management-Houston (ISM-Houston). The February reading is unchanged from January.

Sales Tax Collections — City of Houston sales tax collections totaled $162.6 million through the first quarter of this year, down 1.8 percent from $165.6 million from the same period last year.

Vehicle Sales — Houston-area auto dealers sold 20,889 vehicles in January, a slight increase from 20,825 vehicles in January ’16, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. The average retail sales price per vehicle in Houston in January was $36,719, up 1.0 percent from $36,357 in January of last year. Over the previous 12 months (February ’16 through January ’17), local dealers sold 299,619 vehicles, down 20.4 percent from the 376,300 sold over the prior 12 months.

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Total Nonfarm Payroll Jobs 3,036.0 3,021.6 3,017.3 14.4 18.7 0.5 0.6 Total Private 2,620.9 2,606.6 2,617.0 14.3 3.9 0.5 0.1 Goods Producing 523.3 519.0 547.9 4.3 -24.6 0.8 -4.5 Service Providing 2,512.7 2,502.6 2,469.4 10.1 43.3 0.4 1.8 Private Service Providing 2,097.6 2,087.6 2,069.1 10.0 28.5 0.5 1.4

Mining and Logging 86.3 85.7 96.7 0.6 -10.4 0.7 -10.8 Oil & Gas Extraction 47.7 48.0 54.6 -0.3 -6.9 -0.6 -12.6 Support Activities for Mining 36.0 35.9 40.8 0.1 -4.8 0.3 -11.8

Construction 214.9 215.4 217.4 -0.5 -2.5 -0.2 -1.1

Manufacturing 222.1 217.9 233.8 4.2 -11.7 1.9 -5.0 Durable Goods Manufacturing 137.2 134.5 151.9 2.7 -14.7 2.0 -9.7 Nondurable Goods Manufacturing 84.9 83.4 81.9 1.5 3.0 1.8 3.7

Wholesale Trade 164.5 163.4 166.6 1.1 -2.1 0.7 -1.3

Retail Trade 318.2 314.3 315.3 3.9 2.9 1.2 0.9

Transportation, Warehousing and Utilities 144.6 140.6 144.4 4.0 0.2 2.8 0.1 Utilities 16.1 16.2 16.3 -0.1 -0.2 -0.6 -1.2 Air Transportation 21.6 21.6 21.6 0.0 0.0 0.0 0.0 Truck Transportation 24.6 24.7 25.0 -0.1 -0.4 -0.4 -1.6 Pipeline Transportation 10.9 10.9 10.7 0.0 0.2 0.0 1.9

Information 33.4 33.1 32.1 0.3 1.3 0.9 4.0 Telecommunications 14.1 14.1 14.3 0.0 -0.2 0.0 -1.4

Finance & Insurance 100.3 100.0 97.6 0.3 2.7 0.3 2.8

Real Estate & Rental and Leasing 56.3 55.9 55.5 0.4 0.8 0.7 1.4

Professional & Business Services 472.5 473.0 473.0 -0.5 -0.5 -0.1 -0.1 Professional, Scientific & Technical Services 217.0 216.5 220.9 0.5 -3.9 0.2 -1.8 Legal Services 25.0 24.8 24.9 0.2 0.1 0.8 0.4 Accounting, Tax Preparation, Bookkeeping 25.6 25.1 25.1 0.5 0.5 2.0 2.0 Architectural, Engineering & Related Services 65.2 65.0 70.4 0.2 -5.2 0.3 -7.4 Computer Systems Design & Related Services 32.9 32.5 32.3 0.4 0.6 1.2 1.9 Admin & Support/Waste Mgt & Remediation 218.3 219.9 214.1 -1.6 4.2 -0.7 2.0 Administrative & Support Services 206.4 208.0 202.5 -1.6 3.9 -0.8 1.9 Employment Services 82.2 81.7 80.1 0.5 2.1 0.6 2.6

Educational Services 59.4 59.6 57.1 -0.2 2.3 -0.3 4.0

Health Care & Social Assistance 328.1 326.1 318.1 2.0 10.0 0.6 3.1

Arts, Entertainment & Recreation 32.7 32.7 31.3 0.0 1.4 0.0 4.5

Accommodation & Food Services 280.4 281.7 271.0 -1.3 9.4 -0.5 3.5

Other Services 107.2 107.2 107.1 0.0 0.1 0.0 0.1

Government 415.1 415.0 400.3 0.1 14.8 0.0 3.7 Federal Government 29.4 28.6 28.3 0.8 1.1 2.8 3.9 State Government 85.3 85.2 80.9 0.1 4.4 0.1 5.4 State Government Educational Services 50.5 50.6 47.2 -0.1 3.3 -0.2 7.0 Local Government 300.4 301.2 291.1 -0.8 9.3 -0.3 3.2 Local Government Educational Services 212.8 212.7 205.0 0.1 7.8 0.0 3.8

SOURCE: Texas Workforce Commission

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Feb '17 744 532 39.8 713 * 600 * 18.8 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Jan '17 52.49 32.64 60.8 52.49 * 32.64 * 60.8 Spot Natural Gas ($/MMBtu, Henry Hub) Jan '17 3.32 2.12 56.6 3.32 * 2.12 * 56.6 UTILITIES AND PRODUCTION Houston Purchasing Managers Index Feb '17 54.2 44.4 22.1 54.2 * 45.1 * 20.2 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Jan '17 4,620,455 4,416,725 4.6 4,620,455 4,416,725 4.6 CONSTRUCTION Total Building Contracts ($, Houston MSA) Jan '17 1,274,751,000 1,724,123,000 -26.1 1,274,751,000 1,724,123,000 -26.1 Nonresidential Jan '17 580,082,000 1,048,372,000 -44.7 580,082,000 1,048,372,000 -44.7 Residential Jan '17 694,669,000 675,751,000 2.8 694,669,000 675,751,000 2.8 Building Permits ($, City of Houston) Jan '17 637,896,584 400,092,629 59.4 637,896,584 400,092,629 59.4 Nonresidential Jan '17 452,090,627 259,425,039 74.3 452,090,627 259,425,039 74.3 New Nonresidential Jan '17 187,679,619 100,643,691 86.5 187,679,619 100,643,691 86.5 Nonresidential Additions/Alterations/Conversions Jan '17 264,411,008 158,781,348 66.5 264,411,008 158,781,348 66.5 Residential Jan '17 185,805,957 140,667,590 32.1 185,805,957 140,667,590 32.1 New Residential Jan '17 164,404,366 112,232,345 46.5 164,404,366 112,232,345 46.5 Residential Additions/Alterations/Conversions Jan '17 21,401,591 28,435,245 -24.7 21,401,591 28,435,245 -24.7 Multiple Listing Service (MLS) Activity Property Sales Feb '17 6,111 5,707 7.1 11,127 10,660 4.4 Median Sales Price - SF Detached Feb '17 220,000 204,990 7.3 215,000 0 203,495 * 5.7 Active Listings Feb '17 35,685 33,159 7.6 35,322 * 32,710 * 8.0 EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Dec '16 3,036,000 3,017,300 0.6 3,000,600 * 2,995,900 * 0.2 Goods Producing (Natural Resources/Mining/Const/Mfg) Dec '16 523,300 547,900 -4.5 530,317 0 566,883 * -6.5 Service Providing Dec '16 2,512,700 2,469,400 1.8 2,470,283 0 2,429,017 * 1.7 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Dec '16 5.3 4.6 5.2 * 4.6 * Texas Dec '16 4.5 4.2 4.6 * 4.5 * U.S. Dec '16 4.5 4.8 4.9 * 5.3 * TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Jan '17 3,579,186 3,504,028 2.1 3,579,186 3,504,028 2.1 Air Passengers (Houston Airport System) Jan '17 4,333,025 4,438,219 -2.4 4,333,025 4,438,219 -2.4 Domestic Passengers Jan '17 3,367,911 3,435,688 -2.0 3,367,911 3,435,688 -2.0 International Passengers Jan '17 965,114 1,002,531 -3.7 965,114 1,002,531 -3.7 Air Freight (metric tons) Jan '17 34,987 31,852 9.8 34,987 31,852 9.8 CONSUMERS New Car and Truck Sales (Units, Houston MSA) Jan '17 27,568 27,410 0.6 27,568 27,410 0.6 Cars Jan '17 9,426 9,887 -4.7 9,426 9,887 -4.7 Trucks, SUVs and Commercials Jan '17 18,142 17,523 3.5 18,142 17,523 3.5 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Q1/16 25,146 25,980 -3.2 25,146 25,980 -3.2 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Jan '16 217.753 212.936 2.3 216.443 * 213.097 * 1.6 United States Jan '16 242.839 236.916 2.5 242.839 * 236.916 * 2.5 Hotel Performance (Houston MSA) Occupancy (%) Q4/16 57.2 64.3 62.3 * 68.6 * Average Room Rate ($) Q4/16 99.05 106.37 -6.9 104.45 * 108.51 * -3.7 Revenue Per Available Room ($) Q4/16 56.67 68.41 -17.2 65.32 * 74.47 * -12.3 Sources: Aviation City of Houston Department of Aviation Building Construction Contracts Dodge Data & Analytics Car and Truck Sales TexAuto Facts Report, InfoNation, Inc., Sugar Land TX City of Houston Building Permits Public Works & Engineering Planning & Development, City of Houston Consumer Price Index U.S. Bureau of Labor Statistics Electricity CenterPoint Energy Employment, Unemployment Texas Workforce Commission Hotels CBRE Houston Purchasing Managers Index Institute for Supply Management-Houston MLS Data Houston Association of Realtors Port Shipments Port of Houston Authority Retail Sales Texas Comptroller’s Office Rig Count Baker Hughes Incorporated

2,500 580 2,400

2,300 540

2,200

500

2,100 Providing Jobs (000s)

Producing Producing Jobs (000s) -

2,000 Goods 460 Service 1,900

420 1,800 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

Percent Civilian Civilian PercentLaborForce 5

3 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Houston Texas U.S. Source: Texas Workforce Commission

A publication of the Greater Houston Partnership Volume 25 Number 9 — September 2016

Millennials Take the Lead — Millennials came of age this year. The youngest will vote in their first presidential election, the oldest will mark a dozen or more years in the workforce. In Houston, Millennials now outnumber Baby Boomers; Generation X and the Greatest Gen- eration. Only Generation Next outnumbers Millennials, which makes sense considering Gen- eration Next is composed of their children and the children of GenXers.

Houston’s Millennial population POPULATION ESTIMATES – METRO HOUSTON – ’14 will continue to grow. For dec- Generation Year of Birth Current Ages Population ades, the region has attracted col- Generation Next ’99 –’16 0-17 1,774,900 Millennials ’82 – ’98 18-34 1,615,100 lege grads and young adults seek- Generation X ’67 – ’81 35-49 1,374,000 ing to launch careers or start a Boomers ’46 – ’66 50-70 1,446,400 new business, though the pace of Greatest Generation Prior to ’45 70+ 376,900 inmigration may slow with the Source: U.S. Census Bureau, 2014 American Community Survey 1-Year PUMS weak economy. And young im- migrants will continue to move here from abroad, lured by opportunities not available in their home countries. Millennials and GenXers will have more babies; Generation Next will continue to grow. But Houston’s Boomer population will shrink, the flow of older migrants into the region not enough to offset the losses due to death or the outmigration to communities favored by retirees, such as Kerrville, Wimberley, and Georgetown. Because they constitute the second largest share of Houston’s population, Millennials have an outsized influence on Houston’s economy, politics and cultural scene, just as the Baby Boom- ers did 30 years ago. But the two generations followed different paths before as- Each Generation's Share of suming the role. Boomers came of age with Metro Houston Population the Vietnam War, the scandal of Wa- tergate, and the success of the Apollo pro- Generation X 20.9% Generation gram. Millennials came of age with the Next 26.9% 9/11 attacks, the devastation of the Great Greatest Recession, and the birth of the Internet. Generation The fight for civil and women’s rights 5.7% dominated Boomers’ early adulthood. Global climate change and LGBT issues now hold Millennials’ attention. When Boomers Millennials Boomers entered the workforce, the U.S. 22.0% 24.5% economy grew four to six percent a year. Source: U.S. Census Bureau

Today, the nation struggles to grow at two percent. Inflation topped 14 percent early in the Boomers’ careers. Millennials have never known more than very modest inflation. Many Boomers grew up with stay-at-home moms; many Millennials were raised in single-parent households. The Pew Research Center has studied how Millennial viewpoints differ from those of other generations, especially those of Baby Boomers. Pew has found that:  50 percent of Millennials identify themselves as political independents; only 37 percent of Boomers classify themselves as such.  29 percent of Millennials don’t affiliate with any religion; 16 percent of Boomers feel the same.  19 percent of Millennials believe people can generally be trusted; 40 percent of Boomers feel they can. The Generation Gap — To a large extent, Boomers pull the region’s profile one way, the Millennials another, with Houston’s overall profile falling somewhere in the middle. For example, among Boomers, whites outnumber all other racial and ethnic groups. Among Millen- nials, Hispanics are the largest group. As a result, the Anglo and Hispanic populations are balanced today, but as the Boomer population declines, Hispanics will represent a larger share of the metro Houston population. Houston Racial/Ethnic Composition White Black Hispanic Asian Other

Boomers 51.2% 16.6% 23.4% 7.4% 1.4%

Metro 37.8% 16.8% 36.3% 7.3% 1.8% Population

Millennials 32.3% 18.0% 40.7% 7.3% 1.7%

Source: U.S. Census Bureau, 2014 American Community Survey 1-Year PUMS Boomers tend to be better educated than Millennials, with a higher share of the Boomer population holding associate’s, bachelor’s or graduate degrees. This difference is likely due to the trailing edge of the Millennial generation still being enrolled in school. Most Boomers completed their education decades ago. It may also result from the larger number of Hispanics, who tend to have lower levels of educational attainment, in the Millennial population. Nearly one-third of Millennials have some college, including those currently enrolled plus those who started but never graduated. When those currently enrolled eventually complete their educa- tions, the population of degree-holding Millennials should grow.

Surprisingly, a larger share of Mil- EDUCATIONAL ATTAINMENT IN HOUSTON lennials than Boomers have gradu- % of Population 25+ Years and Older ated from high school. Several fac- Highest Level of Completion Total Pop Millennials Boomers tors may account for this differ- Less than 9th grade 9.5 5.0 9.6 ence. For one, society now places a 9th to 12th grade, no diploma 8.5 10.6 7.8 greater emphasis on completing High school graduate 22.9 26.8 23.1 Some college, no degree 21.9 29.4 22.9 high school than when Boomers Associate's degree 6.2 5.7 6.4 were young. Second, local busi- Bachelor's degree 19.8 16.2 18.9 nesses and institutions have pro- Graduate or professional degree 11.2 6.2 11.3 grams to help struggling students Source: 2014 American Community Survey earn their diplomas, resources not available when Boomers were young. And third, many Boomers grew up in an era when a high school dropout could work in a factory or at a construction site and still earn a decent wage.

Millennials now outnumber Boomers in the local workforce. Two factors account for the gap. The Millennial population is simply larger and the leading edge of the Boomer generation has already retired. However, Boomers in the workforce are more likely than Millennials to be employed. The data don’t suggest why this is the case, but a Brookings Institution survey provides some insight. In a national survey of Millennials, 64 percent of respondents said they would rather make $40,000 per year at a job they like rather than $100,000 per year at a job they consider boring. WORKFORCE PARTICIPATION IN HOUSTON – ’14 Boomers still represent Total Population Millennials Boomers Status Number % Number % Number % the bulk of the workforce In labor force 3,302,314 67.1 1,221,510 75.6 927,913 64.2 in Houston’s mining, Employed 3,112,384 94.3 1,125,575 92.2 892,015 96.1 manufacturing, transpor- Unemployed 187,877 3.8 94,743 7.8 35,812 3.9 tation, warehousing and Not in labor force 1,619,380 32.9 393,603 24.4 518,446 35.8 utility, education, health * Metro Houston population 16 years old and older. care and public service Note: Percentages may not sum to 100 due to rounding. Source: 2014 American Community Survey sectors. Millennials domi- nate employment in construction, retail trade, information, professional services, hotels, food services, and other services. In some sectors, it’s obvious why Boomers outweigh Millennials, or vice versa. For example, from the late ’80s to the mid-’00s, when oil prices seemed perpetually low, the mining (i.e., energy) sector hired few workers. As a result, the sector is now top-heavy with Baby Boomers. Manufacturing and health care require high-level skills, through either on-the-job training or formal education, so these sectors are more likely to employ older workers. Con- struction requires both strength and stamina, so these occupations are more suited to younger workers. Retail sales and food services require minimal training or experience, making occupations in these industries more suited to those entering the workforce or those with little schooling beyond high school. The information sector includes both media and software development, both the domain of many Millennials.

OCCUPATION BY INDUSTRY – METRO HOUSTON – ’14 Total Metro Millennials Boomers Industry Employment Number % of Metro Number % of Metro Agriculture, forestry, fishing and mining 132,083 46,199 35.0% 51,701 39.1% Construction 287,697 118,590 41.2 84,337 29.3 Manufacturing 319,868 112,292 35.1 129,941 40.6 Wholesale trade 119,746 42,014 35.1 43,200 36.1 Retail trade 326,322 205,873 63.1 101,897 31.2 Transportation, warehousing, and utilities 182,545 56,833 31.1 74,946 41.1 Information 39,285 19,376 49.3 11,861 30.2 Finance, insurance, real estate 180,945 67,307 37.2 67,341 37.2 Professional services 391,054 161,460 41.3 141,556 36.2 Health care and educational services 607,774 227,039 37.4 243,208 40.0 Art, recreation, sports, hotels, food services 257,955 194,501 75.4 50,356 19.5 Other services 175,358 75,159 42.9 60,865 34.7 Public administration 91,752 31,772 34.6 38,861 42.4 Source: U.S. Census Bureau The Pew Center found that only 26 percent of Millennials in the U.S. are married compared to 48 percent of Boomers who were married when they were the same age. Reasons often cited for Millennials delay include the shaky economy, high levels of student debt, women wanting to establish careers before marriage, MARITAL STATUS OF THE METRO HOUSTON RESIDENTS 15 YEARS OLD OR OLDER and the belief that one Status Metro Houston Millennials Boomers can be happy without Estimate % Estimate % Estimate % being married. Hous- Total 5,020,015 100.0 1,615,113 100.0 1,446,359 100.0 ton, however, some- Never married 1,690,160 33.7 1,016,081 62.9 137,719 9.5 what diverges from the Now married 2,490,445 49.6 515,405 31.9 940,597 65.0 national trend. Nearly Separated 123,845 2.5 26,677 1.7 42,808 3.0 one-third of Houston’s Widowed 222,441 4.4 2,952 0.2 84,485 5.8 Millennials are mar- Divorced 493,124 9.8 53,998 3.3 240,750 16.6 ried. Add in those who Note: Percentages may not sum to 100 due to rounding. are separated, widowed Source: U.S. Census Bureau or divorced, and 37.1 percent of Houston’s Millennials have experienced marriage at some time in their lives. Over time, that percentage is likely to rise, but whether Millennials reach the marriage rates of the Boomer generation remains to be seen. Not Just Birkenstocks and Garages – Startups and new businesses grab headlines for their relaxed company culture or generous employee benefits, but they are also important drivers of economic growth. According to the Kauffman Foundation, new and young companies are the primary source of job creation in the American economy and spur innovation.

The Houston metro area was home to 24,116 firms that have been in business three years or AGE OF FIRMS IN METRO HOUSTON less1 as reported by the inaugural 2014 An- # of years in # of firms % of total firms business nual Survey of Entrepreneurs from the U.S. <2 years 9,569 9.8 Census Bureau. These young firms repre- 2 to 3 years 14,547 15.0 sented 6.3 percent of total employment and 4 to 5 years 10,072 24.8 percent of total firms, more than the 22.2 10.4 6 to 10 years 20,835 percent share of young firms nationwide. 21.4 Among U.S. metro areas, Houston ranked 11 to 15 years 36,007 37.0 seventh in its share of entrepreneurial firms, >16 years 6,212 6.4 below Austin (27.0 percent) and barely edg- Source: U.S. Census Bureau, Annual Survey of Entrepreneurs ing out Silicon Valley (24.7 percent). Some sectors were more prone to entrepreneurial activity Houston Innovation Map than others. A third of the firms in accommodation and food services were in business three years or less. Within the oil and gas sector, 29.3 percent of its firms were entrepreneurial, and 27.0 percent of professional, scientific, and technical services firms were young. The Annual Survey of Entrepreneurs reflects data collected in ’14, the last year of the energy boom, which may have supported strong entrepreneurial activity in the oil and gas sector. Click here to view the map. Future releases of the survey will show how young firm activity changed during the energy downturn. Sectors with lower concentrations of entrepreneurial activity were manufacturing (17.1 percent of firms were in business three years or less) and wholesale trade (16.6 percent). These industries tend to have higher costs and more barriers to entry that inhibit start-up activity. Slowdown in the Showroom – Vehicle Vehicle Sales, 12-Month Total, Houston MSA Total Cars sales in greater Houston continued to 400 weaken in July as monthly car sales 350 dropped to a five-year low, according to 300 data from TexAuto Facts, published by 250 InfoNation, Inc. of Sugar Land. Houston 200 area auto dealers sold 175,908 vehicles 150 through July, a 21.7 percent drop from (000s) Vehicles 100 50 the 224,566 vehicles sold during the 0 same span last year. Sales from the most '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: TexAuto Facts Report by InfoNation

1 For purposes of this commentary, “young” and “entrepreneurial” is defined as a firm in business for three years or less.

September 2016 ©2016, Greater Houston Partnership Page 5 HOUSTON—THE ECONOMY AT A GLANCE recent 12 months were 327,823 vehicles, down 13.2 percent from a peak of 377,705 sold during the 12 months preceding October ’15. The rolling 12-month total has fallen for seven consecutive months. In July, new vehicle sales totaled 22,145, a 38.1 percent drop from July ’15. Although overall vehicle sales are down, low fuel costs are boosting truck/SUV market share to record levels. The 7,843 cars that sold in July, a 45.7 percent drop from July ’15, were the fewest sold in a single month since September ’11. The drop in car sales has increased the market share for trucks and SUVs, which accounted for a record 64.6 percent of vehicles sold in July. Vehicle prices also are beginning to Market Share, 12-Month Avg, Houston MSA Cars Trucks drop. The average retail price for a 70 new vehicle in metro Houston was 65 $34,659 in July, a 4.7 percent de- 60 crease from the January peak of 55 $36,357. The average price has 50 fallen for three consecutive months. 45

The increased share of higher- (%) Share Market 40 priced trucks and SUVs has not 35 been enough to offset the discounts 30 offered by dealerships as they com- '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 pete in a weakened market. Source: TexAuto Facts Report by InfoNation Ford is the top selling auto maker in the Houston region, with 30,161 vehicles sold through July. Rounding out the top five are Toyota (29,942), General Motors (27,482), Fiat-Chrysler (23,347), and Nissan (16,110). The only manufacturers to beat their year-to-date sales totals from this time last year are Volvo, up 20.1 percent with 670 sales, and Tesla, up 11.2 percent with 228 sales. Employment Update — Metro Houston lost 8,600 jobs in July, according to data from the Texas Workforce Commission. Houston always experiences significant job losses mid-year as educators on 10-month contracts are without work during the summer. This year’s loss fell well below the typical loss of 15,000 jobs for the month. July’s job losses will likely be recouped when September data is released, which will reflect the resumption of school. On a seasonally adjusted basis, the region has added jobs in three of the past four months, adding 3,700 in July. Seasonally adjusted employment is only 5,700 jobs below Houston’s January ’16 peak. Of note, the mining and logging sector, which has averaged losses of 1,500 jobs per month since January ’15, lost only 300 jobs in July. From early June to mid-July, crude prices averaged $48 per barrel. Over the same period, the U.S. drilling fleet added 54 rigs. Those two trends suggest the energy industry may have seen the worst of the downturn. As a result, energy-related job losses have begun to moderate.

Sectors recording notable growth in July were professional and business services (+5,100 jobs), construction (+2,100), and trade, transportation and utilities (+1,500). Sectors recording notable job losses included local government education services (-14,400) and health care (-1,200). Energy Snapshot —West Texas Intermediate (WTI), the U.S. benchmark for light sweet crude, opened the first trading day of August at $40.06 and closed the last trading day of the month at $46.97. Since WTI hit bottom at $26.19 in mid-February the price has jumped 79 percent. The U.S. Energy Information Administration’s (EIA) September ’16 Short-Term Energy Outlook projects WTI to average $51 a barrel in ’17. That’s an improvement from March ’16, when EIA forecast WTI to averge $40 a barrel next year. The last week of August saw 497 drilling rigs working in the United States, up from the late- May trough of 404 but down from 864 the same week last year. Through the first eight months of this year, 17,390 drilling permits were issued for onshore, shallow offshore and the deepwaters of the Gulf of Mexico. That compares with 30,666 permits issued over the same period last year. EIA expects global consumption to increase by 1.4 million barrels per day (bbl/d) in ’17, mostly driven by growth in countries outside of the Organization for Economic Cooperation and Development. EIA expects non-OPEC production to decline by 0.2 million bbl/d in ’17, and for OPEC crude oil production to drop by 0.5 million bbl/d. OPEC surplus crude oil production capacity is expected to be 1.3 million bbl/d next year. Surplus capacity below 2.5 million bbl/d indicates a relatively tight oil market. However, global oil inventories currently exceed 3.1 billion barrels, diminishing the influence OPEC’s low surplus capacity has on prices.

Save the Date — The Greater Houston Partner- ship’s 2017 Economic Outlook event is scheduled for Friday, December 9, at the Royal Sonesta Hotel. The event will feature a panel of experts discussing the outlook for energy, health care, real estate, construction and professional services in the coming year. The Partnership’s employment forecast for 2017 will be presented. And Kevin Swift, chief economist for the American Chemistry Council, will be the luncheon keynote speaker. Additional details about the event and how to purchase tickets will be posted at the Partnership’s website, www.houston.org, starting mid-October.

WE ARE MOVING – The Greater Houston Partnership will move into our new home at Partnership Tower on September 12. Our new space, located on the east side of downtown at 701 Avenida de las Americas, will open to our members and guests in early October. For more information about the move, click here.

SNAPSHOT — KEY ECONOMIC INDICATORS

Aviation — The Houston Airport System handled 32.1 million passengers through the first seven months of this year, up 0.4 percent from the 32.0 million handled over the same period in ’15. Domestic passengers totaled 25.1 million, down 2.4 percent from 25.7 million handled YTD in ’15. International passengers totaled 7.0 million, up 11.6 percent from the 6.3 million handled YTD in ’15. Building Permits — City of Houston building permits totaled $962.3 million in July ’16, down 1.6 percent from $978.3 million in July ’15, according to the latest data released by the City’s Department of Public Works & Engineering Planning & Development Services. Year-to-date, city building permits totaled $4.4 billion, down 8.6 percent from $4.8 billion over the same period in ’15.

Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.8 percent nationwide from July ’15 to July ’16, according to the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) increased 2.2 percent since July ’15.

Home Sales — Houston-area single-family home sales slipped 8.8 percent from 7,898 in July ’15 to 7,204 in July ’16. The July decrease is the first over-the-year drop since January ’16, according to the Houston Association of Realtors®. Year to date, single-family home sales totaled 43,661, up 0.7 percent from 43,346 sales during the same period in ’15. The median price for a single-family home sold in metro Houston rose 4.1 percent to $230,000, the highest on record for a July and the second highest of all time. The average sales price dropped 0.5 percent to $292,316.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 43.8 in July, up slightly from 43.7 in June, according to the latest report from the Institute for Supply Management-Houston. With the July reading, the PMI has signaled economic contraction in Houston for 19 consecutive months.

Sales Tax Collections — City of Houston sales tax collections totaled $427.4 million through August of this year, down 4.5 percent from $447.5 million from the same period last year.

Patrick Jankowski, Roel Martinez, Josh Pherigo, Nadia Valliani and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from July '16 June '16 July '15 June '16 July '15 June '16 July '15

Total Nonfarm Payroll Jobs 2,993.3 3,001.9 2,980.0 -8.6 13.3 -0.3 0.4 Total Private 2,619.9 2,614.1 2,614.5 5.8 5.4 0.2 0.2 Goods Producing 535.7 534.1 562.7 1.6 -27.0 0.3 -4.8 Service Providing 2,457.6 2,467.8 2,417.3 -10.2 40.3 -0.4 1.7 Private Service Providing 2,084.2 2,080.0 2,051.8 4.2 32.4 0.2 1.6

Mining and Logging 86.5 86.8 99.9 -0.3 -13.4 -0.3 -13.4 Oil & Gas Extraction 50.2 50.4 53.5 -0.2 -3.3 -0.4 -6.2 Support Activities for Mining 37.2 36.8 45.0 0.4 -7.8 1.1 -17.3

Construction 217.9 215.8 217.5 2.1 0.4 1.0 0.2

Manufacturing 231.3 231.5 245.3 -0.2 -14.0 -0.1 -5.7 Durable Goods Manufacturing 146.1 146.7 163.9 -0.6 -17.8 -0.4 -10.9 Nondurable Goods Manufacturing 85.2 84.8 81.4 0.4 3.8 0.5 4.7

Wholesale Trade 170.1 169.9 172.8 0.2 -2.7 0.1 -1.6

Retail Trade 308.8 307.9 300.8 0.9 8.0 0.3 2.7

Transportation, Warehousing and Utilities 137.9 137.5 138.3 0.4 -0.4 0.3 -0.3 Utilities 16.1 16.2 16.1 -0.1 0.0 -0.7 0.0 Air Transportation 21.8 21.9 21.8 -0.1 0.0 -0.5 0.0 Truck Transportation 25.3 25.1 25.9 0.2 -0.6 0.8 -2.3 Pipeline Transportation 10.9 10.8 10.7 0.1 0.2 0.9 1.9

Information 30.5 31.2 32.9 -0.7 -2.4 -2.2 -7.3 Telecommunications 13.9 14.0 14.2 -0.1 -0.3 -0.7 -2.1

Finance & Insurance 99.1 98.5 96.5 0.6 2.6 0.6 2.7

Real Estate & Rental and Leasing 56.0 56.0 55.6 0.0 0.4 0.0 0.7

Professional & Business Services 463.7 458.6 473.7 5.1 -10.0 1.1 -2.1 Professional, Scientific & Technical Services 214.7 210.5 219.7 4.2 -5.0 2.0 -2.3 Legal Services 24.4 24.5 24.8 -0.1 -0.4 -0.4 -1.6 Accounting, Tax Preparation, Bookkeeping 23.8 23.5 22.4 0.3 1.4 1.3 6.3 Architectural, Engineering & Related Services 65.8 65.3 72.0 0.5 -6.2 0.8 -8.6 Computer Systems Design & Related Services 32.6 32.3 33.5 0.3 -0.9 0.9 -2.7 Admin & Support/Waste Mgt & Remediation 213.7 212.3 216.9 1.4 -3.2 0.7 -1.5 Administrative & Support Services 201.7 200.3 205.3 1.4 -3.6 0.7 -1.8 Employment Services 77.5 76.3 80.1 1.2 -2.6 1.6 -3.2

Educational Services 56.4 57.0 53.6 -0.6 2.8 -1.1 5.2

Health Care & Social Assistance 325.2 326.4 313.2 -1.2 12.0 -0.4 3.8

Arts, Entertainment & Recreation 37.2 37.1 34.5 0.1 2.7 0.3 7.8

Accommodation & Food Services 291.0 290.7 271.3 0.3 19.7 0.1 7.3

Other Services 108.3 109.2 108.6 -0.9 -0.3 -0.8 -0.3

Government 373.4 387.8 365.5 -14.4 7.9 -3.7 2.2 Federal Government 28.4 28.4 28.0 0.0 0.4 0.0 1.4 State Government 71.2 71.6 70.3 -0.4 0.9 -0.6 1.3 State Government Educational Services 38.0 38.5 37.4 -0.5 0.6 -1.3 1.6 Local Government 273.8 287.8 267.2 -14.0 6.6 -4.9 2.5 Local Government Educational Services 186.2 200.6 181.2 -14.4 5.0 -7.2 2.8

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Aug '16 481 883 -45.5 484 * 1,083 * -55.3 Spot Crude Oil Price ($/bbl, West Texas Intermediate) July '16 44.65 50.90 -12.3 40.06 * 52.86 * -24.2 Spot Natural Gas ($/MMBtu, Henry Hub) July '16 2.82 2.84 -0.7 2.18 * 2.82 * -22.7 UTILITIES AND PRODUCTION Houston Purchasing Managers Index July '16 43.8 49.1 -10.8 44.8 * 46.8 * -4.3 Nonresidential Electric Current Sales (Mwh, CNP Service Area) June '16 5,046,097 4,958,740 1.8 27,570,315 26,869,840 2.6 CONSTRUCTION Total Building Contracts ($, Houston MSA) July '16 1,240,479,000 1,389,281,000 -10.7 8,662,113,000 10,680,251,000 -18.9 Nonresidential July '16 521,259,000 401,250,000 29.9 3,310,248,000 4,317,345,000 -23.3 Residential July '16 719,220,000 988,031,000 -27.2 5,351,865,000 6,362,906,000 -15.9 Building Permits ($, City of Houston) July '16 962,304,924 978,344,959 -1.6 4,427,353,634 4,844,251,694 -8.6 Nonresidential July '16 801,108,877 570,456,196 40.4 2,983,371,816 3,090,776,711 -3.5 New Nonresidential July '16 315,413,926 202,629,354 55.7 1,193,018,731 1,559,371,335 -23.5 Nonresidential Additions/Alterations/Conversions July '16 485,694,951 367,826,842 32.0 1,790,353,085 1,531,405,376 16.9 Residential July '16 161,196,047 407,888,763 -60.5 1,443,981,818 1,753,474,983 -17.7 New Residential July '16 131,409,468 377,218,072 -65.2 1,083,708,078 1,600,220,087 -32.3 Residential Additions/Alterations/Conversions July '16 29,786,579 30,670,691 -2.9 360,273,740 153,254,896 135.1 Multiple Listing Service (MLS) Activity Property Sales July '16 8,571 9,374 -8.6 52,456 52,355 0.2 Median Sales Price - SF Detached July '16 230,000 221,000 4.1 218,284 * 211,543 * 3.2 Active Listings July '16 37,952 33,670 12.7 34,758 * 29,884 * 16.3 EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment July '16 2,993,300 2,980,000 0.4 2,989,671 * 2,979,400 * 0.3 Goods Producing (Natural Resources/Mining/Const/Mfg) July '16 535,700 562,700 -4.8 540,971 0 570,529 * -5.2 Service Providing July '16 2,457,600 2,417,300 1.7 2,448,700 0 2,408,871 * 1.7 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA July '16 5.8 5.0 5.0 * 4.5 * Texas July '16 5.1 4.8 4.5 * 4.5 * U.S. July '16 5.1 5.6 5.0 * 5.6 * TRANSPORTATION Port of Houston Authority Shipments (Short Tons) July '16 3,893,616 3,654,829 6.5 26,096,412 28,222,939 -7.5 Air Passengers (Houston Airport System) July '16 5,058,396 5,334,399 -5.2 32,105,884 31,981,906 0.4 Domestic Passengers July '16 3,839,401 4,180,674 -8.2 25,092,403 25,697,028 -2.4 International Passengers July '16 1,218,995 1,153,725 5.7 7,013,481 6,284,878 11.6 Landings and Takeoffs July '16 68,987 71,607 -3.7 456,833 468,746 -2.5 Air Freight (metric tons) July '16 32,421 33,790 -4.1 233,230 242,979 -4.0 Enplaned July '16 15,183 17,468 -13.1 113,511 126,395 -10.2 Deplaned July '16 17,237 16,322 5.6 119,719 116,583 2.7 CONSUMERS New Car and Truck Sales (Units, Houston MSA) July '16 22,145 35,748 -38.1 175,908 224,566 -21.7 Cars July '16 7,843 14,433 -45.7 64,470 92,185 -30.1 Trucks, SUVs and Commercials July '16 14,302 21,315 -32.9 111,438 132,381 -15.8 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) Q4/15 31,941 35,393 -9.8 112,143 125,047 -10.3 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA July '16 217.305 213.896 1.6 215.410 * 212.062 * 1.6 United States July '16 240.647 238.654 0.8 239.049 * 236.606 * 1.0 Hotel Performance (Houston MSA) Occupancy (%) Q1/16 65.8 71.6 68.6 * 72.0 * Average Room Rate ($) Q1/16 109.87 111.50 -1.5 108.56 * 106.88 * 1.6 Revenue Per Available Room ($) Q1/16 72.26 79.87 -9.5 74.51 * 76.98 * -3.2

Sources Rig Count Baker Hughes Incorporated Port Shipments Port of Houston Authority Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Aviation Aviation Department, City of Houston Purchasing Managers National Association of Houston Index Purchasing Management – Car and Truck Sales TexAuto Facts Report, InfoNation, Inc., Houston, Inc. Sugar Land TX Electricity CenterPoint Energy Retail Sales Texas Comptroller’s Office Building Construction Contracts McGraw-Hill Construction Consumer Price Index U.S. Bureau of Labor Statistics City of Houston Building Permits Building Permit Department, Hotels PKF Consulting/HospitalityAsset City of Houston Advisors International MLS Data Houston Association of Realtors Postings, Foreclosures Foreclosure Information &Listing Employment, Unemployment Texas Workforce Commission Service

Nonfarm Payroll Employment, Houston MSA

3,100 150

3,000 120

2,900 90 2,800 60 2,700 30 2,600 0 2,500 -30

2,400

MonthChange (000) -

-60 12 Nonfarm Payroll Employment (000) 2,300

2,200 -90

2,100 -120

2,000 -150 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment

Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s) - -

2,000

Goods Service 460 1,900

420 1,800 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Goods-Producing Jobs Service-Providing Jobs Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8

60 6 Natural $ Gas, /MMBtu

40 4

20 2

0 0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 25 Number 7 — July 2016

Employment Update — Houston area employment was unchanged in May at 2,995,100 jobs, the same level at which employment stood in April. The region lost jobs in several sectors, added jobs in several others, and remained essentially unchanged in a few more. The gains offset the losses, resulting in the zero net job growth for the month. In the 35 years for which employment data are readily available, this stasis is unprecedented—Houston recording neither job gains nor job losses in a month. Examining job growth over a 12-month period helps to smooth out the impact of seasonal factors (retail hiring in the fall, education layoffs in the summer) that occur every year, and helps place current job growth in the context of historical job growth. For the 12 months ending May ’16, the region created 5,100 jobs, a far cry from the 66,400 jobs created in the 12 months ending May ’15, or the 98,500 jobs created in the 12 months ending May ’14. The most recent 12-month total underscores the weakness in Houston’s economy. If Houston experiences job losses in June, something that has occurred only twice in the past 35 years, Houston’s 12-month total may turn negative. That said, the job losses would need to exceed 2,000 to drop Houston into the red for the 12-month total. Metro Houston Nonfarm Payroll Employment 3.1 160

3.0 120

2.9 80

2.8 40

2.7 0 MomthChange (000s)

2.6 -40 -

TotalJob (000s,000s)s 12 2.5 -80

2.4 -120 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Source: Texas Worlforce Commission 12-Month Change Total Employment

Since December ’14, the start of the energy downturn, manufacturing has lost 31,300 jobs, energy, 24,700 jobs, professional services, 18,200 jobs, and trade, transportation and utilities, 12,100 jobs. Over the same period, hotels, restaurants and bars have added 25,600 jobs, health

July 2016 ©2016, Greater Houston Partnership Page 1 HOUSTON—THE ECONOMY AT A GLANCE care, 20,100 jobs, government (mainly education) 9,900 jobs, and arts, entertainment and recreation, 6,300 jobs. Houston’s unemployment rate remained unchanged in May at 4.8 percent. The Texas rate was also unchanged at 4.2 percent. The U.S. rate dropped from 4.7 in April to 4.5 percent in May. The Houston rate is now above that of the U.S. The rates are not seasonally adjusted. On the Bright Side — Despite the current slump, Houston’s long-term outlook remains bright, according the latest report by The Perryman Group.1 “The Houston-The Woodlands- Sugar Land MSA has stabilized after adjusting to job losses associated with lower oil prices,” the report notes. “Although additional fallout may well occur, it appears that the area is set for stronger growth. Over the long term, oil price recovery will lead to a resurgence in energy sector businesses, adding to the expansion across the rest of the area economy.” Perryman forecasts Houston’s real gross area product (GAP) to grow at a 3.35 percent annual rate over then next 25 years, top- Real Gross Area Product Forecast, Billions* ping $1.12 trillion in ’40. Almost Houston-The Woodlands-Sugar Land MSA 1.63 million net new jobs are pro- $1,123.4 jected to be gained over the forecast $993.1 period, a 1.70 percent annual rate. $861.0 Every sector except agriculture will $731.5 add jobs, with wholesale/retail $608.6 trade, government (which includes $492.7 public education), and services accounting for 85 percent of all growth. Output will expand in every sector, with mining, manufacturing, and services representing '15 '20 '25 '30 '35 '40 Source: The Perryman Group, Summer 2015 61 percent of all gains. The forecast * '09 constant dollars calls for the nine-county metro area population to reach 9.6 million, about the same level as the present-day population of metro Chicago. The report notes that business cycles are inevitable, but that moderate U.S. growth will char- acterize the long-term, with unemployment rates trending downward and tighter labor markets in the future. The report also expects the Federal Reserve to slowly raise target interest rates and the retiring of Baby Boom generation to create skills gaps in some trades and professions. It also expresses concern that a decline in the labor force participation rate could adversely affect U.S. living standards in the future. “With a large and growing percentage of the population not working, pressure will increase for those who do have jobs to generate output, income, and tax receipts,” the report notes.

1 The Perryman Economic Forecast: Long-Term Outlook for the United States, Texas, Major Metropolitan Areas, and Regions, is available for purchase from The Perryman Group, 800-749-8705 or [email protected].

U.S. GDP, measured in ’09 dollars, should more Population and Employment Forecast than double, the U.S. Houston-The Woodlands-Sugar Land MSA* should gain another 63 Population Employment 9.6 8.9 million residents, and 8.2 7.6 the economy should 7.0 support an additional 62 6.5 million jobs by ’40. 4.7 4.1 4.4 3.5 3.8 Despite the oil indus- 3.1 try’s turmoil, the Texas economy continues to expand at a modest '15 '20 '25 '30 '35 '40 pace, the report notes. A Source: The Perryman Group primary reason for the state’s continued success is the increasingly diverse nature of the economy. On balance, The Perryman Group’s most recent long-term forecast indicates the Texas economy is likely to continue to see moderate growth. Ray Perryman, the firm’s president and CEO, expects Texas GDP, measured in ’09 dollars, to more than double, reaching $3.5 billion in ’40, the state to add another 12.0 million residents, bringing the population to 39.0 million, and the Texas economy to create an additional 6.2 million jobs. But he adds a note of caution: “Texas also needs to deal with unfunded pensions; restructure programs in crisis such as indigent health care, foster care, and child protective services; improve education at all levels, and make a dent in infrastructure shortcomings.” Otherwise, he says, the state faces slower growth and the necessity of committing even more resources to public needs. A Trickle, Not a Gusher — Crude prices appear to have bottomed in mid-February. West Texas Intermediate, the U.S. benchmark for light sweet crude, fell to $26.19 on February 11 but has traded in the mid-$40s since mid-April. The U.S. Energy Information Admin- istration forecasts WTI to average $47 per barrel in Q4/16, Wells Fargo, $48.50, and Gold- man Sachs, $50. According to the RigData count, a rival to the better-known Baker Hughes count, the U.S. added 25 rigs in the last week of June. The North American rig count now stands at 450, up from 396 the last week of May. Baker Hughes shows a more modest increase, up 27 rigs, from 404 in late May to 431 the last week of June. In its Short Term Energy Outlook for June, the U.S. Energy Information Administration forecasts global crude consumption to increase by 1.5 million barrels per day in ’16 and by the same amount in ’17. At the beginning of ’16, the global crude surplus was estimated at between 2.0 and 3.0 million barrels per day. Energy may have reached a somewhat mushy bottom, and rather than a bounce back, the recovery will likely be a slow climb.

Location, Location, Location2 — More than 10 million square feet of sublease office space is now in the Houston market. An additional 1 million square feet is expected in Q3/16. The additional sublease space will push Houston’s effective office vacancy rate above 21 percent. Sublease rates are increasingly aggressive, notes CBRE, including some instances of market- ing a $0.0 net rate (operating expenses only), as sublessors try to recoup any costs. Total absorption remains barely positive for the year, with 147,000 square feet leased. This time last year, 1.4 Office Submarkets YTD million square feet had been leased. Nine of region’s 20 Positive Absorption: Allen Parkway, submarkets report year-to-date negative net absorption. Clear Lake, Energy Corridor, Far Though the 20 largest sublease listings are offered by West, Greater Pearland, Katy Free- energy companies, the Energy Corridor has absorbed way, Kingwood, Med Center/South nearly 300,000 square feet year to date. Main, Southwest Freeway, West Belt, Westchase Office construction continues to wind down, with only Negative Absorption: Downtown, 4.2 million square feet underway in Q2/16 compared East, FM 1960, Greenspoint/North to 11.8 million square feet in Q2/15 and 16.3 million Belt, Greenway Plaza, North, North in Q2/14. Only half of the space under construction is Loop, West Loop/Galleria, The preleased, potentially throwing another 2 million Woodlands square feet of empty space onto the market. Developers by and large have tabled plans for new office buildings.

Population growth, high retail demand, and port activity continue to drive industrial leasing activity. Despite a few big-box leases, 84 percent of deals in Q2/16 were for less than 100,000 square feet. Developers delivered 1.6 million square feet of industrial space in Q2/16 and 4 million year to date, but the vacancy rate has held steady at 5.5 percent. Of the 11.2 million square feet of space under construction, 8.4 million square feet is preleased.

Houston absorbed 1.5 million square feet of retail Occupancy – Houston Apartment Market space in Q2/16, the most in any quarter since Property Type Avg. Occupancy % Q4/07. Average occupancy grew 0.4 points to Class A Stable 90.8 94.2 percent. More than 3 million square feet is Class A Lease Up 22.7 under construction, equivalent to 1 percent of the Class B Stable 93.3 Class B Lease Up 45.3 current inventory. Sites once slated for multifam- Class C 93.5 ily projects are now available for retail develop- Class D 91.2 ment, giving rise to more mixed-use develop- Note: “Stable” means the property has been operating ments. more than 13 months; “lease up” means less than 13 months. The multi-family market absorbed 1,694 units in Source: Apartment Data Services June and 8,436 over the past 12 months. Inventory has grown by 21,600 units over the past 12 months. Overall occupancy stands at 89.7 percent, down from 91.4 percent in June ’15. On a square foot basis, average rental rates have grown 1.5 percent since last June. Class B, C and

2 CBRE, Colliers JLL and Transwestern provided the data included in this section of Economy at a Glance.

D properties continue to perform well, while properties in lease-up are dragging down overall Class A occupancy rates. Population Shift Continues — Hispanics moved closer to becoming Houston’s largest racial or ethnic group in’15, now representing 36.5 percent of the region’s 6.6 million residents, according to recent estimates by the U.S. Census Bureau. Since the ’00 Census, Houston’s His- panic population has grown by more than 403,000 residents, accounting for 54.7 percent of the region’s growth. The region’s Anglo population grew by 142,000, accounting for 19.2 percent of the region’s growth. At current growth rates, Hispanics likely will overtake Anglos as the largest ethnic group in the Houston metro area within the next two years. The region’s Asian population now exceeds half a million residents, or 7.6 percent of the metro total, up from 4.9 percent in ’00. Blacks’ share of the metro population has held steady at 16.9 percent over the past decade and a half. Anglos’ share of the population has fallen from 48.9 percent in ’00 to 37.4 percent today. A few additional observations: Austin, Chambers, Liberty and Montgomery are the only metro counties with Anglo majorities. One in four residents of Waller County is black. One in five residents of Fort Bend is Asian. Harris County has more Hispanics than any of the other eight metro counties have people. ’15 Racial and Ethnic Breakdown - Houston Metro Area Native Pacific Is- Two or Total Popu- Geography White Black Asian Hispanic American lander More Races lation 18,626 2,624 97 146 3 308 7,759 29,563 Austin 63.0% 8.9% 0.3% 0.5% 0.0% 1.0% 26.2% 100.0% 170,027 45,264 1,166 21,803 132 5,108 102,812 346,312 Brazoria 49.1% 13.1% 0.3% 6.3% 0.0% 1.5% 29.7% 100.0% 26,069 3,223 152 495 16 398 8,510 38,863 Chambers 67.1% 8.3% 0.4% 1.3% 0.0% 1.0% 21.9% 100.0% 248,046 144,146 1,524 137,645 336 11,718 172,672 716,087 Fort Bend 34.6% 20.1% 0.2% 19.2% 0.0% 1.6% 24.1% 100.0% 185,874 41,659 1,174 10,889 194 4,943 77,492 322,225 Galveston 57.7% 12.9% 0.4% 3.4% 0.1% 1.5% 24.0% 100.0% 1,405,412 839,956 9,193 317,035 2,619 58,854 1,904,959 4,538,028 Harris 31.0% 18.5% 0.2% 7.0% 0.1% 1.3% 42.0% 100.0% 52,484 8,193 329 478 31 1,023 17,116 79,654 Liberty 65.9% 10.3% 0.4% 0.6% 0.0% 1.3% 21.5% 100.0% 364,212 24,697 2,014 14,275 379 7,717 124,265 537,559 Montgomery 67.8% 4.6% 0.4% 2.7% 0.1% 1.4% 23.1% 100.0% 20,810 12,325 175 409 9 527 14,401 48,656 Waller 42.8% 25.3% 0.4% 0.8% 0.0% 1.1% 29.6% 100.0% 2,491,564 1,122,088 15,824 503,175 3,719 90,596 2,429,988 6,656,955 Total 37.4% 16.9% 0.2% 7.6% 0.1% 1.4% 36.5% 100.0% Source: U.S. Census Bureau Note: The six racial categories are non-Hispanic only.

SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — City of Houston building permits totaled $595.7 million in May ’16, down 0.2 percent from $597.0 million in May ’15, according to the City’s Department of Public Works & Engineering Planning & Development Services. Year-to-date, city building permits totaled $2.7 billion, down 15.6 percent from $3.1 billion from the same period in ’15.

Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.0 percent nationwide from May ’15 to May ’16, according to the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) increased 2.2 percent since May ’15.

Home Sales — Houston-area home sales strengthened in May as the supply of homes grew and prices remained stable. Local realtors sold 7,343 homes in May, a 10.0 percent increase from the 6,678 sold in May of last year, according to the Houston Association of REALTORS®. Year-to-date home sales totaled 28,737, a 3.6 percent increase from the 27,740 sold over the same period last year. The average and median sales prices for single-family homes sold in May were unchanged from a year ago.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 45.8 in May, up from 44.2 in April, according to the Institute for Supply Management-Houston (ISM-Houston). Readings below the neutral point of 50 typically signal contraction over the coming three or four months. With the May reading, the PMI has signaled economic contraction in Houston for 17 consecutive months.

Vehicle Sales — Houston-area auto dealers sold 22,047 vehicles in May ’16, a 34.2 percent decrease from the 33,517 sold in May the previous year, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. Through the first five months of ’16, local dealers sold 127,002 vehicles, down 17.7 percent from the 154,394 sold over the comparable period in ’15.

Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from May '16 Apr '16 May '15 Apr '16 May '15 Apr '16 May '15

Total Nonfarm Payroll Jobs 2,995.1 2,995.1 2,990.0 0.0 5.1 0.0 0.2 Total Private 2,601.0 2,601.6 2,604.2 -0.6 -3.2 0.0 -0.1 Goods Producing 537.5 540.6 565.5 -3.1 -28.0 -0.6 -5.0 Service Providing 2,457.6 2,454.5 2,424.5 3.1 33.1 0.1 1.4 Private Service Providing 2,063.5 2,061.0 2,038.7 2.5 24.8 0.1 1.2

Mining and Logging 87.3 88.6 100.7 -1.3 -13.4 -1.5 -13.3 Oil & Gas Extraction 50.4 50.4 53.2 0.0 -2.8 0.0 -5.3 Support Activities for Mining 36.6 37.1 46.1 -0.5 -9.5 -1.3 -20.6

Construction 219.0 219.5 216.3 -0.5 2.7 -0.2 1.2

Manufacturing 231.2 232.5 248.5 -1.3 -17.3 -0.6 -7.0 Durable Goods Manufacturing 147.5 148.5 167.8 -1.0 -20.3 -0.7 -12.1 Nondurable Goods Manufacturing 83.7 84.0 80.7 -0.3 3.0 -0.4 3.7

Wholesale Trade 169.1 169.8 173.0 -0.7 -3.9 -0.4 -2.3

Retail Trade 306.0 305.2 297.4 0.8 8.6 0.3 2.9

Transportation, Warehousing and Utilities 137.1 137.3 138.8 -0.2 -1.7 -0.1 -1.2 Utilities 16.1 16.1 15.8 0.0 0.3 0.0 1.9 Air Transportation 21.8 21.8 21.9 0.0 -0.1 0.0 -0.5 Truck Transportation 25.0 24.8 26.0 0.2 -1.0 0.8 -3.8 Pipeline Transportation 10.9 10.8 10.5 0.1 0.4 0.9 3.8

Information 31.3 31.4 32.5 -0.1 -1.2 -0.3 -3.7 Telecommunications 14.1 14.1 14.0 0.0 0.1 0.0 0.7

Finance & Insurance 96.2 95.9 95.5 0.3 0.7 0.3 0.7

Real Estate & Rental and Leasing 57.1 56.1 55.6 1.0 1.5 1.8 2.7

Professional & Business Services 457.0 460.1 470.3 -3.1 -13.3 -0.7 -2.8 Professional, Scientific & Technical Services 211.5 217.0 217.5 -5.5 -6.0 -2.5 -2.8 Legal Services 23.4 23.7 24.3 -0.3 -0.9 -1.3 -3.7 Accounting, Tax Preparation, Bookkeeping 23.6 25.9 22.5 -2.3 1.1 -8.9 4.9 Architectural, Engineering & Related Services 65.6 66.5 71.8 -0.9 -6.2 -1.4 -8.6 Computer Systems Design & Related Services 33.2 33.5 33.3 -0.3 -0.1 -0.9 -0.3 Admin & Support/Waste Mgt & Remediation 210.4 207.9 216.4 2.5 -6.0 1.2 -2.8 Administrative & Support Services 198.7 196.2 205.2 2.5 -6.5 1.3 -3.2 Employment Services 76.5 76.0 81.1 0.5 -4.6 0.7 -5.7

Educational Services 58.4 58.6 55.9 -0.2 2.5 -0.3 4.5

Health Care & Social Assistance 325.2 323.9 310.2 1.3 15.0 0.4 4.8

Arts, Entertainment & Recreation 35.0 33.0 32.5 2.0 2.5 6.1 7.7

Accommodation & Food Services 284.2 284.1 270.3 0.1 13.9 0.0 5.1

Other Services 106.9 105.6 106.7 1.3 0.2 1.2 0.2

Government 394.1 393.5 385.8 0.6 8.3 0.2 2.2 Federal Government 28.3 28.1 27.8 0.2 0.5 0.7 1.8 State Government 73.7 74.6 72.9 -0.9 0.8 -1.2 1.1 State Government Educational Services 40.5 41.0 40.0 -0.5 0.5 -1.2 1.3 Local Government 292.1 290.8 285.1 1.3 7.0 0.4 2.5 Local Government Educational Services 205.7 205.3 199.6 0.4 6.1 0.2 3.1

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs June '16 417 861 -51.6 492 * 1,155 * -57.4 Spot Crude Oil Price ($/bbl, West Texas Intermediate) May '16 46.83 59.27 -21.0 37.43 * 51.89 * -27.9 Spot Natural Gas ($/MMBtu, Henry Hub) May '16 1.92 2.85 -32.6 1.97 * 2.83 * -30.4 UTILITIES AND PRODUCTION Houston Purchasing Managers Index May '16 45.8 46.1 -0.7 46.1 * 46.3 * -0.4 Nonresidential Electric Current Sales (Mwh, CNP Service Area) May '16 4,954,117 4,919,243 0.7 22,524,218 21,911,100 2.8

CONSTRUCTION Total Building Contracts ($, Houston MSA) May '16 1,025,830,000 1,505,200,000 -31.8 5,825,510,000 7,522,068,000 -22.6 Nonresidential May '16 326,540,000 732,445,000 -55.4 2,308,510,000 3,013,192,000 -23.4 Residential May '16 699,290,000 772,755,000 -9.5 3,517,000,000 4,508,876,000 -22.0 Building Permits ($, City of Houston) May '16 595,692,428 596,954,584 -0.2 2,653,812,012 3,145,907,862 -15.6 Nonresidential May '16 384,363,386 414,981,705 -7.4 1,666,705,458 2,034,041,660 -18.1 New Nonresidential May '16 172,028,704 279,544,525 -38.5 595,533,836 1,165,194,217 -48.9 Nonresidential Additions/Alterations/Conversions May '16 212,334,682 135,437,180 56.8 1,071,171,622 868,847,443 23.3 Residential May '16 211,329,042 181,972,879 16.1 987,106,554 1,111,866,202 -11.2 New Residential May '16 126,881,862 163,549,276 -22.4 754,612,138 1,014,014,229 -25.6 Residential Additions/Alterations/Conversions May '16 84,447,180 18,423,603 358.4 232,494,416 97,851,973 137.6 Multiple Listing Service (MLS) Activity Property Sales May '16 8,703 8,123 7.1 34,694 33,759 2.8 Median Sales Price - SF Detached May '16 225,000 224,900 0.0 212,998 * 206,960 * 2.9 Active Listings May '16 35,416 30,162 17.4 33,899 * 28,802 * 17.7

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment May '16 2,995,100 2,990,000 0.2 2,986,880 * 2,976,460 * 0.4 Goods Producing (Natural Resources/Mining/Const/Mfg) May '16 537,500 565,500 -5.0 543,680 0 573,060 * -5.1 Service Providing May '16 2,457,600 2,424,500 1.4 2,443,200 0 2,403,400 * 1.7 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA May '16 4.8 4.4 4.8 * 4.3 * Texas May '16 4.2 4.3 4.3 * 4.3 * U.S. May '16 4.5 5.3 5.0 * 5.6 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) May '16 3,606,185 4,202,952 -14.2 18,374,985 20,712,778 -11.3 Air Passengers (Houston Airport System) May '16 4,635,438 4,674,242 -0.8 22,058,072 21,664,886 1.8 Domestic Passengers May '16 3,660,524 3,798,857 -3.6 17,373,294 17,534,164 -0.9 International Passengers May '16 974,914 875,385 11.4 4,684,778 4,130,722 13.4 Landings and Takeoffs May '16 65,216 67,853 -3.9 319,673 328,755 -2.8 Air Freight (metric tons) May '16 25,929 33,424 -22.4 152,195 177,015 -14.0 Enplaned May '16 12,605 17,851 -29.4 75,729 92,536 -18.2 Deplaned May '16 13,324 15,573 -14.4 76,466 84,479 -9.5

CONSUMERS New Car and Truck Sales (Units, Houston MSA) May '16 22,047 33,517 -34.2 127,002 154,394 -17.7 Cars May '16 7,925 13,427 -41.0 46,716 63,806 -26.8 Trucks, SUVs and Commercials May '16 14,122 20,090 -29.7 80,286 90,588 -11.4 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 4Q15 31,941 35,393 -9.8 112,143 125,047 -10.3 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA May '16 214.505 210.283 2.0 214.113 * 210.755 * 1.6 United States May '16 240.236 237.805 1.0 238.331 * 235.790 * 1.1 Hotel Performance (Houston MSA) Occupancy (%) 4Q15 64.3 68.2 68.6 * 72.0 * Average Room Rate ($) 4Q15 106.40 106.61 -0.2 108.56 * 106.88 * 1.6 Revenue Per Available Room ($) 4Q15 68.37 72.66 -5.9 74.51 * 76.98 * -3.2

Nonfarm Payroll Employment, Houston MSA

3,100 150

3,000 120

2,900 90 2,800 60 2,700 30 2,600 0 2,500 -30

2,400

MonthChange (000) -

-60 12 Nonfarm Payroll Employment (000) 2,300

2,200 -90

2,100 -120

2,000 -150 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s) - -

2,000 Goods 460 Service 1,900

420 1,800 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Goods-Producing Jobs Service-Providing Jobs Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8

60 6 Natural $ Gas, /MMBtu

40 4

20 2

0 0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 25 Number 6 — June 2016

On the Cusp of a Recovery? — This month marks the second anniversary of the collapse in global oil prices. West Texas Intermediate, the U.S. benchmark for light, sweet crude, peaked in mid-June of ’14, then tumbled nearly 75 percent over the next 21 months. Brent crude, the European benchmark, followed the same path. Their plunge shredded exploration budgets, decimated the rig count, and triggered a wave of energy company layoffs. In Metro Houston, the industry lost 70,000 jobs.1 Two years on, the industry is in the nascent stages of a recovery. Oil prices have trended upward since February. The North American rig count appears to have stabilized in late May. And layoff announcements, once as common as mosquitos in August, have subsided (though not halted completely). The worst may be over for the oil industry, which is welcome news since the broader economy has begun to show signs of stress. A few examples:  Metro Houston retail sales have slipped from $35.4 billion in Q4/14 to $32.0 billion Q4/15, a drop of 9.8 percent. Source: Texas Comptroller of Public Accounts  Wage growth has stagnated. The average weekly wage paid to Houston-area workers was $1,300 in Q4/14 and $1,307 in Q4/15. Adjusted for inflation, that represents a 0.4 percent decline. Over the previous 10 years, wage growth averaged a 3.0 percent increase per year. Source: Quarterly Census of Employment and Wages  April year to date, local auto sales are down 13.2 percent compared to the same period in ’15. Source: TexAuto Facts, published by InfoNation, Inc. of Sugar Land  Average apartment occupancy in Houston fell to 89.7 percent in May. Below 90 percent is considered a renter’s market. Of the 2,648 apartment communities in Houston, 341 now offer floorplan specials, 236 offer free rent, and 23 offer other incentives to lure new ten- ants. Source: Apartment Data Services  Through the first four months of this year, City of Houston building permits are $400 million off last year’s pace. Source: City of Houston  May year to date, sales tax receipts have fallen in 38 of the 113 cities in the metro area that collect the tax. Source: Texas Comptroller of Public Accounts  Local bank deposits fell from $242.6 billion in ’14 to $214.7 billion in ’15, a drop of 11.5 percent. Source: Federal Deposit Insurance Corporation

1 This figure includes exploration and production, oil field services, fabricated metal products manufacturing, oil field equipment manufacturing, wholesale trade, architectural and engineering services, and employment services (i.e., contract workers). The losses are as of April ’16.

In spite of the forces aligned against Houston, the region man- The Boom Years, ’10 – ’14 aged to eke out 15,200 jobs in ’15. Momentum from the boom years offset the losses in the oil patch. That momentum, how- 470,000 new jobs ever, has played out. The few big wins Houston has logged so 570,000 new residents far this year—Daikin’s 4-million-square-foot facility in Cy- $125 billion in GDP growth press, FedEx’s new distribution hub near Bush Intercontinen- tal, Mitsubishi Heavy Industries’ U.S. headquarters in Greenway Plaza—won’t reverse the inertia holding back Houston’s growth. For Houston to prosper, the oil patch needs to grow again. Fortunately, signs have emerged that the energy industry may be on the cusp of a recovery. WTI, which fell to $26.19 per barrel in February, rose steadily through the spring, closing above $51 in early June. Research conducted by Wood MacKenzie found a large number of firms would become cash flow neutral, i.e. their incomes match their expenses, once crude reaches $53 per barrel. The decline in the U.S. rig count has slowed in recent weeks. The fleet lost no rigs the last week of May and added four rigs the first week of June. During Halliburton’s Q1 earnings call, Chairman David Lesar said he expected the rig count to bottom out in Q2 and that there would be an upswing in the second half of the year. In May, daily U.S. crude production dropped by 200,000 barrels. U.S. production is now down one million barrels from its April ’15 peak. The U.S. Energy Information Administra- tion (EIA) forecasts domestic production to fall another half a million barrels next year. Simmons & Company expects non-OPEC supply outside of the U.S. to drop another 600,000 barrels this year, and that’s on top of the U.S. production declines mentioned earlier. Granted, some of the declines may be offset by increases in OPEC production.

SPOT CRUDE PRICES & U.S. RIG COUNT 2,500 120

US Rotary Rig Count WTI Spot, $/Barrel 100 2,000

80 1,500 60

1,000 WorkingRigs 40 $/Barrel WTI,

500 20

0 0

EIA expects global consumption to grow by 1.5 million barrels and significant inventory draws to occur in ’17. Simmons & Company expects the withdrawals to be “cathartic.”

A Shift in Tone — The conversation SHARE PRICES, SELECTED HOUSTON AREA FIRMS Peak Trough 6/8/16 Close about oil has turned positive as well. Four months ago, the media focused Anadarko $112.59 $30.54 $51.44 on how low prices would fall. Gold- Apache 103.51 34.38 55.84 man Sachs garnered headlines in Feb- Chevron 134.85 70.02 100.66 ruary when it prophesied, in its worst ConocoPhillips 86.76 31.88 44.18 EOG 117.98 60.24 79.71 case scenario, that crude would sink ExxonMobil 104.38 68.71 88.37 below $20 this year. Goldman made Hess 101.1 34.38 58.36 headlines again in May when it said Marathon 41.69 6.73 13.32 crude would soon reach $50 a barrel. Occidental 105.95 59.62 74.83 Crude was already trading in the mid- Shell 83.12 36.87 49.46 $40s when Goldman made the call. Source: Yahoo Finance What’s the expected trajectory for crude? EIA forecasts WTI to average $51.82 next year. Wells Fargo calls for $55.50. Daniel Yergin, the world’s leading scholar on energy markets, expects crude to reach $60 by this December. In a May letter to clients, Simmons didn’t expect oil to reach $60 until ’18. What’s important is that everyone’s forecasting rising, not falling, oil prices. Wall Street also has begun to smile on the energy sector. During the downturn, shares of energy company stocks plunged between 25 and 75 percent in value. The rebound in oil prices has since brought about a recovery in stock prices, some nearly doubling in value from their troughs of just a few months ago. Their share prices, however, still remain well below their previous peaks. Though the outlook for the oil industry is improving, Houstonians shouldn’t expect another boom. The industry has seen false bottoms before. Last June, energy appeared on the verge of a turnaround. Oil prices began to climb, firms renewed drilling contracts, and layoffs were postponed. Then, in early July, Iran agreed to dismantle its nuclear program, the West prom- ised to lift trade sanctions, and the prospect of Iranian crude flooding the market sent oil prices spiraling downward again. Once burned, twice shy, the saying goes. The industry should respond to rising prices more cautiously this time. Structural constraints will also temper prospects for a quick recovery. Many workers laid off in the downturn have found work elsewhere, either in another industry or another state. Rigs parked for months in equipment yards won’t be in optimal condition. Some will suffer from deferred maintenance; others have been cannibalized for spare parts. The initial impact on manufacturing will be muted as well. Any increase in orders will be met by scheduling more overtime. Additional hiring will occur only after a sustained and pro- longed increase in orders. Also, a diminished rig fleet will require a smaller manufacturing

June 2016 ©2016, Greater Houston Partnership Page 3 HOUSTON—THE ECONOMY AT A GLANCE workforce to supply the parts, consumables and equipment the industry requires. Even if the drilling fleet doubles from where it stood in early June, 800 rigs is less than half the number that were working at the peak. The impact on exploration and production―in particular, the white collar/office workers―will occur even later in the recovery. Thirty-dollar oil taught E&P firms how to work with leaner payrolls. Any increase in cash flow from higher oil prices will be allocated toward debt reduction, dividend payments and drilling more wells. Hiring will be a low priority. During the downturn, layoffs came in the thousands. In the early stages of the recovery, job gains in the energy sector will be measured by the handful. The nascent recovery may have come too late for some. Planned layoffs will still be carried out. Firms that need $80 and $90 oil to remain solvent will be forced into bankruptcy. Mer- gers and acquisitions, delayed because no one could agree on asset values, will finally transpire. Such transactions always lead to consolidations, asset sales, and more layoffs. A Final Thought — This time last year, few Houstonians expected the Astros to finish above .500, much less make the playoffs. The season before, the team posted a 51-111 record, the worst in the franchise’s history. The Astros took the field in ’15 with one of the lowest payrolls in the major leagues; yet the team surprised everyone and made the playoffs, falling one game short of appearing in the World Series. The Astros and the local economy share a common trait. Sometimes they exceed our expectations, other times they start with great promise, only to disappoint in the end. Come Septem- ber, we’ll know the Astros’ playoff chances. We’ll also know if the oil patch recovery is for real, and whether the local economy is growing again. If Houston fails on either count, there’s always ’17. Employment Update — The nine-county Houston metro area added 6,000 jobs in April. Over the past 25 years, in boom times April job growth has ranged between 12,000 and 20,000; in bust years the region has lost between 13,000 and 16,000 jobs. The job growth reported in April falls in line with the 25-year average of 5,700 net new jobs for the month. Given the subpar growth in February and March, “average” job growth for April is viewed as something of an improvement. Since February of this year, the region has created 20,000 jobs. That gain partially offsets the 47,800 jobs lost in January. The region always reports losses in January before hiring re- sumes in February. January’s losses are typically recouped by April or May. The region needs to add another 27,800 jobs to recoup all the jobs lost in January. Last year, Houston didn’t recoup January’s losses until October. On a seasonally adjusted basis, growth and losses are a bit more subdued. The region added jobs in January (+1,100) and April (+1,800) and lost jobs in February (-5,900) and March (-2,900). The region remains 7,000 jobs (seasonally adjusted) below its December ’15 peak.

Home Sales Remain Resilient — Houston-area single-family home sales totaled 21,235 April ’16 YTD, a 1.6 percent increase from the 20,902 sold over the same period last year, according to the Houston Association of Realtors®. Across all properties (including townhomes, lots, and land), year-to-date sales totaled 25,806, a 1.4 percent increase from the 25,439 sold April ’15 YTD.

Metro Houston Single-Family Home Sales 8000

7000

6000

5000

4000

3000

2000

1000

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: Houston Assocation of REALTORS® 2014 2015 2016

Median sales price of single-family homes increased over the year, while average sales price declined. The median price, the point at which half of the homes sold for more and half sold for less, rose 3.3 percent from $210,000 in April ’15 to $217,000 in April ’16. In contrast, the average sales price dropped 1.0 percent from $281,352 to $278,544. The difference in the movement of the median and average sales price of homes can be explained by stronger sales activity occurring among mid-range homes (those between $150,000 and $250,000) than high-priced homes (those above $250,000).

At the end of April, 34,402 homes were listed for sale in the Houston area, a 16.7 percent increase from the 29,486 listed in April of last year. Single-family inventory is now 3.6 months, up from 2.9 months in April the year before. The market is considered evenly balanced between supply and demand when it has a six-month inventory. Overall inventory remains tight for the Houston area, but conditions vary across submarkets. According to the University of Houston’s Institute for Regional Forecasting, cities located along the Houston Ship Channel (Baytown, Channelview, and Pasadena) are experiencing a sellers’ market at 2.5 months of inventory while close-in neighborhoods (Rice Military, Heights, and Galleria) and neighborhoods south of I-10 in Memorial and the Energy Corridor are a buyer’s market, with inventory greater than six months.

Although the resale market is faring relatively well considering the downturn in the energy industry, new home construction has been hit harder. City of Houston building permits for single-family homes declined 26.6 percent from $459.1 million (1,762 homes) April ’15 YTD to $337.2 million (1,259 homes) April ’16 YTD. MetroStudy reported 6,184 housing starts in Q1/16, down 10.5 percent from 6,909 starts in Q1/15. The decrease is in line with the group’s forecasted 10 percent decline in annual starts for ’16. New home closings were up 3.7 percent from 6,519 in Q1/15 to 6,757 Q1/16, but MetroStudy believes that this was an artificial increase driven by delayed lot deliveries due to the weather. The builders surveyed still maintain a negative outlook for closings this year.

SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — City of Houston building permits totaled $494.4 million in April ’16, down 26.2 percent from $670.0 million in April ’15, according to the City’s Department of Public Works & Engineering Planning & Development Services. Year-to-date, city building permits total $2.1 billion, down 19.3 percent from $2.5 billion over the same period in ’15.

Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.1 percent nationwide from April ’15 to April ’16, according to the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) increased 2.1 percent since April ’15. Consumer prices in the Houston-Galveston-Brazoria metro area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller Counties) grew 1.4 percent. Core inflation rose 3.1 percent.

Purchasing Managers Index — The Houston Purchasing Managers Index a leading indicator for regional production, registered 44.2 in April, down from 45.9 in March, according to the latest report from the Institute for Supply Management-Houston. With the April reading, the PMI has signaled economic contraction in Houston for 16 consecutive months.

Vehicle Sales — Houston-area auto dealers sold 23,652 vehicles in April ’16, a 33.0 percent decrease from the 35,290 sold in April the previous year, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. Through the first four months of ’16, local dealers sold 104,955 vehicles, down 13.2 percent from the 120,877 sold over the same period in ’15. For the 12 months ending April ’16, Houston sold 360,559 vehicles, a 2.0 percent decrease from the 367,838 sold in the 12 months ending April ’15. Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Apr '16 Mar '16 Apr '15 Mar '16 Apr '15 Mar '16 Apr '15

Total Nonfarm Payroll Jobs 2,993.5 2,987.5 2,983.5 6.0 10.0 0.2 0.3 Total Private 2,600.1 2,593.5 2,597.9 6.6 2.2 0.3 0.1 Goods Producing 540.4 544.2 567.5 -3.8 -27.1 -0.7 -4.8 Service Providing 2,453.1 2,443.3 2,416.0 9.8 37.1 0.4 1.5 Private Service Providing 2,059.7 2,049.3 2,030.4 10.4 29.3 0.5 1.4

Mining and Logging 88.2 90.5 102.3 -2.3 -14.1 -2.5 -13.8 Oil & Gas Extraction 50.4 50.7 53.0 -0.3 -2.6 -0.6 -4.9 Support Activities for Mining 37.0 38.3 48.0 -1.3 -11.0 -3.4 -22.9

Construction 219.9 219.0 214.4 0.9 5.5 0.4 2.6

Manufacturing 232.3 234.7 250.8 -2.4 -18.5 -1.0 -7.4 Durable Goods Manufacturing 148.3 150.6 170.6 -2.3 -22.3 -1.5 -13.1 Nondurable Goods Manufacturing 84.0 84.1 80.2 -0.1 3.8 -0.1 4.7

Wholesale Trade 170.2 170.9 173.2 -0.7 -3.0 -0.4 -1.7

Retail Trade 304.8 302.9 294.4 1.9 10.4 0.6 3.5

Transportation, Warehousing and Utilities 137.6 136.9 138.7 0.7 -1.1 0.5 -0.8 Utilities 16.1 16.2 15.8 -0.1 0.3 -0.6 1.9 Air Transportation 21.8 21.8 21.7 0.0 0.1 0.0 0.5 Truck Transportation 24.8 24.7 25.9 0.1 -1.1 0.4 -4.2 Pipeline Transportation 10.8 10.6 10.5 0.2 0.3 1.9 2.9

Information 31.7 31.0 32.4 0.7 -0.7 2.3 -2.2 Telecommunications 14.1 14.2 13.9 -0.1 0.2 -0.7 1.4

Finance & Insurance 96.1 96.1 95.3 0.0 0.8 0.0 0.8

Real Estate & Rental and Leasing 55.7 56.1 55.2 -0.4 0.5 -0.7 0.9

Professional & Business Services 459.1 459.5 471.7 -0.4 -12.6 -0.1 -2.7 Professional, Scientific & Technical Services 216.0 219.7 220.4 -3.7 -4.4 -1.7 -2.0 Legal Services 23.7 24.4 24.3 -0.7 -0.6 -2.9 -2.5 Accounting, Tax Preparation, Bookkeeping 25.9 26.2 25.0 -0.3 0.9 -1.1 3.6 Architectural, Engineering & Related Services 66.4 68.5 72.3 -2.1 -5.9 -3.1 -8.2 Computer Systems Design & Related Services 33.5 33.4 33.3 0.1 0.2 0.3 0.6 Admin & Support/Waste Mgt & Remediation 207.9 204.5 214.7 3.4 -6.8 1.7 -3.2 Administrative & Support Services 196.2 192.6 203.5 3.6 -7.3 1.9 -3.6 Employment Services 76.3 74.5 80.7 1.8 -4.4 2.4 -5.5

Educational Services 58.6 57.8 56.1 0.8 2.5 1.4 4.5

Health Care & Social Assistance 323.3 319.5 308.8 3.8 14.5 1.2 4.7

Arts, Entertainment & Recreation 33.0 32.1 30.9 0.9 2.1 2.8 6.8

Accommodation & Food Services 283.9 280.8 267.4 3.1 16.5 1.1 6.2

Other Services 105.7 105.7 106.3 0.0 -0.6 0.0 -0.6

Government 393.4 394.0 385.6 -0.6 7.8 -0.2 2.0 Federal Government 28.0 28.1 27.9 -0.1 0.1 -0.4 0.4 State Government 74.6 74.6 73.9 0.0 0.7 0.0 0.9 State Government Educational Services 41.0 41.0 40.4 0.0 0.6 0.0 1.5 Local Government 290.8 291.3 283.8 -0.5 7.0 -0.2 2.5 Local Government Educational Services 205.3 206.0 199.2 -0.7 6.1 -0.3 3.1

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Apr '16 437 976 -55.2 527 * 1,302 * -59.5 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Apr '16 40.75 54.45 -25.2 35.07 * 50.02 * -29.9 Spot Natural Gas ($/MMBtu, Henry Hub) Apr '16 1.92 2.61 -26.4 1.98 * 2.83 * -30.0 UTILITIES AND PRODUCTION Houston Purchasing Managers Index Apr '16 44.2 42.7 3.5 45.1 * 46.4 * -2.8 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Apr '16 4,558,616 4,389,875 3.8 17,570,101 16,991,856 3.4

CONSTRUCTION Total Building Contracts ($, Houston MSA) Apr '16 1,012,855,000 1,196,910,000 -15.4 4,832,756,000 6,013,768,000 -19.6 Nonresidential Apr '16 311,176,000 271,611,000 14.6 1,983,120,000 2,277,647,000 -12.9 Residential Apr '16 701,679,000 925,299,000 -24.2 2,849,636,000 3,736,121,000 -23.7 Building Permits ($, City of Houston) Apr '16 494,394,709 669,967,612 -26.2 2,058,119,584 2,548,953,278 -19.3 Nonresidential Apr '16 288,951,819 451,030,727 -35.9 1,282,342,072 1,619,059,955 -20.8 New Nonresidential Apr '16 129,760,368 309,620,296 -58.1 423,505,132 885,649,692 -52.2 Nonresidential Additions/Alterations/Conversions Apr '16 159,191,451 141,410,431 12.6 858,836,940 733,410,263 17.1 Residential Apr '16 205,442,890 218,936,885 -6.2 775,777,512 929,893,323 -16.6 New Residential Apr '16 145,820,994 201,334,101 -27.6 627,730,276 850,464,953 -26.2 Residential Additions/Alterations/Conversions Apr '16 59,621,896 17,602,784 238.7 148,047,236 79,428,370 86.4 Multiple Listing Service (MLS) Activity Property Sales Apr '16 7,583 7,741 -2.0 25,806 25,439 1.4 Median Sales Price - SF Detached Apr '16 217,000 210,000 3.3 209,750 * 202,475 * 3.6 Active Listings Apr '16 34,402 29,486 16.7 33,520 * 28,462 * 17.8

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Apr '16 2,993,500 2,983,500 0.3 2,984,425 * 2,973,075 * 0.4 Goods Producing (Natural Resources/Mining/Const/Mfg) Apr '16 540,400 567,500 -4.8 545,175 0 574,950 * -5.2 Service Providing Apr '16 2,453,100 2,416,000 1.5 2,439,250 0 2,398,125 * 1.7 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Apr '16 4.8 4.9 4.8 * 4.3 * Texas Apr '16 4.2 4.5 4.4 * 4.4 * U.S. Apr '16 4.7 5.1 5.1 * 5.7 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Apr '16 3,878,589 4,811,434 -19.4 14,768,800 16,509,826 -10.5 Air Passengers (Houston Airport System) Mar '16 4,658,322 4,654,563 0.1 13,162,637 12,633,240 4.2 Domestic Passengers Mar '16 3,650,022 3,748,623 -2.6 10,320,115 10,178,639 1.4 International Passengers Mar '16 1,008,300 905,940 11.3 2,842,522 2,454,601 15.8 Landings and Takeoffs Mar '16 66,012 68,261 -3.3 193,062 193,506 -0.2 Air Freight (metric tons) Mar '16 35,226 37,703 -6.6 97,898 108,387 -9.7 Enplaned Mar '16 17,589 19,463 -9.6 49,530 56,277 -12.0 Deplaned Mar '16 17,637 18,240 -3.3 48,368 52,110 -7.2

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Apr '16 23,652 35,290 -33.0 104,955 120,877 -13.2 Cars Apr '16 8,411 14,841 -43.3 38,791 50,379 -23.0 Trucks, SUVs and Commercials Apr '16 15,241 20,449 -25.5 66,164 70,498 -6.1 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 3Q15 27,764 31,394 -11.6 80,202 89,654 -10.5 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Apr '16 214.505 210.283 2.0 214.113 * 210.755 * 1.6 United States Apr '16 238.132 236.119 0.9 237.386 * 234.849 * 1.1 Hotel Performance (Houston MSA) Occupancy (%) 3Q15 67.2 71.3 70.0 * 73.3 * Average Room Rate ($) 3Q15 104.37 102.14 2.2 109.26 * 106.97 * 2.1 Revenue Per Available Room ($) 3Q15 70.14 72.87 -3.7 76.55 * 78.42 * -2.4

Nonfarm Payroll Employment, Houston MSA

3,100 150

3,000 120

2,900 90 2,800 60 2,700 30 2,600 0 2,500 -30

2,400

MonthChange (000) -

-60 12 Nonfarm Payroll Employment (000) 2,300

2,200 -90

2,100 -120

2,000 -150 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s) - -

2,000 Goods 460 Service 1,900

420 1,800 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Goods-Producing Jobs Service-Providing Jobs Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8

60 6 Natural $ Gas, /MMBtu

40 4

20 2

0 0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 24 Number 12 — December 2015

A New Record — Houston hit a milestone in October, surpassing 3.0 million jobs for the first time in the region’s history. Over the past 40 years, the region has hit a series of milestones—1.0 million jobs in July ’75, 1.5 million jobs in March of ’80, and 2.0 million jobs in February of ’97. The region hit the 2.5 million job mark three times, once from the wrong direction. After 12 years of steady job growth, Houston recorded 2.5 million jobs in October of ’06 and continued on to the next milestone. But in the fall of ’08 the Great Recession set in, wiping out job gains of previous years. Employment sank, hitting the 2.5 million benchmark in August of ’09 on the way down and again in March of ’10 on the way up.1 October’s strong job performance helped Houston reach the 3.0 million benchmark. The region created 20,800 jobs that month, according to the Texas Workforce Commission (TWC). That reflects the second best October in the past 20 years. That's on the heels of September's gain being the month’s second worst in the past 20 years. The only worse Sep- tember was '08 with a loss of 18,900 jobs in the aftermath of Hurricane Ike.

Metro Houston Employment 3.3

3.0

2.8

2.5

2.3

2.0

Millions Millions Jobs of 1.8

1.5

1.3

1.0 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

Source: Texas Workforce Commission

1 Houston experienced a similar situation in the early ’80s, hitting 1.7 million jobs in March of ’82 before falling to 1.5 million in January of ’87. December 2015 ©2015, Greater Houston Partnership Page 1

HOUSTON—THE ECONOMY AT A GLANCE

October also helped the region eke out the first positive job growth for the year. Through the first nine months, the region had lost 12,800 jobs. But hiring in October in construction, retail, finance, health care, accommodations and food services, and government (almost ex- clusively public education) offset losses in energy, manufacturing, transportation, and administrative support services. TWC won’t report November employment data until December 18, but if Houston follows historical patterns, the agency will likely report job growth for November as well as De- cember. Not once in the past 25 years has the region failed to record job growth in those months. This includes ’09 during the depths of the Great Recession. Seasonal layoffs which occur every January will likely wipe out some if not all of the jobs gains of the fourth quarter. This would temporarily drop the region below the 3.0 million benchmark. Eventually January’s losses will be recouped and Houston will surpass 3.0 million again, hopefully sometime in ’16. Houston's October unemployment rate was 4.8 percent, up from 4.6 percent in September and from 4.4 percent in October ’14. Texas' unemployment rate was 4.5 percent in October, up slightly from 4.4 percent in September and unchanged from 4.5 percent in October ’14. The U.S. rate was 4.8 percent in October, down from 4.9 percent in September and from 5.5 percent in October ’14. October ’15 marked the first month Houston’s rate was equal to the U.S. rate in nine years. The rates are not seasonally adjusted. Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Houston Texas U.S. Source: Texas Workforce Commission

HOUSTON—THE ECONOMY AT A GLANCE

What’s in Store for ’16? — This year has been a challenging one for Houston. Oil prices continued the slide begun in ’14, briefly slipping below $40 a barrel in August. More than half the U.S. drilling rig fleet has been mothballed and now operates at its lowest level since May ’02. The energy industry continues to lay off workers. And the recent construction boom appears to be winding down. The question now on everyone’s mind: Is Houston headed for a recession? The answer is forthcoming. On December 7, the Partnership will host the Houston Region Economic Outlook for ’16 and address the issues of oil prices, job growth, and the economic prospects in the coming year. The event begins with a panel discussion among experts from the local energy, health care, professional services, and construction industries who will share their insights into the future of the economy. Panelists are:  Kristi Chickering, CEO, Sirius Solutions  Michael Covert, President and CEO, CHI St. Luke’s Health  Daniel M. Gilbane, Senior Vice President, Gilbane Building Company  Greg P. Hill, President and COO, World Wide E&P, Hess Corporation Chickering is the panel’s expert on business and professional services. The sector accounts for one in every six private sector jobs in the region. Sirius serves clients across a wide range of industries, including construction, energy, financial services, health care, manufacturing, utilities, retail and transportation. Covert is the panel’s health care expert. While other sectors struggle, health care continues to add jobs―11,400 since December. CHI St. Luke’s Health operates six hospitals, seven emergency centers and clinics, and six medical groups in Houston. Gilbane is the panel’s construction expert. The city has permitted $6 billion in residential and commercial projects so far this year, and while that amount is substantial, it reflects a 12 percent drop from the same time last year. Gilbane’s high-profile Houston projects include work for ExxonMobil, Hess, Rice University and the Houston Zoo. Hill is the panel’s energy expert. The industry continues to struggle with low oil prices, shrinking exploration budgets, and weak demand growth. Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas. Shern-Min Chow, Anchor, KHOU 11 News will moderate the panel discussion, which begins at 10 a.m.

HOUSTON—THE ECONOMY AT A GLANCE

Those attending the morning session will receive a copy of Houston Economic Highlights, 60 pages of insights into local economic and demographic trends over the past 10 years. A copy of the Highlights publication distributed at last year’s event can be found here. The luncheon portion of the event convenes at noon. Patrick Jankowski, the Partnership’s Senior Vice President of Research, will present the Partnership’s employment forecast for ’16. (Click here to see the Partnership’s forecast for ’15.) Anthony Chan, Chief Economist, JPMorgan Chase, will be the luncheon keynote speaker. Chan will present the U.S. and global outlooks following the regional outlook. Full-program tickets include the panel discussion, the Partnership’s forecast, the luncheon, the keynote speech, a copy of the forecast and Houston Economic Highlights. Luncheon tickets include only the Partnership’s forecast and the keynote address. To register for the event, go to the Events section of the Partnership’s webpage or click here.

HOUSTON—THE ECONOMY AT A GLANCE

SNAPSHOT—HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — City of Houston building permits totaled $6.8 billion for the first ten months of ’15, down 9.3 percent from $7.5 billion in the same period last year, according to the City’s Department of Public Works & Engineering Planning & Development Services. Both the commercial and residential sectors experienced declines in permit activity. Non-residential permits dropped 9.3 percent, from $4.9 billion October ’14 YTD to $4.4 billion Oc- tober ’15 YTD. During the same period, residential permits declined 9.1 percent from $2.6 billion to $2.4 billion. Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent nationwide from October ’14 to October ’15, according to the U.S. Bureau of Labor Statistics. The annual change in the U.S. CPI-U has tracked below one percent for the past 11 months. Over this same period, core inflation (all items less the volatile food and energy categories) recorded annual increases between 1.6 percent and 1.9 percent. Consumer prices in the Houston region slipped 0.1 percent. Houston’s core inflation rose 2.9 percent over the year.

Home Sales — The slump in the energy industry and the traditional fall slowdown caught up with the Houston housing market in October. Total property sales dropped 12.1 percent from 7,993 units in October ’14 to 7,026 units in October ’15, the steepest over-the-year decline in four years, according to data released today by the Houston Association of REALTORS®. Year-to-date, Houston-area realtors closed on 76,178 properties, down 1.6 percent from last year’s YTD total of 77,432.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 48.0 in October, a marginal increase from 47.6 in September according to the latest report from the Institute for Supply Manage- ment-Houston (ISM-Houston). With the October reading, the PMI has signaled contraction for ten consecutive months.

Vehicle Sales — Houston-area vehicle sales reached a historic high with a record 377,705 vehicles sold in the 12 months ending October ’15, surpassing the previous peak of 376,598 vehicles sold in the 12 months ending January ’15. According to TexAuto Facts, published by InfoNation, Inc. of Sugar Land, monthly sales reached 30,408 vehicles, up 4.1 percent from the 29,206 sold in October ’14.

Patrick Jankowski and Jenny Philip Contributed to this issue of Houston: The Economy at a Glance

HOUSTON—THE ECONOMY AT A GLANCE

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HOUSTON—THE ECONOMY AT A GLANCE

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Oct '15 Sep '15 Oct '14 Sep '15 Oct '14 Sep '15 Oct '14

Total Nonfarm Payroll Jobs 3,000.6 2,979.8 2,967.5 20.8 33.1 0.7 1.1 Total Private 2,608.9 2,596.7 2,585.6 12.2 23.3 0.5 0.9 Goods Producing 565.9 560.9 581.4 5.0 -15.5 0.9 -2.7 Service Providing 2,434.7 2,418.9 2,386.1 15.8 48.6 0.7 2.0 Private Service Providing 2,043.0 2,035.8 2,004.2 7.2 38.8 0.4 1.9

Mining and Logging 109.8 111.2 113.1 -1.4 -3.3 -1.3 -2.9 Oil & Gas Extraction 54.1 54.7 55.2 -0.6 -1.1 -1.1 -2.0 Support Activities for Mining 53.7 53.9 55.4 -0.2 -1.7 -0.4 -3.1

Construction 214.6 205.3 210.4 9.3 4.2 4.5 2.0

Manufacturing 241.5 244.4 257.9 -2.9 -16.4 -1.2 -6.4 Durable Goods Manufacturing 160.7 163.4 177.5 -2.7 -16.8 -1.7 -9.5 Nondurable Goods Manufacturing 80.8 81.0 80.4 -0.2 0.4 -0.2 0.5

Wholesale Trade 167.9 168.3 172.1 -0.4 -4.2 -0.2 -2.4

Retail Trade 306.6 304.8 296.5 1.8 10.1 0.6 3.4

Transportation, Warehousing and Utilities 131.2 132.0 134.7 -0.8 -3.5 -0.6 -2.6 Utilities 16.2 16.2 15.8 0.0 0.4 0.0 2.5 Air Transportation 20.4 20.4 20.6 0.0 -0.2 0.0 -1.0 Truck Transportation 25.9 26.0 25.5 -0.1 0.4 -0.4 1.6 Pipeline Transportation 10.6 10.7 10.5 -0.1 0.1 -0.9 1.0

Information 34.0 34.6 32.5 -0.6 1.5 -1.7 4.6 Telecommunications 15.3 15.3 15.2 0.0 0.1 0.0 0.7

Finance & Insurance 92.7 92.4 93.8 0.3 -1.1 0.3 -1.2

Real Estate & Rental and Leasing 52.2 51.4 55.8 0.8 -3.6 1.6 -6.5

Professional & Business Services 472.8 473.5 469.1 -0.7 3.7 -0.1 0.8 Professional, Scientific & Technical Services 219.7 219.6 221.5 0.1 -1.8 0.0 -0.8 Legal Services 24.3 24.4 24.6 -0.1 -0.3 -0.4 -1.2 Accounting, Tax Preparation, Bookkeeping 23.3 22.9 22.1 0.4 1.2 1.7 5.4 Architectural, Engineering & Related Services 73.4 72.5 76.2 0.9 -2.8 1.2 -3.7 Computer Systems Design & Related Services 33.0 32.5 32.7 0.5 0.3 1.5 0.9 Admin & Support/Waste Mgt & Remediation 220.0 220.9 213.8 -0.9 6.2 -0.4 2.9 Administrative & Support Services 207.9 209.0 203.2 -1.1 4.7 -0.5 2.3 Employment Services 79.3 78.9 81.9 0.4 -2.6 0.5 -3.2

Educational Services 56.3 55.5 54.6 0.8 1.7 1.4 3.1

Health Care & Social Assistance 318.0 315.7 305.0 2.3 13.0 0.7 4.3

Arts, Entertainment & Recreation 30.6 31.5 29.5 -0.9 1.1 -2.9 3.7

Accommodation & Food Services 275.7 272.3 255.6 3.4 20.1 1.2 7.9

Other Services 105.0 103.8 105.0 1.2 0.0 1.2 0.0

Government 391.7 383.1 381.9 8.6 9.8 2.2 2.6 Federal Government 27.7 27.7 27.7 0.0 0.0 0.0 0.0 State Government 73.1 72.0 72.9 1.1 0.2 1.5 0.3 State Government Educational Services 40.0 39.4 39.7 0.6 0.3 1.5 0.8 Local Government 290.9 283.4 281.3 7.5 9.6 2.6 3.4 Local Government Educational Services 201.3 193.7 196.2 7.6 5.1 3.9 2.6

SOURCE: Texas Workforce Commission

HOUSTON—THE ECONOMY AT A GLANCE

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Nov '15 760 1,925 -60.5 1,006 * 1,860 * -45.9 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Nov '15 42.31 75.52 -44.0 49.80 * 96.26 * -48.3 Spot Natural Gas ($/MMBtu, Henry Hub) Nov '15 2.14 4.15 -48.4 2.69 * 4.37 * -38.4

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Oct '15 48.0 58.5 -17.9 47.0 * 57.2 * -17.8 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Oct '15 4,708,496 4,809,100 -2.1 46,802,735 45,189,492 3.6

CONSTRUCTION Total Building Contracts ($, Houston MSA) Oct '15 1,180,384,000 1,728,871,000 -31.7 14,076,425,000 29,693,611,000 -52.6 Nonresidential Oct '15 450,987,000 848,320,000 -46.8 5,420,233,000 21,159,962,000 -74.4 Residential Oct '15 729,397,000 880,551,000 -17.2 8,656,192,000 8,533,649,000 1.4 Building Permits ($, City of Houston) Oct '15 736,851,703 622,865,368 18.3 6,794,542,349 7,487,543,723 -9.3 Nonresidential Oct '15 515,255,428 399,611,713 28.9 4,431,924,022 4,887,001,072 -9.3 New Nonresidential Oct '15 382,957,401 122,208,002 213.4 2,334,555,701 2,798,739,790 -16.6 Nonresidential Additions/Alterations/Conversions Oct '15 132,298,027 277,403,711 -52.3 2,097,368,321 2,088,261,282 0.4 Residential Oct '15 221,596,275 223,253,655 -0.7 2,362,618,327 2,600,542,651 -9.1 New Residential Oct '15 195,081,481 159,483,294 22.3 2,116,553,415 2,314,676,150 -8.6 Residential Additions/Alterations/Conversions Oct '15 26,514,794 63,770,361 -58.4 246,064,912 285,866,501 -13.9 Multiple Listing Service (MLS) Activity Property Sales Oct '15 7,026 7,993 -12.1 76,178 77,432 -1.6 Median Sales Price - SF Detached Oct '15 205,000 192,300 6.6 211,130 * 196,379 * 7.5 Active Listings Oct '15 33,692 28,333 18.9 31,055 * 28,717 * 8.1

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Oct '15 3,000,600 2,967,500 1.1 2,976,940 * 2,912,450 * 2.2 Goods Producing (Natural Resources/Mining/Const/Mfg) Oct '15 565,900 581,400 -2.7 566,830 0 566,210 * 0.1 Service Providing Oct '15 2,434,700 2,386,100 2.0 2,410,110 0 2,346,240 * 2.7 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Oct '15 4.8 4.4 4.4 * 5.2 * Texas Oct '15 4.5 4.5 4.4 * 5.3 * U.S. Oct '15 4.8 5.5 5.4 * 6.3 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Sep '15 3,404,471 3,941,462 -13.6 35,134,928 35,260,938 -0.4 Air Passengers (Houston Airport System) Sep '15 4,158,133 4,061,706 2.4 40,885,531 39,819,447 2.7 Domestic Passengers Sep '15 3,430,077 3,390,053 1.2 32,886,441 32,298,869 1.8 International Passengers Sep '15 728,056 671,653 8.4 7,999,090 7,520,578 6.4 Landings and Takeoffs Sep '15 62,380 65,688 -5.0 598,625 611,065 -2.0 Air Freight (metric tons) Sep '15 32,247 36,609 -11.9 310,066 323,106 -4.0 Enplaned Sep '15 16,022 19,159 -16.4 162,729 169,998 -4.3 Deplaned Sep '15 16,225 17,450 -7.0 147,337 153,108 -3.8

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Oct '15 30,408 29,206 4.1 324,484 320,777 1.2 Cars Oct '15 11,429 12,165 -6.1 131,284 138,975 -5.5 Trucks, SUVs and Commercials Oct '15 18,979 17,041 11.4 193,200 181,802 6.3 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 1Q15 23,649 27,534 -14.1 23,649 27,534 -14.1 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Oct '15 214.569 214.791 -0.1 213.048 * 210.700 * 1.1 United States Oct '15 237.838 237.433 0.2 237.034 * 236.987 * 0.0 Hotel Performance (Houston MSA) Occupancy (%) 2Q15 71.2 74.9 71.5 * 74.3 * Average Room Rate ($) 2Q15 112.15 111.71 0.4 111.80 * 109.39 * 2.2 Revenue Per Available Room ($) 2Q15 79.84 83.65 -4.6 79.85 * 81.20 * -1.7

HOUSTON—THE ECONOMY AT A GLANCE

Nonfarm Payroll Employment, Houston MSA

3,100 150

3,000 120

2,900 90 2,800 60 2,700 30 2,600 0 2,500 -30

2,400 MonthChange (000) -60 -

2,300 12 Nonfarm Payroll Employment (000) 2,200 -90 2,100 -120 2,000 -150 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s)

- -

2,000 Goods 460 Service 1,900

420 1,800 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf 60 6

40 4

20 2

0 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 24 Number 11 — November 2015

What’s in Store for ’16? — This year has been a challenging one for Houston. Oil prices continued the slide begun in ’14, briefly slipping below $40 a barrel in August. More than half the U.S. drilling rig fleet has been mothballed and now operates at its lowest level since May ’02. The energy industry continues to lay off workers. And the recent construction boom appears to be winding down. The question now on everyone’s mind: Is Houston headed for a recession? The answer is forthcoming. On December 7, the Partnership will host the Houston Region Economic Outlook for ’16 and address the issues of oil prices, job growth, and the economic prospects in the coming year. The event begins with a panel discussion among experts from the local energy, health care, professional services, and construction industries who will share their insights into the future of the economy. Panelists are:  Kristi Chickering, CEO, Sirius Solutions  Michael Covert, President and CEO, CHI St. Luke’s Health  Daniel M. Gilbane, Regional Manager, Gilbane Building Company  Greg P. Hill, President and COO, World Wide E&P, Hess Corporation Chickering is the panel’s expert on business and professional services. The sector accounts for one in every six private sector jobs in the region. Sirius serves clients across a wide range of industries, including construction, energy, financial services, health care, manufacturing, utilities, retail and transportation. Covert is the panel’s health care expert. While other sectors struggle, health care continues to add jobs―11,400 since December. CHI St. Luke’s Health operates six hospitals, seven emergency centers and clinics, and six medical groups in Houston. Gilbane is the panel’s construction expert. The city has permitted $6 billion in residential and commercial projects so far this year, and while that amount is substantial, it reflects a 12 percent drop from the same time last year. Gilbane’s high-profile Houston projects include work for ExxonMobil, Hess, El Paso, Rice University and the Houston Zoo. Hill is the panel’s energy expert. The industry continues to struggle with low oil prices, shrinking exploration budgets, and weak demand growth. Hess Corporation is a leading November 2015 ©2015, Greater Houston Partnership Page 1

HOUSTON—THE ECONOMY AT A GLANCE

global independent energy company engaged in the exploration and production of crude oil and natural gas. Lisa Shumate, General Manager, Houston Public Media (KUHT TV 8, News 88.7 and Clas- sic 91.7) will moderate the panel discussion, which begins at 10 a.m. Those attending the morning session will receive a copy of Houston Economic Highlights, 60 pages of insights into local economic and demographic trends over the past 10 years. A copy of the Highlights publication distributed at last year’s event can be found here. The luncheon portion of the event convenes at noon. Patrick Jankowski, the Partnership’s Senior Vice President of Research, will present the Partnership’s employment forecast for ’16. (Click here to see the Partnership’s forecast for ’15.) Anthony Chan, Chief Economist, JPMorgan Chase, will be the luncheon keynote speaker. Chan will present the U.S. and global outlooks following the regional outlook. Full-program tickets include the panel discussion, the Partnership’s forecast, the luncheon, the keynote speech, a copy of the forecast and Houston Economic Highlights. Luncheon tickets include only the Partnership’s forecast and the keynote address. To register for the event, go to the Events section of the Partnership’s webpage or click here. A Question of Affordability — The U.S. Bureau of Labor Statistics (BLS) reports that the Consumer Price Index (CPI) rose 0.3 percent in Houston during the 12 months ending August ’15, the first increase since Inflation, 12-Month Change January of this year. Local 6% inflation had been negative 5% throughout much of ’15, a 4% dramatic change from ’13 3% and ’14, when inflation in 2% Houston outpaced the na- 1% 1 tion. 0% A 13.1 percent drop in the -1% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 cost of household energy -2% (electricity and natural gas) -3% and a 27.2 percent drop in Houston CPI-U U.S. CPI-U the cost of motor fuels have Source: U.S. Bureau of Labor Statistics, not seasonally adjusted helped keep inflation in check. The drop in consumer energy costs is not surprising, given that crude oil prices fell 55.6 percent and natural gas 29.2 percent over the same period. (Almost half of the electricity generated in Texas comes from natural gas-fired power

1 For calculating the local Consumer Price Index, BLS classifies Houston as Brazoria, Chambers, Fort Bend, Galveston, Har- ris, Liberty, and Montgomery counties. November 2015 ©2015, Greater Houston Partnership Page 2

HOUSTON—THE ECONOMY AT A GLANCE

plants.) The shelter component of the CPI continues to rise, however, up 5.1 percent since August ’14 and 19.2 percent since January ’10. The CPI suggests local housing costs have increased nearly one-fifth during the recent economic boom. Based on anecdotal evidence, that figure seems to understate the escala- tion in housing costs. This apparent underestimate may result from the method BLS uses to measure housing inflation.2 In the following pages, the Partnership offers alternative views of housing appreciation and affordability in Houston. The Home Price Index — The Federal Housing Finance Agency (FHFA) publishes a quarterly Home Price Index (HPI) that measures appreciation in single-family values over time. The index is based on the repeated sale or refinancing of the same homes as they are resold multiple times with the mortgages on those homes having been purchased or secu- ritized by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.3 The FHFA publishes the index for all 50 states, the District of Columbia, and all U.S. metro areas.4 Not surprisingly, the index shows Houston home prices rose 37.9 percent from Q1/10 to Q3/15. Several factors fed the increase, among them a shortage of lots on which to build new homes (which pushes buyers into the resale market), the influx of newcomers to the region boosting housing demand (both rental and purchase), and the tendency of buyers to FHFA Home Purchase Index, Q1/91 = 100 bid above a home’s list 290 price to trump other buy- 270 ers vying for the same 250 house.

230 This run-up in home prices begs the question: 210 Has Houston forfeited its 190 claim to being one of the 170 most affordable regions in which to live? The an- 150 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 swer depends on one’s Source: Federal Housing Finance Agency, seasonally adjusted data perspective. Metro Comparisons — In the broadest sense, Houston’s cost of living is still below the nation as a whole. Three times a year the Council for Community and Economic Research (C2ER) conducts a cost of living survey in the nation’s urban areas.5 Like the BLS survey,

2 BLS uses a method known as “owners’ equivalent rent”―the amount a homeowner would pay to rent or would earn from renting his or her home in a competitive market―to track increases in shelter costs over time. 3 Also known as Fannie Mae and Freddie Mac. 4 More information in the FHFA Home Price Index can be found at http://www.fhfa.gov/. 5 As a matter of full disclosure, the Research Department at the Greater Houston Partnership gathers and submits the Houston market data that go into calculating the C2ER Cost of Living Index. November 2015 ©2015, Greater Houston Partnership Page 3

HOUSTON—THE ECONOMY AT A GLANCE

the C2ER analysis is based on various items—groceries, housing, utilities, transportation, health care, and miscellaneous goods and services—that represent the typical buying patterns of urban middle management consumers. While the CPI measures changes in prices over time, the C2ER Index compares costs of identical items at a single point in time across different urban areas. The survey for Q3/15 found Houston’s overall cost of living to be 7.2 percent below the U.S. average, with housing costs 7.7 percent below the average.6

Houston Cost of Living Index, U.S. Average = 100.0 All items Grocery Housing Utilities Transportation Health Care Misc Houston 92.8 83.3 92.3 95.7 91.2 96.7 96.5 Index Source: Council for Community & Economic Research, Cost of Living Index, Third Quarter 2015

C2ER’s survey includes data from small and large metros alike—and the former, which tend to have lower costs, far outnumber the latter. If one recalculates the index using only data for the nation’s largest metros, Houston would have the fifth lowest housing costs.

Housing Cost Comparison, 20 Most Populous U.S. Metros San Francisco, CA 177.9 New York, NY 152.9 San Diego, CA 143.3 Washington, DC 122.8 Los Angeles, CA 115.6 Boston, MA 100.9 Baltimore, MD 44.0 Miami, FL 38.0 Seattle, WA 35.9 Philadelphia, PA 20.4 Chicago, IL 19.3 Minneapolis, MN 7.8 Phoenix, AZ -3.7 Dallas, TX -4.8 Houston, TX -7.7 Detroit, MI -10.3 Atlanta, GA -17.2 Tampa, FL -22.5 St. Louis, MO -28.5 -30 20 70 120 170 % Below/Above U.S. Average Source: Council for Community and Economic Research, Cost of Living Index, Q3 2015

HOUSTON—THE ECONOMY AT A GLANCE

The C2ER index indicates the BURDEN OF HOME OWNERSHIP COSTS cost of living is lower in Hou- % Of Households ston than in most of the nation. Share of Income Spent on Housing U.S. Houston That doesn’t necessarily mean Less than 20.0 percent 42.1 47.4 housing is cheap. But afforda- 20.0 to 24.9 percent 16.0 16.2 bility can be gauged in several 25.0 to 29.9 percent 11.1 10.5 ways, one being the burden that 30.0 to 34.9 percent 7.4 6.0 homeownership places on a 35.0 percent or more 23.4 19.9 family’s income. By that meas- Source: American Community Survey ure, Houston fares well compared to the nation. Data from the American Community Sur- vey (ACS) show 63.6 percent of local households spent less than 25 percent of their income on monthly housing costs compared with 58.1 percent for the nation. The Income Test —Wendell Cox, a well-known urban planner and host of the website www.Demographia.com, has devised an alternative method for determining housing affordability. Cox’s methodology is based on the multiples of median household income re- quired to purchase a home: the lower the multiple, the more affordable the housing in that market. His methodology allows him to rate affordability not just in the U.S. but in global metros as well. In a recent report, Cox identified the world’s least affordable housing markets (in order) as Hong Kong, Vancouver, Sydney, San Francisco and San Jose, Melbourne, London, San Diego, Auckland and Los Angeles.7

Housing Affordability Ratings Applying Cox’s methodology, the Partnership Median Income Rating Multiplier calculated housing affordability in the nation’s 20 Severely Unaffordable 5.1 and over most populous metro areas using median house- Seriously Unaffordable 4.1 to 5.0 hold income data from the ACS and median home prices from the National Association of Realtors Moderately Unaffordable 3.1 to 4.0 (NAR). The results show that only Atlanta, Min- Affordable 3.0 and under neapolis and St. Louis have affordable housing Source: Wendell Cox, www.Demographia.com markets. Houston, with a multiple of price to income of 3.3, falls at the low end of “moderately unaffordable.” Over the past three years, 16 of the nation’s 20 largest metro areas have seen housing affordability decline. Houston was rated “affordable” in ’12 but slipped to “moderately unaffordable” in ’14.8 The magazine Governing recently completed a study of housing affordability in the nation’s 25 largest cities, looking to determine whether families are being priced out the market for homes with two or more bedrooms. Like the Demographia methodology, Governing

7 The full report, 11th Annual Demographia International Housing Affordability Survey, can be found at www.demographia.com. 8 NAR did not report housing prices for Detroit last year, so the Partnership was unable to determine whether housing has become more or less affordable in the Motor City metro. November 2015 ©2015, Greater Houston Partnership Page 5

HOUSTON—THE ECONOMY AT A GLANCE

HOUSING AFFORDABILITY IN ’14, 20 MOST POPULOUS METROS, HIGHER MULTIPLIERS = LESS AFFORDABILITY ----- Median ------Median ----- Home HH Home HH Affordability Affordability Metro Market Price Income Metro Market Price Income Multiplier Multiplier $000 $000 $000 $000 San Francisco 737.6 83.2 8.9 Philadelphia 220.7 62.2 3.5 San Diego 497.9 66.2 7.5 Baltimore 244.1 71.5 3.4 Los Angeles 449.5 60.5 7.4 Chicago 205.9 61.6 3.3 New York 395.9 67.1 5.9 Houston 198.4 60.1 3.3 Miami 266.0 48.5 5.5 Tampa 151.5 46.9 3.2 Boston 389.8 75.7 5.2 Dallas/Fort Worth 188.3 59.5 3.2 Riverside 273.9 54.6 5.0 Minneapolis 210.1 69.1 3.0 Seattle 356.6 71.3 5.0 Atlanta 159.5 56.2 2.8 Washington, D.C. 383.8 91.2 4.2 St. Louis 141.7 55.5 2.6 Phoenix 198.5 53.4 3.7 Detroit NR NR NR Source: Partnership calculations using American Community Survey and National Association of Realtors data relied on median household income as reported in the ACS, but focused on the median income for family households, which is slightly higher than that for non-family households. Governing found that families in Houston earning $69,000 or more annually could qualify to purchase 65 percent of the homes with two of more bedrooms listed in the Trulia home sale database. The number dropped to 54 percent for Dallas and to 40 percent for Austin. Not surprisingly, San Francisco had the smallest share of available housing, 10 percent. The study did not address the location or desirability of the housing. A separate report from John Burns Real Estate Consulting supports the findings of Gov- erning. JBRE estimates that based on a 20 percent down payment and a 30-year fixed-rate conventional mortgage, 65 percent of households in Houston could afford to purchase the median priced home in ’14. That share dipped slightly from 69 percent in ’12 but remained in line with the long-term median, which is also 65 percent. Dollars and Cents — Indexes, percentages and multipliers are abstractions, however. They don’t reflect the actual impact on the homebuyer’s pocket book. Mortgage payments, property taxes, and insurance are easier to grasp and reflect a homeowner’s true financial concerns. In ’10, a median-priced home posted in the Houston Association of Realtors® Multiple Listing Service database sold for $155,000. With 10 percent down, based on a 15- year mortgage at interest rates of the day, the monthly expense for principal, interest, taxes and insurance was $1,492. Over the next four years, the median-priced home rose to $199,000 and the comparable monthly expense to $1,908, reflecting a 28.4 percent increase in home prices and a 27.9 percent increase in monthly payments. Median household income in Houston grew by $6,130, or 11.3 percent over the same period.

HOUSTON—THE ECONOMY AT A GLANCE

Monthly Payments on the Median-Priced Home Sold Through HAR Median Home Mortgage In- Monthly Mort- Monthly Total Monthly

Price 1 terest Rate 2 gage Note 3 Taxes & Ins 4 Payment '10 $155,000 4.35 $1,116 $376 $1,492 '11 $155,530 4.11 $1,101 $378 $1,479 '12 $164,800 3.50 $1,123 $402 $1,525 '13 $182,000 4.49 $1,322 $448 $1,770 '14 $199,000 4.16 $1,415 $493 $1,908 '15 $208,000 3.89 $1,454 $516 $1,970 1 Median single-family home, sold in August of that year. 2 Average rate for conventional mortgage in August of that year; 3 Calculated using the mortgage rate calculator available at the Freddie Mac website; 4 Accounts for all available homestead exemptions and assumes insurance premium would be equal to 1.0 percent of the value of the home. Sources (in order): Houston Association of Realtors, Federal Reserve Bank of St. Louis, Federal Home Loan Mortgage Corporation, Harris County Appraisal District, and Texas Department of Insurance

A Different Perspective — What Houstonians actually face is a limited supply of affordable housing in close-in neighborhoods, not a dearth of affordable housing altogether. Take the Heights, for example, one of Houston’s trendiest neighborhoods. In ’97, the typical Heights home sold for $81.73 per square foot. Last year, home prices averaged $285.22 per square foot. A search of HAR’s MLS database found 79 homes in the Heights listed at $1 million or more, 11 between $200,000 and $250,000, and only one below $200,000. On the other hand, Jersey Village has 28 homes listed between $150,000 and $250,000; 1960/Cypress Creek South, 112 in that range. The disparity between the Heights, Jersey Village, and 1960/Cypress neighborhoods underscores an old Houston adage—you drive until you can afford. The Heights is inside the Loop, Jersey Village and Cypress outside Beltway 8. The adage also acknowledges the tradeoff between convenience and price. Even with a weakened economy, Houston’s population growth will continue: conservative projections expect the region to add another million residents over the next 10 years.9 Those new residents will need both apartments and single-family homes. Houston won’t lose its affordable neighborhoods, but residents may have to drive farther to reach them. Commercial Real Estate Beginning to Turn — Houston’s commercial real estate market has begun to feel the consequences of energy companies adjusting to a “lower for longer” oil price outlook. After 19 consecutive quarters of positive net absorption, the Houston office market recorded negative net absorption of 87,904 square feet in the Q3/15, according to JLL’s quarterly Office Insight. Although Class A properties experienced positive net absorption of 135,108 square feet, Class B properties saw a loss of 225,000 square feet.

9 Long-time readers of Glance will recall that slightly less than half of Houston’s population growth comes from natural increase (births minus deaths) and slightly more than half comes from net in-migration (more residents moving in than out). November 2015 ©2015, Greater Houston Partnership Page 7

HOUSTON—THE ECONOMY AT A GLANCE

Negative net absorption is expected to continue in the upcoming quarters as leasing activity has slowed. Third quarter leasing activity was the lowest in the past 15 years, decreasing 44.0 percent from 2.7 million square feet in Q2/15 to 1.5 million square feet in Q3/15. Three factors contribute to a sobering outlook for the Houston office market:  Construction: A total of 10.7 million square feet of office space across 32 buildings is under construction, with 52.4 percent of the space preleased. According to CBRE, 13 are speculative developments that are 9.2 percent preleased. More than 580,000 square feet of new construction was delivered in the third quarter.  Sublease space: Sublease space has nearly doubled in the past year, from 3.6 million square feet in Q3/14 to 7.1 msf in Q3/15. CBRE has not seen an impact on asking rents, which have risen from $26.10 to $27.74 per square foot during this period. However, negotiated effective rents have declined and concessions are on the rise.  Shadow space: As new buildings are delivered and companies with preleased space move in, vacant square footage, or shadow space, is left behind. Depending on the lease terms, the space will add to available inventory on a direct or sublease basis. Houston’s industrial market recorded positive net absorption in the third quarter, but still experienced over-the-year declines as activity was constricted by a lack of available space. Colliers International reports 1.6 msf of net absorption in Q3, down from 2.7 msf in Q2. Absorption was strongest in the warehouse/distribution properties as manufacturing activity slowed. The industrial vacancy rate stood at 4.8 percent in Q3, unchanged from a year earlier even though 10.2 msf of new construction was delivered during that period. Currently, 9.6 msf of industrial space is under construction, of which Daikin Industries, an HVAC manufac- turer, is responsible for almost half. Average asking rents increased from $6.37 per square foot per year in Q3/14 to $6.96 in Q3/15. Houston’s retail market has yet to be impacted by the slowdown in the energy industry. According to CBRE, occupancy is at 94.1 percent, the highest on record for the market. Class A space is even tighter with 97.6 percent occupancy. Currently, 2.4 msf of retail space is under construction. In projects set to be delivered in Q1/16, 81 percent of the space is preleased. Grocery-anchored developments continue to fuel retail development, particularly in the suburbs. Kroger has four locations under construction (Humble, Cypress, Lake Jackson, and Katy). H-E-B will add two locations (Katy and Clear Lake) after opening a store in Lake Jackson this quarter. Luxury retailers are targeting the Galleria and Inner Loop area and creating strong demand for limited high- quality space in these markets.

HOUSTON—THE ECONOMY AT A GLANCE

Employment Update —The Houston-The Woodlands-Sugar Land metro area created 6,400 jobs in September, according to the Texas Workforce Commission (TWC). Houston area employment peaked at 2,992,600 in December ’14, slipped well below that level in the spring, and has struggled to regain that summit ever since. Several sectors have reported significant losses from the employment peak, while others have reported healthy gains. Sectors with the greatest year-to-date job losses include trade, transportation and utilities (-15,000), manufacturing (-14,200) and energy (-4,000). The Partnership believes TWC has underreported job losses in energy this year and expects the data to be revised downward in the future. Sectors with the largest jobs gains so far this year include health care (+11,400), accommodation and food services (+12,500) and arts, entertainment and recreation (+3,000). Unfortunately, the gains have not been enough to offset the losses. Total nonfarm payroll employment in Houston stood at 2,983,400 in Sep- tember, down 9,200 jobs since the first of the year. Aviation Update — The Houston Airport System Houston Air Passengers, Domestic vs. International Growth 12-month totals, Indexed August '05=100 reached a milestone in Octo- ber when Southwest Airlines 150 launched international air 140 service from Hobby Airport, 130 making Houston one of only 120 five U.S. cities with dual in- 110 100 ternational air hubs, the 90 other cities being Chicago, '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 New York, Orlando, and Domestic Passengers International Passengers Washington, D.C. The Hou- Source: Houston Airport System, Partnership calculations ston airport system already ranks as the nation’s eighth busiest international gateway. With Hobby expected to eventually handle a million or more international passengers each year, HAS could potentially overtake San Francisco and Atlanta to become the nation’s sixth busiest global gateway. Twenty foreign flag and three U.S. air carriers now offer international passenger service from Bush Intercontinental and Hobby. They connect Houston with 74 markets in 35 countries. Initial service from Hobby is to Aruba, Cancún, Mexico City, Puerto Vallarta and San Jose del Cabo/Los Cabos in Mexico, San Jose and Liberia in Costa Rica, Belize City, Belize and Montego Bay, Jamaica. International traffic has been the fastest growing segment of HAS passenger activity, rising at a 4.4 percent compound annual growth rate during the past ten years compared to a 1.2 percent for domestic passenger traffic. Nearly one in every five HAS passengers is travel- ing internationally.

HOUSTON—THE ECONOMY AT A GLANCE

SNAPSHOT—HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — City of Houston building permits totaled $6.1 billion for the first nine months of ’15, down 11.8 percent from $6.9 billion in the same period last year, according to the City’s Department of Public Works & Engineering Planning & Development Ser- vices. Both the commercial and residential sectors experienced declines in permit activity. Nonresidential permits dropped 12.7 percent, from $4.5 billion September ’14 YTD to $3.9 billion September ’15 YTD. During the same period, residential permits declined 9.9 percent from $2.4 billion to $2.1 billion. Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged nationwide from September ’14 to September ’15, according to the U.S. Bureau of Labor Statistics. The annual change in the U.S. CPI-U has been below one percent for the past 10 months. Over this same period, core inflation (all items less the volatile food and energy categories) recorded annual increases between 1.6 percent and 1.9 percent.

Home Sales — The Houston housing market recorded over-the-year gains in sales, dollar volume, and price in September, according to the Houston Association of REALTORS®. Total property sales increased 2.2 percent from 7,848 units in September ’14 to 8,024 units in September ’15. Housing inventory stood at 3.5 months for the third consecutive month, an improvement from the average inventory of 2.9 months during the same period last year.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 47.6 in September, a marginal increase from 47.3 in August, according to the Institute for Supply Management-Houston. With the September reading, the Houston PMI has fallen below 50 for nine consecutive months. During the Great Recession, Houston’s PMI registered below 50 for 10 consecutive months, from November ’08 through August ’09.

Vehicle Sales — Houston-area auto dealers sold 376,503 vehicles in the 12 months ending September ’15, nearly matching the record 376,598 vehicles sold in the 12 months ending January ’15. According to TexAuto Facts, published by InfoNation, Inc. of Sugar Land, monthly sales reached 38,922 vehicles, up 10.6 percent from the 35,203 sold in September ’14. The strong September performance helped offset slow activity from earlier in the year to push the year-to-date total to 294,076, up 0.9 percent from the 291,571 vehicles sold in the same period last year.

Patrick Jankowski and Jenny Philip Contributed to this issue of Houston: The Economy at a Glance

HOUSTON—THE ECONOMY AT A GLANCE

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HOUSTON—THE ECONOMY AT A GLANCE

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Sep '15 Aug '15 Sep '14 Aug '15 Sep '14 Aug '15 Sep '14

Total Nonfarm Payroll Jobs 2,983.4 2,977.0 2,947.2 6.4 36.2 0.2 1.2 Total Private 2,599.7 2,614.5 2,572.9 -14.8 26.8 -0.6 1.0 Goods Producing 561.3 562.3 577.1 -1.0 -15.8 -0.2 -2.7 Service Providing 2,422.1 2,414.7 2,370.1 7.4 52.0 0.3 2.2 Private Service Providing 2,053.8 2,048.3 1,990.8 5.5 63.0 0.3 3.2

Mining and Logging 111.5 111.3 111.7 0.2 -0.2 0.2 -0.2 Oil & Gas Extraction 54.8 55.3 54.7 -0.5 0.1 -0.9 0.2 Support Activities for Mining 54.2 53.5 55.6 0.7 -1.4 1.3 -2.5

Construction 205.3 204.6 208.6 0.7 -3.3 0.3 -1.6

Manufacturing 244.5 246.4 256.8 -1.9 -12.3 -0.8 -4.8 Durable Goods Manufacturing 163.6 165.0 176.7 -1.4 -13.1 -0.8 -7.4 Nondurable Goods Manufacturing 80.9 81.4 80.1 -0.5 0.8 -0.6 1.0

Wholesale Trade 168.1 169.1 171.1 -1.0 -3.0 -0.6 -1.8

Retail Trade 305.0 305.8 293.7 -0.8 11.3 -0.3 3.8

Transportation, Warehousing and Utilities 132.0 134.3 134.5 -2.3 -2.5 -1.7 -1.9 Utilities 16.2 16.0 15.9 0.2 0.3 1.3 1.9 Air Transportation 20.4 20.4 20.6 0.0 -0.2 0.0 -1.0 Truck Transportation 26.1 26.0 25.5 0.1 0.6 0.4 2.4 Pipeline Transportation 10.7 10.7 10.4 0.0 0.3 0.0 2.9

Information 34.5 34.5 32.4 0.0 2.1 0.0 6.5 Telecommunications 15.2 15.1 15.2 0.1 0.0 0.7 0.0

Finance & Insurance 92.3 92.7 93.7 -0.4 -1.4 -0.4 -1.5

Real Estate & Rental and Leasing 51.7 51.7 55.1 0.0 -3.4 0.0 -6.2

Professional & Business Services 473.8 480.3 470.0 -6.5 3.8 -1.4 0.8 Professional, Scientific & Technical Services 219.5 222.3 218.1 -2.8 1.4 -1.3 0.6 Legal Services 24.3 25.1 23.9 -0.8 0.4 -3.2 1.7 Accounting, Tax Preparation, Bookkeeping 22.9 22.9 21.7 0.0 1.2 0.0 5.5 Architectural, Engineering & Related Services 72.1 73.0 74.5 -0.9 -2.4 -1.2 -3.2 Computer Systems Design & Related Services 32.8 33.1 32.6 -0.3 0.2 -0.9 0.6 Admin & Support/Waste Mgt & Remediation 221.3 224.6 217.5 -3.3 3.8 -1.5 1.7 Administrative & Support Services 209.2 213.2 206.7 -4.0 2.5 -1.9 1.2 Employment Services 80.7 81.0 83.3 -0.3 -2.6 -0.4 -3.1

Educational Services 55.4 53.6 53.6 1.8 1.8 3.4 3.4

Health Care & Social Assistance 316.4 312.2 300.5 4.2 15.9 1.3 5.3

Arts, Entertainment & Recreation 31.8 33.8 30.7 -2.0 1.1 -5.9 3.6

Accommodation & Food Services 273.7 277.9 256.2 -4.2 17.5 -1.5 6.8

Other Services 103.7 106.3 104.3 -2.6 -0.6 -2.4 -0.6

Government 383.7 362.5 374.3 21.2 9.4 5.8 2.5 Federal Government 27.7 27.8 27.7 -0.1 0.0 -0.4 0.0 State Government 72.0 69.8 71.8 2.2 0.2 3.2 0.3 State Government Educational Services 39.4 37.3 39.2 2.1 0.2 5.6 0.5 Local Government 284.0 264.9 274.8 19.1 9.2 7.2 3.3 Local Government Educational Services 196.3 176.4 189.5 19.9 6.8 11.3 3.6

SOURCE: Texas Workforce Commission

HOUSTON—THE ECONOMY AT A GLANCE

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Sep '15 848 1,930 -56.1 1,059 * 1,845 * -42.6 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Sep '15 45.26 93.37 -51.5 51.09 * 100.08 * -49.0 Spot Natural Gas ($/MMBtu, Henry Hub) Sep '15 2.66 3.89 -31.6 2.79 * 4.47 * -37.6

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Sep '15 47.6 58.1 -18.1 46.9 * 57.1 * -17.9 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Sep '15 4,754,992 5,128,460 -7.3 42,094,239 40,380,392 4.2 CONSTRUCTION Total Building Contracts ($, Houston MSA) Sep '15 1,182,015,000 1,426,582,000 -17.1 12,591,807,000 27,963,740,000 -55.0 Nonresidential Sep '15 424,522,000 658,045,000 -35.5 4,928,696,000 20,310,642,000 -75.7 Residential Sep '15 757,493,000 768,537,000 -1.4 7,663,111,000 7,653,098,000 0.1 Building Permits ($, City of Houston) Sep '15 598,438,344 1,229,818,665 -51.3 6,057,690,646 6,864,678,355 -11.8 Nonresidential Sep '15 435,474,161 795,366,136 -45.2 3,916,668,594 4,487,389,359 -12.7 New Nonresidential Sep '15 164,473,093 631,895,620 -74.0 1,951,598,300 2,676,531,788 -27.1 Nonresidential Additions/Alterations/Conversions Sep '15 271,001,068 163,470,516 65.8 1,965,070,294 1,810,857,571 8.5 Residential Sep '15 162,964,183 434,452,529 -62.5 2,141,022,052 2,377,288,996 -9.9 New Residential Sep '15 140,873,854 414,409,469 -66.0 1,921,471,934 2,155,192,856 -10.8 Residential Additions/Alterations/Conversions Sep '15 22,090,329 20,043,060 10.2 219,550,118 222,096,140 -1.1 Multiple Listing Service (MLS) Activity Property Sales Sep '15 8,024 7,848 2.2 69,199 69,439 -0.3 Median Sales Price - SF Detached Sep '15 208,000 199,000 4.5 211,644 * 196,832 * 7.5 Active Listings Sep '15 34,041 28,946 17.6 30,762 * 29,866 * 3.0

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Sep '15 2,983,400 2,947,200 1.2 2,974,711 * 2,906,333 * 2.4 Goods Producing (Natural Resources/Mining/Const/Mfg) Sep '15 561,300 577,100 -2.7 566,978 0 564,522 * 0.4 Service Providing Sep '15 2,422,100 2,370,100 2.2 2,407,733 0 2,341,811 * 2.8 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Sep '15 4.6 4.9 4.4 * 5.2 * Texas Sep '15 4.4 5.0 4.3 * 5.4 * U.S. Sep '15 4.9 5.7 5.5 * 6.4 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Aug '15 3,507,519 4,121,463 -14.9 31,730,458 31,319,476 1.3 Air Passengers (Houston Airport System) Aug '15 4,788,616 4,694,479 2.0 36,765,703 35,757,744 2.8 Domestic Passengers Aug '15 3,782,749 3,788,437 -0.2 29,479,777 28,908,819 2.0 International Passengers Aug '15 1,005,867 906,042 11.0 7,285,926 6,848,925 6.4 Landings and Takeoffs Aug '15 67,499 69,444 -2.8 536,245 545,377 -1.7 Air Freight (metric tons) Aug '15 32,202 37,009 -13.0 275,180 286,498 -4.0 Enplaned Aug '15 16,696 19,108 -12.6 143,091 150,840 -5.1 Deplaned Aug '15 15,507 17,901 -13.4 132,089 135,658 -2.6

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Sep '15 38,922 35,203 10.6 294,076 291,571 0.9 Cars Sep '15 15,612 14,914 4.7 119,855 126,810 -5.5 Trucks, SUVs and Commercials Sep '15 23,310 20,289 14.9 174,221 164,761 5.7 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 4Q14 34,260 37,618 -8.9 123 116 5.6 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Sep '15 214.652 214.102 0.3 212.662 * 213.188 * -0.2 United States Sep '15 237.945 238.031 0.0 236.820 * 236.801 * 0.0 Hotel Performance (Houston MSA) Occupancy (%) 4Q14 68.1 65.9 71.8 * 69.1 * Average Room Rate ($) 4Q14 106.52 101.26 5.2 106.87 * 101.19 * 5.6 Revenue Per Available Room ($) 4Q14 72.49 66.77 8.6 76.76 * 69.92 * 9.8

POSTINGS AND FORECLOSURES Postings (Harris County) Mar '14 993 1,652 -39.9 1,151 1,804 -36.2 Foreclosures (Harris County) Mar '14 337 469 -28.1 380 499 -23.8

HOUSTON—THE ECONOMY AT A GLANCE

Nonfarm Payroll Employment, Houston MSA

3,100 150

3,000 120

2,900 90 2,800 60 2,700 30 2,600 0 2,500 -30

2,400 MonthChange (000) -60 -

2,300 12 Nonfarm Payroll Employment (000) 2,200 -90 2,100 -120 2,000 -150 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s)

- -

2,000 Goods 460 Service 1,900

420 1,800 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf 60 6

40 4

20 2

0 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 24 Number 10 — October 2015

Batting .333 — Three factors drive Houston’s economy—the price of oil, the value of the dollar, and the health of the U.S. economy. Two of the three are currently struggling at the plate. The stats show oil to be in a slump. Crude trades at less than half its June ’14 peak. Explo- ration firms have slashed their budgets 50 percent or more. The rig count has fallen nearly 60 percent. Drilling permits are down 40 percent. Layoff notices appear in the media almost daily. One week, analysts forecast crude will slip below $20 in the spring; the next, they predict crude will top $80 by the fall.

What’s certain is that the industry is in transition, with more layoffs, bankruptcies, mergers and acquisitions to come. Oil prices, a catalyst for growth in recent years, are now a drag on Houston’s economy. The industry is restructuring, but it’s too early to know how long the reorganization will last or what the industry will look like when it’s done. Houston is in no danger of losing its role as “Energy Capital of the World,” but the industry will look much different in the future—fewer firms, a smaller workforce, greater capital discipline, and even more reliance on technology. U.S. ENERGY INDUSTRY OVERVIEW % From Peak Date Recent Date Peak West Texas Intermediate Spot Price ($/barrel) $107.95 6/20/14 $45.38 9/30/15 -58.7 North American Active Rig Count 1,931 9/26/14 848 9/25/15 -56.6 U.S. Drilling Permits Issued (YTD) 51,532 Aug ’14 30,101 Aug ‘15 -41.6 Domestic Crude Output (Million Barrels/Day) 9.612 Apr ’15 9.296 Jun ’15 -3.3 U.S. Energy Industry Employment 540,800 Sep ’14 485,700 Jul ’15 -10.2 Sources: U.S. Energy Information Administration, Baker Hughes, RigData, and Bureau of Labor Statistics Foreign trade is as important to Houston as energy. The Houston-Galveston Customs Dis- trict routinely handles $250 billion in trade (exports and imports) per year. More than 5,000 Houston companies do business overseas. And The Brookings Institution estimates that exports account for nearly one-fifth of the region’s gross domestic product. Unfortunately, growth has slowed in many emerging markets, reducing the demand for Houston’s exports. To make matters worse, the U.S. dollar has appreciated nearly 20 percent in value over the past 18 months, making U.S. goods and commodities more expensive overseas. As a result, exports via the customs district have slipped $10.3 billion (13.3 percent) through August

HOUSTON—THE ECONOMY AT A GLANCE

compared to the same period last year. Though data are not available, the strong dollar has undoubtedly hurt the Houston firms that export their services overseas. The U.S. economy is the only power hitter in the lineup. The Bureau of Economic Analysis estimates that U.S. gross domestic product (GDP) grew 3.9 percent in the second quarter. Employment growth is averaging 250,000 jobs per month. And the nation is on pace to start nearly 1.2 million housing units this year. All of these signs translate into improved domestic demand for the chemicals, plastics, industrial and electrical equipment that Hou- ston produces. The improving U.S. economy helps, but it won’t offset the impact of weak oil prices and a strong dollar on Houston. Growth here will sputter along until at least one of the other two—the price of oil and the value of the dollar―swings in Houston’s favor. Job Count Still in the Hole — Houston employment remains 22,200 jobs below its De- cember ’14 peak. Some seasonal losses are always expected as employees hired for the holiday shopping season are let go, construction activity drops off, and companies complete year-end reorganizations. Over the past two decades, employers have cut an average of 45,000 jobs the first month of the year. The region typically recoups those losses in February and March, and payroll employment reaches a new peak by April. Nine months into this year, however, Houston continues to lose ground. The sectors that are growing haven’t added enough jobs to offset losses elsewhere.

The September employment report (due out METRO HOUSTON EMPLOYMENT CHANGES October 16) may provide some clue as to how SINCE DECEMBER ’14 Sector Jobs Gained/Lost the year will finish. Houston typically adds 6,000 to 18,000 jobs in the month, 10,000 be- Leisure and Hospitality +21,900 ing the 20-year average. Job growth comes Business Services +8,800 from several sources, with the return of edu- Health Care +5,700 cators to the classroom accounting for the Information +1,400 bulk of the gains. If the Texas Workforce Wholesale Trade -3,100 Commission reports at least minimal job Retail Trade -3,200 growth for Houston in September, the year Finance and Real Estate -4,600 should end on a positive note. Since ’95, the Transport, Warehouse, Utils -5,100 region has created an average of 29,000 jobs Mining and Logging -5,500 in the fourth quarter. If Houston fails to add any jobs in September, hiring in Q4 might not Construction -5,800 be enough to offset the job losses so far this Manufacturing -12,200 year. Source: Texas Workforce Commission The Partnership recently revised its employment outlook to better reflect current economic conditions. The forecast now calls for the region to add 20,000 to 30,000 jobs in ’15. That compares to 104,700 created in ’14 and 89,900 created the year prior.

HOUSTON—THE ECONOMY AT A GLANCE

Shuffling the Lineup — From ’05 to ’14, Metro Houston1 created nearly 650,000 jobs, gross domestic product grew by more than $200 billion, and the region added 1.3 million residents. About 45 percent of the new residents arrived via the maternity ward and 55 percent via the moving van. This leap in local population has altered Houston’s demographic profile. Each September, the U.S. Census Bureau releases data from the American Community Survey (ACS), an annual snapshot of the nation’s economic, housing and social characteristics. By comparing Houston ACS data for ’05 and ’14, one can see changes in the region’s population over that period. The Partnership has compared data from the ’05 and ’14 ACS2 for the nine-county Houston region and finds the following:

Houston’s population continues to diversify. Hispanic residents accounted for more than half the region’s population growth since ’05. If that trend continues, by the end of the decade Hispanics will be the largest racial/ethnic group in the region. Black and Asian population growth outpaced HOUSTON METRO AREA RACE AND ETHNICITY, '05 AND '14 Anglo growth as well. Hous------’14 ------’05 ------Count % Count % ton’s black population now Total population 6,490,180 100.0 5,193,448 100.0 exceeds 1.0 million resi- Anglo 2,452,709 37.8 2,313,993 44.6 dents, and the region’s Asian Hispanic 2,356,245 36.3 1,686,048 32.5 population should surpass Black 1,092,194 16.8 830,445 16.0 half a million next year. Asian 471,037 7.3 290,923 5.6 American Indian 11,938 0.2 12,969 0.2 Houston continues to age. In Hawaiian/Pacific Islander 3,654 0.1 3,502 0.1 ’05, the median age for the Some other race 11,801 0.2 10,638 0.2 region was 32.9 years. By Two or more races 90,602 1.4 44,930 0.9 ’14, it had risen to 34.0. The Source: American Community Surveys, ’05 and ’14 median age for the U.S. as a whole is 37.7 years. Likewise, the population 65 and older rose by 236,000 residents over the past nine years. Seniors (i.e., those 65 and older) represent 9.8 percent of the region’s population, up from 7.7 percent in ’05. The share of households receiving Social Security income rose from 18.8 to 21.0 percent from ’05 to ’14. The local labor force participation rate has fallen, but not to the same extent as the national rate. In ’05, 68.8 percent of Houstonians 16 and older were in the labor force (i.e., employed or actively looking for work). By ’14, the labor force participation rate had slipped to 67.1 percent. The U.S. rate fell from 66.0 to 62.9 percent over the same period. There’s a reason traffic has worsened. The ACS reports that 2.9 million Houstonians com- mute to work each day, up from 2.2 million in ’05. Nine out of 10 drive alone or ride in a

1 Metro Houston is shorthand for the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area, which includes Aus- tin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller Counties. Prior to 2012, the Houston metro area also included San Jacinto County. 2 ’05 is the earliest year for which ACS data are available. October 2015 ©2015, Greater Houston Partnership Page 3

HOUSTON—THE ECONOMY AT A GLANCE

carpool. That’s essentially unchanged from ’05. Only 2.4 percent of Houston commuters use public transit, down from 2.8 percent in ’05. The share who work at home rose from 2.9 to 3.5 percent over that period. Average travel time to work is 29.2 minutes, up from 28.1 minutes in ’05. More Houstonians work in the energy industry now. That’s not surprising given the rise in oil prices and drilling activity from ’05 to ’14. Nine years ago, only 2.5 percent of the region’s 2.4 million workers identified themselves as employed in the oil and gas industry. Last year, 4.2 percent of the region’s 3.1 million did so. EDUCATION ATTAINMENT, METRO HOUSTON, POPULATION 25 AND OLDER Houston has grown Highest Education Level ’14 Popula- ’05 Popula- smarter. The number of % % tion tion adults with a bachelor’s Less than 9th grade 391,205 9.5 330,497 10.3 degree or higher has 9th to 12th grade, no diploma 350,025 8.5 352,958 11.0 grown by more than High school graduate 943,010 22.9 789,342 24.6 380,000, and the number Some college, no degree 901,830 21.9 654,576 20.4 completing high school by Associate's degree 255,313 6.2 186,105 5.8 more than 850,000. The Bachelor's degree 815,354 19.8 596,820 18.6 share of adults without a Graduate or professional degree 461,210 11.2 298,410 9.3 high school diploma has High school graduate or higher 3,376,717 82.0 2,525,252 78.7 Bachelor's degree or higher 1,276,564 31.0 895,229 27.9 dropped from 21.3 percent Population 25 years and over 4,117,947 100.0 3,208,707 100.0 to 18.0 percent over the Note: Total may not sum evenly due to rounding past nine years. Source: American Community Surveys, ’05 and ’14 Fewer Houstonians are self-employed. In ’05, 7.1 percent of the region’s population was self-employed. That figure dropped to 6.2 percent in ’14. That number may creep up in coming years as the weaker economy forces many to become entrepreneurs by circum- stance, not by choice. Incomes have outpaced inflation. The median household income for Houston was $46,706 in ’05. Adjusted for inflation, that would be $56,615 in ’14. The ACS found the median household income in ’14 was $60,072. (Note: The annual inflation rate hovered around 4 percent in the middle of the last decade, but for the past six years has averaged less than 2 percent.) Houston has more middle class and affluent households now. The ACS recorded 450,000 households earning between $100,000 and $200,000 in ’14, up from 273,000 in ’05. The ACS also reported 178,000 households in Houston with incomes of $200,000 or more in ’13, nearly triple the 65,500 households in ’05. The war on poverty hasn’t ended, however. In ’14, 188,000 families, 12.2 percent of all families in the region, lived in poverty, up from 172,000 in ’05 but down from 13.4 percent in ’05.

HOUSTON—THE ECONOMY AT A GLANCE

Female-headed households continue to struggle. For families headed by a female with children but with no husband present, the poverty rate dropped from 41.5 to 37.7 percent. However, the number of these families rose from 74,000 to 79,000. Fewer are uninsured. In ’09, 75.4 percent of Houstonians had health insurance. In ’14, 80.4 percent had coverage. (Insurance status data for ’05 are not available.) Houston continues to draw population from overseas. The ’14 ACS found that nearly 1.5 million Houston residents were born outside the U.S., up from 1.1 million in ’05. Today, 23.1 percent of all Houstonians are foreign born compared to 21.1 percent in ’05.

Two distinct groups of foreign- SELECTED CHARACTERISTICS BY CITIZENSHIP STATUS METRO HOUSTON POPULATION born residents have emerged. Citizenship Status - % or # Native Natural- Non-

Those who have been naturalized Born ized Citizen (i.e., received U.S. citizenship) are Population 15 years and over 3,595,078 534,229 890,708 more likely to be married, in the Never married 37.0% 15.1% 31.4% workforce, and have attained a col- Now married 44.9 68.3 57.6 Divorced or separated 13.5 11.0 8.1 lege degree than U.S.-born Hous- Widowed 4.6 5.6 3.0 Population 3 years and over tonians. Naturalized residents are 1,632,325 55,802 141,740 also more likely to have a median enrolled in school Nursery school, preschool 7.1% 1.2% 1.6% household income that exceeds the Elementary school (grades K-8) 51.7 14.8 33.0 average household income for the High school (grades 9-12) 20.1 16.7 26.7 region ($60,072). College or graduate school 21.2 67.3 38.7 Noncitizens are more likely to be Population 25 years and over 2,841,687 507,116 769,144 Less than high school graduate 9.4% 22.2% 47.0% married and in the workforce than High school graduate 24.1 18.6 21.3 U.S.-born Houstonians, but they Some college or associate's degree 33.6 20.9 12.4 are likely to be less educated and Bachelor's degree 21.8 22.8 10.7 live in a household with substan- Graduate or professional degree 11.1 15.5 8.6 tially less income than native born Population 16 years and over 3,505,114 532,805 883,775 residents. In labor force 66.1% 70.9% 68.7% In the Civilian labor force 66.0 70.9 68.7 Foreign-born, regardless of citi- Employed 62.0 68.3 65.1 zenship status, are more likely to Unemployed 4.1 2.6 3.6 be enrolled in college or graduate Median household income (dollars) 64,885 65,445 37,381 school than native born. Source: 2014 American Community Survey An Urban Myth That Refuses to Die — In spite of what Bloomberg, the Huffington Post and various media outlets have reported, the city of Houston is not on the verge of overtaking Chicago as the nation’s third most populous city. True, the Bayou City is growing faster than the Windy City, but Chicago’s population exceeds Houston’s by more than 482,000 residents. Even in the most optimistic of scenarios, decades will pass before Hou- ston closes that gap. This is explained below. October 2015 ©2015, Greater Houston Partnership Page 5

HOUSTON—THE ECONOMY AT A GLANCE

3 Scenario I –Growth Based on Recent History Actual Populations Year According to the U.S. Census Bureau, Chicago Chicago Houston added 25,000 residents over the past four years, or '10 2,697,319 2,102,421

approximately of 6,250 residents per year. The city '14 2,722,389 2,239,558 of Houston added approximately 137,000 residents , '10-'14 25,070 137,137 over the same period, an average of 34,250 residents per year. If both cities maintain those growth Avg Annual  6,268 34,284

Recent History Year Projected Populations

rates, Houston would overtake Chicago in ’32, or – 17 years from now. '15 2,728,657 2,273,842 But one shouldn’t expect Houston to maintain the '20 2,759,994 2,445,264 '25 2,791,332 2,616,685 recent pace indefinitely. The metro area boomed Scenario I from ’10 to ’14, adding $125 billion to GDP and '30 2,822,669 2,788,106 creating nearly 370,000 jobs. That economic ex- '32 2,835,204 2,856,675 pansion brought 300,000 newcomers to the region, Source: Census data and Partnership calculations many settling inside the city. Beginning late in ’14, the region’s economy entered a slower growth phase and will likely create significantly fewer jobs, perhaps none at all, in coming years. That change translates into fewer people moving here. As a result, Houston will gain ground more slowly on Chicago. The day the home of Sam Houston overtakes the home of Rahm Emanuel will be pushed still further into the future. Scenario II: Growth based on separate histories.

From ’00 to ’10, the city of Houston added about

Population Projections 130,000 residents, or 13,000 per year.4 That was a Year decade in which the region completed a full busi- ies Chicago Houston Avg Annual  6,000 13,000

ness cycle—slow growth, rapid growth, a peak, a Histor recession, a trough and then growth again. That '15 2,728,657 2,253,020 mixture of ups and downs suggests that population ‘30 2,822,669 2,454,953

Different growth in the decade was closer to what should be ‘45 2,916,682 2,656,886

–

I normal for Houston. If Chicago’s population grows I ‘60 3,010,694 2,858,819 by 6,000 residents per year (Scenario I above) and ‘75 3,104,707 3,060,752 Houston grows by 13,000 residents per year (a '83 3,148,579 3,154,988 more normal average), the Bayou City wouldn’t Scenario Source: Census data and Partnership calculations overtake the Windy City until ’82, or 67 years from now.

3 Data are for the period from July 1, 2010 through July 1, 2014. 4 That the city of Houston’s population growth from ’10 to ’14 nearly matched that from ’00 to ’10 underscores how the pace of the past few years is unstainable and should not be used to extrapolate the city’s population growth. October 2015 ©2015, Greater Houston Partnership Page 6

HOUSTON—THE ECONOMY AT A GLANCE

Scenario III: What Official Forecasters Say The Houston-Galveston Area Council (HGAC) forecasts population, employment, and land use for the cities and counties on the Texas Gulf Coast. The Chicago Metropolitan Agency for Planning (CMAP) forecasts population, households and employment for its respective metro area. CMAP expects Chicago’s population to reach 3,092,262 in ’40. HGAC projects Houston’s population to reach 2,939,131 by then. In other words, 25 years from now Houston’s population still falls 150,000 short of Chicago’s. The Windy City’s forecast doesn’t extend past ’40, but if one extrapolates, Houston would overtake Chicago in ’52, or 37 years from now. To summarize, in Scenario I, Houston won’t overtake Chicago until today’s kindergarten- ers have graduated from college, in Scenario III, not until they’re in their 30s, and Scenario II, not until they’re well into retirement. To put it bluntly, the city of Houston is unlikely to overtake the city of Chicago any time soon. INDUSTRY SHARES OF HOUSTON GDP – ’14

Half a Trillion Dollars — The U.S. Bu- Sector $ Billions % GDP reau of Economic Analysis (BEA) esti- Agriculture, Forestry, Fishing 0.452 0.1 mates Houston’s gross domestic product Mining 101.068 19.2 (GDP) reached $525.4 billion in ’14, Construction 27.789 5.3 Manufacturing 80.495 15.3 ranking it as the nation’s fourth largest Durable goods 28.810 5.5 metro economy. If Houston were an inde- Nondurable goods 51.684 9.8 pendent nation, the region would have the Wholesale Trade D D 26th largest economy in the world, placing Retail Trade 22.728 4.3 it behind Belgium ($527.8 billion) and Utilities 18.173 3.5 5 Transportation and Warehousing D D ahead of Norway ($511.6 billion). Information D D Finance, Insurance, Real Estate 62.738 11.9 Sectors accounting for the largest share of Finance and insurance 17.292 3.3 GDP were mining ($101.1 billion; 19.2 Real estate and rental and leasing 45.445 8.6 percent), manufacturing ($80.5 billion; Professional, Business Services 64.360 12.3 15.3 percent), and professional and busi- Educational Services, Health Care 23.425 4.5 ness services ($64.4 billion; 12.3 per- Educational services 3.230 0.6 Health care and social assistance 20.195 3.8 cent). Mining’s share of GDP has ranged Arts, Entertainment, Recreation, from 24.2 percent in ’08 to 15.1 percent Accommodation and Food Services 12.888 2.5 in ’03, averaging 18.0 percent from ’03 to Other Services 9.790 1.9 6 Government 31.841 6.1 ’14. Total All Sectors $525.397 100.0 D = Not reported to avoid the disclosure of confidential information. Source: U.S. Bureau of Economic Analysis

5 BEA’s estimates are for the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area, which includes Austin, Bra- zoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller counties. The comparison of Houston’s economy to global economies is based on International Monetary Fund reports of national GDP. 6 The BEA began releasing detailed data for the mining industry in ’03. Therefore, we are unable to assess mining’s contribution to Houston GDP prior to ’03. October 2015 ©2015, Greater Houston Partnership Page 7

HOUSTON—THE ECONOMY AT A GLANCE

Houston’s economy grew 1.8 percent (net GROSS DOMESTIC PRODUCT 20 Largest Metro Economies of inflation) in ’14, a slowdown from the ’14 GDP % Change 6.5 percent growth recorded in ’13. That Rank Metro ($ Billions) ’13-’14* was also the smallest increase since ’10, 1 New York 1,558.518 2.4 when GDP grew 1.1 percent. The slow 2 Los Angeles 866.745 2.3 growth reported for ’14 is surprising, 3 Chicago 610.552 1.8 4 Houston 525.397 1.8 given that the drop in oil prices did not oc- 5 Dallas-Fort Worth 504.358 8.5 cur until the latter half of ’14 and job 6 Washington, D.C. 471.584 0.3 losses were not posted until early in ’15. 7 San Francisco 411.969 5.2 The BEA also revised Houston’s ’13 GDP 8 Philadelphia 391.118 1.1 down $2.2 billion from $517.4 billion 9 Boston 382.459 2.6 10 Atlanta 324.881 3.0 In contrast, the BEA revised the Dallas 11 Seattle 300.827 3.4 metro’s ’13 GDP up $13.7 billion to 12 Miami 299.161 3.0 13 Detroit 236.500 2.2 $461.3 billion. Of the top 20 metro econ- 14 Minneapolis 235.733 2.0 omies, Dallas posted the fastest growth in 15 Phoenix 215.214 1.8 ’14, 8.5 percent, and overtook Washing- 16 San Jose 213.819 6.7 ton, D.C. to become the fifth largest metro 17 San Diego 206.817 1.4 economy. The reasons for the revisions 18 Denver 187.111 5.0 were not explained in the September data 19 Baltimore 173.516 1.4 release, but the BEA stated that more in- 20 Portland 159.328 4.3 * Net of inflation formation would be available in the Octo- Source: U.S. Bureau of Economic Analysis ber issue of its monthly journal, the Sur- vey of Current Business.

Partnership to Host Annual Economic Out- look — Plan to attend the Greater Houston Partnership’s 2016 Economic Outlook, scheduled for Monday, December 7, at the Hyatt Regency Houston, 1200 Louisiana. The event features a panel of experts discussing the outlook for energy, health care, real estate, construction and professional services in the coming year. The Partnership’s employment forecast for 2016 will be presented. And Anthony Chan, chief economist for JP Morgan Chase, will be the luncheon keynote speaker. He will provide the U.S. and global outlooks. Two publications, the 2016 Employment Fore- cast and Houston Economic Highlights, a 10-year review of local economic and demographic trends, will also be distributed at the event. Tickets go on sale October 15. Addi- tional details about the event and how to purchase tickets will be posted at the Partner- ship’s website, www.houston.org, starting October 15.

HOUSTON—THE ECONOMY AT A GLANCE

SNAPSHOT—HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — City of Houston building permits totaled $5.5 billion for the first eight months of the year, down 3.1 percent from $5.6 billion in the same period last year, according to the City’s Department of Public Works & Engineering Planning & Development Services. Despite the decline from the previous year, permitting activity in ’15 has benefited from strong momentum and is the second-highest August YTD total since the Part- nership began tracking City of Houston building permits in ’02. Inflation —The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent nationwide from July ’14 to July ’15, according to data released by the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) rose 1.8 percent over the 12 months.

Home Sales — Houston realtors sold 8,836 single-family homes, townhomes, condos, duplexes, county homes, high rise units and lots in August, according to the Houston Asso- ciation of REALTORS®. That’s essentially flat compared to the 8,838 units sold last Au- gust. Year to date, area realtors have recorded 61,382 closings, off 0.3 percent from last year’s YTD total of 61,591. However, the 51,233 single-family closings to date are 0.7 percent ahead of last year’s YTD total of 50,889 closings.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 47.3 in August, down from 49.1 in July according to the latest report from the Institute for Supply Management-Houston (ISM-Houston). With the August reading, the Houston PMI has fallen below the neutral point of 50 for eight consecutive months. Vehicle Sales — Houston-area auto dealers sold 30,588 vehicles in August ’15, down 0.3 percent from the 30,677 sold in August ’14. Year-to-date sales volumes, down as much as 10.6 percent in March, have nearly recovered from doldrums of the first quarter. Through the first eight months of this year, dealers sold 255,154 vehicles, off only 0.5 percent from the 256,368 vehicles sold in the same period last year, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land.

Patrick Jankowski and Jenny Philip Contributed to this issue of Houston: The Economy at a Glance

HOUSTON—THE ECONOMY AT A GLANCE

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HOUSTON—THE ECONOMY AT A GLANCE

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Aug '15 Jul '15 Aug '14 Jul '15 Aug '14 Jul '15 Aug '14

Total Nonfarm Payroll Jobs 2,970.4 2,982.2 2,932.0 -11.8 38.4 -0.4 1.3 Total Private 2,609.4 2,615.2 2,578.3 -5.8 31.1 -0.2 1.2 Goods Producing 559.5 562.7 575.4 -3.2 -15.9 -0.6 -2.8 Service Providing 2,420.6 2,428.9 2,350.4 -8.3 70.2 -0.3 3.0 Private Service Providing 2,053.8 2,048.3 1,990.8 5.5 63.0 0.3 3.2

Mining and Logging 110.0 110.5 111.7 -0.5 -1.7 -0.5 -1.5 Oil & Gas Extraction 55.4 55.7 55.5 -0.3 -0.1 -0.5 -0.2 Support Activities for Mining 53.3 53.5 54.9 -0.2 -1.6 -0.4 -2.9

Construction 203.0 203.4 206.7 -0.4 -3.7 -0.2 -1.8

Manufacturing 246.5 248.8 257.0 -2.3 -10.5 -0.9 -4.1 Durable Goods Manufacturing 164.9 167.2 176.5 -2.3 -11.6 -1.4 -6.6 Nondurable Goods Manufacturing 81.6 81.6 80.5 0.0 1.1 0.0 1.4

Wholesale Trade 169.3 169.4 170.7 -0.1 -1.4 -0.1 -0.8

Retail Trade 305.5 305.5 296.5 0.0 9.0 0.0 3.0

Transportation, Warehousing and Utilities 133.9 133.9 135.1 0.0 -1.2 0.0 -0.9 Utilities 16.0 16.1 15.9 -0.1 0.1 -0.6 0.6 Air Transportation 20.4 20.4 20.6 0.0 -0.2 0.0 -1.0 Truck Transportation 26.0 25.9 25.3 0.1 0.7 0.4 2.8 Pipeline Transportation 10.8 10.6 10.5 0.2 0.3 1.9 2.9

Information 34.0 34.1 32.9 -0.1 1.1 -0.3 3.3 Telecommunications 15.1 15.1 15.1 0.0 0.0 0.0 0.0

Finance & Insurance 93.0 93.6 94.4 -0.6 -1.4 -0.6 -1.5

Real Estate & Rental and Leasing 51.7 52.3 54.9 -0.6 -3.2 -1.1 -5.8

Professional & Business Services 479.2 481.7 471.5 -2.5 7.7 -0.5 1.6 Professional, Scientific & Technical Services 223.0 225.9 219.3 -2.9 3.7 -1.3 1.7 Legal Services 25.1 25.3 24.1 -0.2 1.0 -0.8 4.1 Accounting, Tax Preparation, Bookkeeping 23.0 22.9 21.9 0.1 1.1 0.4 5.0 Architectural, Engineering & Related Services 73.5 75.2 74.8 -1.7 -1.3 -2.3 -1.7 Computer Systems Design & Related Services 33.1 33.3 33.1 -0.2 0.0 -0.6 0.0 Admin & Support/Waste Mgt & Remediation 222.9 222.2 217.6 0.7 5.3 0.3 2.4 Administrative & Support Services 211.8 211.2 206.9 0.6 4.9 0.3 2.4 Employment Services 80.6 80.0 83.4 0.6 -2.8 0.7 -3.4

Educational Services 53.1 52.3 52.3 0.8 0.8 1.5 1.5

Health Care & Social Assistance 311.8 311.7 300.0 0.1 11.8 0.0 3.9

Arts, Entertainment & Recreation 33.8 34.7 32.5 -0.9 1.3 -2.6 4.0

Accommodation & Food Services 278.1 277.4 257.6 0.7 20.5 0.3 8.0

Other Services 106.5 105.9 104.5 0.6 2.0 0.6 1.9

Government 361.0 367.0 353.7 -6.0 7.3 -1.6 2.1 Federal Government 27.8 28.1 27.6 -0.3 0.2 -1.1 0.7 State Government 69.8 69.9 69.6 -0.1 0.2 -0.1 0.3 State Government Educational Services 37.3 37.3 37.0 0.0 0.3 0.0 0.8 Local Government 263.4 269.0 256.5 -5.6 6.9 -2.1 2.7 Local Government Educational Services 174.8 180.3 170.2 -5.5 4.6 -3.1 2.7

SOURCE: Texas Workforce Commission

HOUSTON—THE ECONOMY AT A GLANCE

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Sept '15 848 1,930 -56.1 1,059 * 1,845 * -42.6 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Sept '15 45.26 93.37 -51.5 51.09 * 100.08 * -49.0 Spot Natural Gas ($/MMBtu, Henry Hub) Sept '15 2.66 3.89 -31.6 2.79 * 4.47 * -37.6

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Aug '15 47.3 55.6 -14.9 46.8 * 57.0 * -17.9 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Aug '15 5,184,990 5,025,459 3.2 37,339,247 35,251,932 5.9

CONSTRUCTION Total Building Contracts ($, Houston MSA) Aug '15 1,196,707,000 3,914,003,000 -69.4 11,342,143,000 26,536,158,000 -57.3 Nonresidential Aug '15 408,152,000 2,902,865,000 -85.9 4,491,754,000 19,651,597,000 -77.1 Residential Aug '15 788,555,000 1,011,138,000 -22.0 6,850,389,000 6,884,561,000 -0.5 Building Permits ($, City of Houston) Aug '15 615,000,608 695,960,968 -11.6 5,459,252,302 5,634,859,690 -3.1 Nonresidential Aug '15 390,417,722 370,587,621 5.4 3,481,194,433 3,692,023,223 -5.7 New Nonresidential Aug '15 227,753,872 88,272,884 158.0 1,787,125,207 2,044,636,168 -12.6 Nonresidential Additions/Alterations/Conversions Aug '15 162,663,850 282,314,737 -42.4 1,694,069,226 1,647,387,055 2.8 Residential Aug '15 224,582,886 325,373,347 -31.0 1,978,057,869 1,942,836,467 1.8 New Residential Aug '15 180,377,993 302,815,828 -40.4 1,780,598,080 1,740,783,387 2.3 Residential Additions/Alterations/Conversions Aug '15 44,204,893 22,557,519 96.0 197,459,789 202,053,080 -2.3 Multiple Listing Service (MLS) Activity Property Sales Aug '15 8,836 8,838 0.0 61,382 61,382 0.0 Median Sales Price - SF Detached Aug '15 215,100 205,000 4.9 211,838 * 196,561 * 7.8 Active Listings Aug '15 34,089 29,574 15.3 30,353 * 28,736 * 5.6

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Aug '15 2,970,400 2,932,000 1.3 2,972,800 * 2,901,225 * 2.5 Goods Producing (Natural Resources/Mining/Const/Mfg) Aug '15 559,500 575,400 -2.8 567,338 0 562,950 * 0.8 Service Providing Aug '15 2,410,900 2,356,600 2.3 2,405,463 0 2,338,275 * 2.9 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Aug '15 4.6 5.1 4.4 * 5.3 * Texas Aug '15 4.4 5.3 4.3 * 5.4 * U.S. Aug '15 5.2 6.3 5.5 * 6.5 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Aug '15 3,507,519 4,121,463 -14.9 31,730,458 31,319,476 1.3 Air Passengers (Houston Airport System) Jul '15 5,333,311 5,036,899 5.9 31,977,087 31,063,265 2.9 Domestic Passengers Jul '15 4,180,674 4,022,231 3.9 25,697,028 25,120,382 2.3 International Passengers Jul '15 1,152,637 1,014,668 13.6 6,280,059 5,942,883 5.7 Landings and Takeoffs Jul '15 71,607 71,490 0.2 468,746 475,933 -1.5 Air Freight (metric tons) Jul '15 33,790 39,032 -13.4 242,978 249,489 -2.6 Enplaned Jul '15 17,468 20,176 -13.4 126,395 131,731 -4.1 Deplaned Jul '15 16,322 18,856 -13.4 116,582 117,757 -1.0

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Aug '15 30,588 30,677 -0.3 255,154 256,368 -0.5 Cars Aug '15 12,058 12,742 -5.4 104,243 108,127 -3.6 Trucks, SUVs and Commercials Aug '15 18,530 17,935 3.3 150,911 148,241 1.8 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 4Q14 34,260 37,618 -8.9 123 116 5.6 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Aug '15 214.652 214.102 0.3 212.662 * 213.188 * -0.2 United States Aug '15 238.316 237.852 0.2 236.820 * 236.801 * 0.0 Hotel Performance (Houston MSA) Occupancy (%) 4Q14 68.1 65.9 71.8 * 69.1 * Average Room Rate ($) 4Q14 106.52 101.26 5.2 106.87 * 101.19 * 5.6 Revenue Per Available Room ($) 4Q14 72.49 66.77 8.6 76.76 * 69.92 * 9.8

HOUSTON—THE ECONOMY AT A GLANCE

Nonfarm Payroll Employment, Houston MSA

3,100 150

3,000 120

2,900 90 2,800 60 2,700 30 2,600 0 2,500 -30

2,400 MonthChange (000) -60 -

2,300 12 Nonfarm Payroll Employment (000) 2,200 -90 2,100 -120 2,000 -150 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s)

- -

2,000 Goods 460 Service 1,900

420 1,800 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf 60 6

40 4

20 2

0 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 24 Number 8 — August 2015

The Energy Outlook — After two months of relative stability, crude prices fell significantly in July. West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, opened the month at $59.30 on the NYMEX spot market. When the final bell rang and markets closed on July 31, WTI had slipped to $47.20, a decline of $12.10, or 20.4 percent. Crude prices fell for a variety of reasons:  Growing concern over slowing growth in China: The International Monetary Fund (IMF) forecasts the Chinese economy will grow 6.8 percent in ’15, down from 7.4 percent in ’14 and from double-digit growth as recently as ’10. Slower growth translates into weaker demand for oil. China’s oil consumption is slated to increase only 2.5 percent this year, compared to 3.3 percent last year and 16.8 percent in the boom year of ’04.  Anxiety over the lifting of Iranian sanctions: Iran will likely boost exports by 500,000 barrels per day once sanctions are lifted later this year or early next. Within a year, exports could climb to 1 million barrels per day. Iran also has 40 million barrels of crude in storage that could quickly flood the market once sanctions are lifted.  Marginal declines in domestic production: The North American rig count has been cut in half, but the reduction has not impacted crude output. The U.S. Energy Information Administration (EIA) estimates the nation produced 9.6 million barrels of oil per day in June, up from 8.9 million barrels when the rig count peaked in September.  Stubbornly high inventories: Analysts had expected crude stockpiles to shrink as refineries revved up for the summer driving season. The inventory reductions have been marginal, however. Crude in storage peaked at 483 million barrels in April, slipping to 466 million barrels in June. That’s still well above the 384 million barrels in June last year. As vacations end and refineries begin their fall maintenance programs, inventories are likely to rise again. A World Awash in Crude — EIA estimates the world currently produces 95.7 million barrels, consumes 93.1 million barrels, and generates a surplus of 2.6 million barrels of oil per day. Ironically, the 2.6 million barrel surplus equates to U.S. production growth over the past two years. Production continues to flow despite low prices. Collectively, Angola, Canada, China, Egypt, Iraq, Libya, Nigeria, Saudi Arabia and the United King- dom pumped 2 million barrels more in April ’15 than they did in April ’14. For some,

HOUSTON—THE ECONOMY AT A GLANCE

it’s a case of holding onto market share; for others, the need to offset in volume what they’ve lost in price. A similar story is playing out at home, with several firms (e.g., Anadarko, Marathon, No- ble Energy) reporting they’ve managed to boost production even though they’ve slashed their exploration budgets. And even though the rig count has plummeted 57 percent from the peak in the Eagle Ford, 56 percent in the Bakken, and 64 percent in the Permian, output in the nation’s three most prolific basins has fallen less than 2 percent. The reason: better technology, more experience drilling and fracking, and a keener understanding of the geology associated with tight oil. Five years ago, initial production from an Eagle Ford well averaged 102 barrels per day. In June this year, initial production averaged 717 barrels per day, according to data from the EIA. The increased production has not flowed to the bottom line, however. Exxon, the biggest U.S. energy producer, recently reported its lowest quarterly profit since ’09. Chevron posted its worst quarter in 12 years. Earnings from Shell Oil’s upstream business fell 80 percent compared to the same quarter last year. And many independents such as Cono- coPhillips, Marathon, and Chesapeake reported outright losses for the quarter. Prior to the downturn, conventional wisdom held that the typical well in the Eagle Ford would be profitable as long as oil remained above $70 per barrel. Oil hasn’t traded above that level since November ’14. As prices fell, exploration firms demanded price concessions from the service firms, and the break-even point fell as well. Some E&P companies boasted their wells could make a profit at $50 and even $40 per barrel. The importance of that metric has begun to fade, however. The new focus is on corporate overhead, cash flow, debt service, capital discipline, and cost-cutting measures. Investors realize that even though individual wells are profitable, the company overall may be losing money. A gradual realization seems to be emerging that the price of oil will remain low for the foreseeable future. Baker Hughes, in its second quarter earnings report, said headwinds from tumbling oil prices will persist for the rest of the year. The NYMEX futures market shows oil not trading above $56 a barrel until late in ’17. In its earnings report, Shell Oil stated crude prices may remain depressed for the next five years. The industry continues to sell assets and reduce headcounts to better function in a low- price environment. This commodity cycle is following the typical pattern—the first wave of layoffs in the field and on the shop floor, impacting blue-collar and hourly workers; the second wave in the corporate offices, impacting white collar and professional staff. It’s too soon to tell what impact these layoffs will have outside the energy sector. The energy sector—exploration, oil field services, and oil field equipment manufacturing— accounts for 5.0 percent of total nonfarm payroll employment and 14.3 percent of total wages and salaries in the region. Two other sectors closely aligned with energy— fabricated metal products and engineering—account for another 4.5 percent of total em-

HOUSTON—THE ECONOMY AT A GLANCE

ployment and 4.9 percent of total wages. These sectors are part of Houston’s economic base and as such support a significant number of jobs in the secondary sectors—retail, restaurants, real estate, etc. These jobs are at risk as well. The impact of the downturn on these sectors won’t be apparent until the end of this year or early next year. On the Brighter Side — De- spite the current slump in the Real Gross Area Product Forecast energy industry, Houston’s Houston-The Woodlands-Sugar Land MSA $ Billions* long-term outlook remains bright. The metro area’s real $1,154.1 $1,022.1 (i.e., net of inflation) gross area $887.2 product (GAP) is projected to $754.0 $627.4 more than double between ’15 $504.1 and ’40, according to the recently released forecast by Ray Per- ryman, the Waco-based economist who has studied the U.S., Texas and metro economies '15 '20 '25 '30 '35 '40 1 Source: The Perryman Group, Summer 2015 since the ’70s. * '09 constant dollars Perryman forecasts Houston’s real GAP to grow from $504.1 billion in ’15 to $1.15 trillion in ’40―an average annual growth rate of 3.4 percent. The industries with the fastest annual growth rates from ’15 to ’40 are: services (3.9 percent), manufacturing (3.8 percent), and mining (3.3 percent). These fastest-growing industries are also the largest industry sectors by dollar value. Mining is the largest contributor to Houston’s GAP in ’15 at $138.8 billion (23.1 percent of total GAP) followed by Population and Employment services at $113.4 billion Houston-The Woodlands-Sugar Land MSA 12 (18.9 percent) and manufac- 9.9 10 9.2 turing at $109.5 billion 8.4 7.7 (18.2 percent). 8 7.1 6.5 “While the end of the oil 6 4.6 4.0 4.3 Millions 3.4 3.7 surge will affect perfor- 4 3.0 mance in the near term,” the 2 Perryman report states, “the 0 Houston area’s economy is '15 '20 '25 '30 '35 '40 far more diversified than in Population Employment decades past and the down- Source: The Perryman Group, Summer 2015

HOUSTON—THE ECONOMY AT A GLANCE

turn in oil prices is not likely to derail economic performance for an extended period of time.” The report also notes the importance of growth in non-energy sectors to compen- sate for the negative impact from lower energy prices. Over the next quarter-century, the metro area is expected to add 3.4 million residents―an average annual growth rate of 1.7 percent. Wage and salary employment is forecasted to gain 1.5 million jobs―an average annual rate of 1.6 percent. The region is expected to account for one-fourth of Texas’ job growth during this period. Employment Update — The Houston metro area gained 55,700 jobs in the 12 months ending June ’15, according to the Texas Workforce Commission (TWC). The corresponding 1.9 percent 12-month growth rate is the slowest since November ’11. The employment numbers are somewhat misleading, since all the job gains occurred in the latter half of ’14. Since December, the region has posted a net loss of 5,600 jobs. Employment gains in the service sectors so far this year have not been able to offset losses in the goods producing sectors. Some of the losses date back to the fall of last year. The employment numbers reflect the weakness in the oil patch. The sectors still adding jobs are those which depend heavily on population growth, activity outside the energy sectors, or are benefiting from the momentum built up over the past five years of robust economic expansion. RECENT CHANGES IN HOUSTON EMPLOYMENT Sector Peak Gains/Losses1 Leisure and Hospitality Still Growing +22,900 Business Services Still Growing +7,300 Health Care Still Growing +4,200 Other Services Still Growing +1,800 Information Still Growing +1,300 Manufacturing December ’14 -11,700 Government2 April ’15 -7,700 Mining and Logging December ’14 -6,600 Retail December ’14 -6,600 Construction October ’14 -5,200 Transportation, Warehousing Utilities December ’14 -3,700 Finance & Real Estate October ’14 -2,900 Wholesale Trade December ’14 -2,300 1 Gains measured from December ’14; losses measured from previous peak 2 Primarily includes local education Source: Partnership calculations based on Texas Workforce Commission data.

HOUSTON—THE ECONOMY AT A GLANCE

Still on Top — Houston exported $118.9 billion in goods and commodities in ’14, up $4.0 billion (3.5 percent) from the previous year, according to data recently released by the U.S. International Trade Administration (ITA). Houston led the nation in export sales last year, ahead of New York, Los Angeles, Seattle and Detroit. This marks the third consecutive year Houston has garnered the top spot. Houston’s exports have grown by $77.2 billion, a 185 percent increase, since ’05. No other U.S. metro has experienced comparable growth. Five sectors accounted for the bulk of Houston’s shipments in ’14: petroleum and coal products ($34.8 billion), basic chemicals ($16.6 billion), oil and gas extraction ($12.5 billion), resins and synthetic rubber ($11.2 billion), and heavy industrial machinery ($7.9 billion). Houston supplied 48.7 percent of Texas exports in ’14, down slightly from 51.2 percent in ’13. By comparison, the state’s next largest exporter, Dallas-Fort Worth, accounted for 11.7 percent of Texas exports. Houston’s and San Antonio’s contributions to state exports have grown significantly since ’05 while Austin’s and Dallas’ have shrunk, a reflection of the greater importance of global trade plays in the Houston and San Antonio economies.

Readers should be aware that ITA’s export data differ somewhat from the Houston- Galveston Customs District data often cited in local publications. Customs district data reflect cargo that passes through the region’s ports. ITA data are an “origin of movement” (OM) series and reflect the metro from which cargo began its overseas journey. OM includes goods manufactured locally shipped out of Houston, goods manufactured locally that leave the U.S. from a port outside the Houston metro area, and goods produced elsewhere and consolidated in Houston for export.

TOP 10 U.S. EXPORTING METROS - $ BILLION Exports Change Since ’05 Rank Metro '05 '14 $ Value Percent 1 Houston, TX 41.748 118.966 77.218 185.0 2 New York, NY 55.565 105.267 49.702 89.4 3 Los Angeles, CA 43.814 75.471 31.657 72.3 4 Seattle, WA 30.676 61.938 31.262 101.9 5 Detroit, MI 40.360 50.279 9.919 24.6 6 Chicago, IL 26.172 47.340 21.168 80.9 7 Miami, FL 20.383 37.969 17.587 86.3 8 New Orleans, LA 4.858 34.882 30.024 618.1 9 Dallas, TX 20.541 28.669 8.128 39.6 10 San Francisco, CA 14.707 26.864 12.157 82.7 Source: U.S. International Trade Administration

HOUSTON—THE ECONOMY AT A GLANCE

SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — City of Houston construction permits totaled $8.3 billion in the 12 months ending June ’15, up 10.2 percent from $7.6 billion in the preceding 12 months, according to the city’s Department of Public Works & Engineering Planning & Devel- opment Services. The 12-month building permit total experienced its first uptick in June after three months of declines.

Inflation — From June ’14 to June ’15, consumer prices in the Houston-Galveston- Brazoria metro area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Mont- gomery and Waller Counties) slipped 0.4 percent, the third consecutive 12-month decline. In contrast, core inflation, as measured by the index for all items without food and energy, rose 2.5 percent over the year.

Home Sales — Houston realtors set a record in June, selling 9,480 single-family homes, townhomes, condos, duplexes, county homes, high rise units and lots, according to the Hous- ton Association of REALTORS®. The second-best month on record was June ’06, when local realtors sold 9,287 units. Over the past 12 months, local realtors recorded 90,814 closings. The 12-month pace has held above 90,000 units since October ’14.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 46.7 in June, up from 46.1 in May, according to the latest report from the Institute for Supply Management-Houston (ISM- Houston).

Vehicle Sales — Houston-area auto dealers experienced their best June on record, selling 34,424 vehicles in the month, an 8.7 percent increase over the 31,662 sold in June ’14. This brings the second quarter total to 103,231, making it the highest Q2 sales on record, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. Replacement of vehicles lost in Memorial Day weekend flooding contributed to the June performance.

Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

HOUSTON—THE ECONOMY AT A GLANCE

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HOUSTON—THE ECONOMY AT A GLANCE

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Jun '15 May '15 Jun '14 May '15 Jun '14 May '15 Jun '14

Total Nonfarm Payroll Jobs 2,987.0 2,982.7 2,931.3 4.3 55.7 0.1 1.9 Total Private 2,607.6 2,596.1 2,557.4 11.5 50.2 0.4 2.0 Goods Producing 561.1 561.5 567.3 -0.4 -6.2 -0.1 -1.1 Service Providing 2,425.9 2,421.2 2,364.0 4.7 61.9 0.2 2.6 Private Service Providing 2,046.5 2,034.6 1,990.1 11.9 56.4 0.6 2.8

Mining and Logging 108.9 108.1 109.2 0.8 -0.3 0.7 -0.3 Oil & Gas Extraction 55.3 54.7 54.0 0.6 1.3 1.1 2.4 Support Activities for Mining 53.3 52.7 53.9 0.6 -0.6 1.1 -1.1

Construction 205.2 204.4 202.8 0.8 2.4 0.4 1.2

Manufacturing 247.0 249.0 255.3 -2.0 -8.3 -0.8 -3.3 Durable Goods Manufacturing 165.7 168.0 175.0 -2.3 -9.3 -1.4 -5.3 Nondurable Goods Manufacturing 81.3 81.0 80.3 0.3 1.0 0.4 1.2

Wholesale Trade 170.1 170.5 168.7 -0.4 1.4 -0.2 0.8

Retail Trade 302.1 303.3 292.6 -1.2 9.5 -0.4 3.2

Transportation, Warehousing and Utilities 135.3 134.5 133.6 0.8 1.7 0.6 1.3 Utilities 16.1 16.0 15.9 0.1 0.2 0.6 1.3 Air Transportation 20.5 20.4 20.7 0.1 -0.2 0.5 -1.0 Truck Transportation 25.9 25.7 24.6 0.2 1.3 0.8 5.3 Pipeline Transportation 10.5 10.5 10.3 0.0 0.2 0.0 1.9

Information 33.9 33.8 33.3 0.1 0.6 0.3 1.8 Telecommunications 15.0 14.9 15.1 0.1 -0.1 0.7 -0.7

Finance & Insurance 94.1 93.9 93.7 0.2 0.4 0.2 0.4

Real Estate & Rental and Leasing 52.6 52.1 54.4 0.5 -1.8 1.0 -3.3

Professional & Business Services 477.7 471.2 466.8 6.5 10.9 1.4 2.3 Professional, Scientific & Technical Services 224.6 223.1 217.2 1.5 7.4 0.7 3.4 Legal Services 25.1 25.1 24.1 0.0 1.0 0.0 4.1 Accounting, Tax Preparation, Bookkeeping 23.0 22.9 21.9 0.1 1.1 0.4 5.0 Architectural, Engineering & Related Services 74.2 75.0 74.3 -0.8 -0.1 -1.1 -0.1 Computer Systems Design & Related Services 33.3 32.4 32.3 0.9 1.0 2.8 3.1 Admin & Support/Waste Mgt & Remediation 219.7 215.0 215.0 4.7 4.7 2.2 2.2 Administrative & Support Services 207.8 203.2 204.1 4.6 3.7 2.3 1.8 Employment Services 79.6 77.4 81.4 2.2 -1.8 2.8 -2.2

Educational Services 52.5 54.5 50.7 -2.0 1.8 -3.7 3.6

Health Care & Social Assistance 309.2 308.7 296.7 0.5 12.5 0.2 4.2

Arts, Entertainment & Recreation 34.8 33.4 32.8 1.4 2.0 4.2 6.1

Accommodation & Food Services 278.1 274.2 261.3 3.9 16.8 1.4 6.4

Other Services 106.1 104.5 105.5 1.6 0.6 1.5 0.6

Government 379.4 386.6 373.9 -7.2 5.5 -1.9 1.5 Federal Government 27.9 27.9 27.6 0.0 0.3 0.0 1.1 State Government 70.3 72.4 70.0 -2.1 0.3 -2.9 0.4 State Government Educational Services 37.8 39.8 37.5 -2.0 0.3 -5.0 0.8 Local Government 281.2 286.3 276.3 -5.1 4.9 -1.8 1.8 Local Government Educational Services 194.9 199.9 190.6 -5.0 4.3 -2.5 2.3

SOURCE: Texas Workforce Commission

HOUSTON—THE ECONOMY AT A GLANCE

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Jul '15 866 1,876 -53.8 1,108 * 1,821 * -39.2 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Jul '15 51.13 103.83 -50.8 52.89 * 101.51 * -47.9 Spot Natural Gas ($/MMBtu, Henry Hub) Jul '15 2.81 4.10 -31.5 2.81 * 4.65 * -39.6

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Jun '15 46.7 52.4 -10.9 46.4 * 57.3 * -19.0 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Jun '15 5,015,448 4,675,695 7.3 26,844,566 25,417,761 5.6

CONSTRUCTION Total Building Contracts ($, Houston MSA) Jun '15 1,646,848,000 4,353,370,000 -62.2 8,912,790,000 16,289,032,000 -45.3 Nonresidential Jun '15 832,402,000 3,443,662,000 -75.8 3,804,151,000 11,233,890,000 -66.1 Residential Jun '15 814,446,000 909,708,000 -10.5 5,108,639,000 5,055,142,000 1.1 Building Permits ($, City of Houston) Jun '15 719,998,873 561,461,160 28.2 3,865,906,735 4,205,528,707 -8.1 Nonresidential Jun '15 486,278,855 402,775,097 20.7 2,520,320,515 2,828,230,849 -10.9 New Nonresidential Jun '15 191,547,764 181,382,592 5.6 1,356,741,981 1,754,925,253 -22.7 Nonresidential Additions/Alterations/Conversions Jun '15 294,731,091 221,392,505 33.1 1,163,578,534 1,073,305,596 8.4 Residential Jun '15 233,720,018 158,686,063 47.3 1,345,586,220 1,377,297,858 -2.3 New Residential Jun '15 208,987,786 138,147,264 51.3 1,223,002,015 1,223,993,928 -0.1 Residential Additions/Alterations/Conversions Jun '15 24,732,232 20,538,799 20.4 122,584,205 153,303,930 -20.0 Multiple Listing Service (MLS) Activity Property Sales Jun '15 9,480 9,177 3.3 43,198 43,645 -1.0 Median Sales Price - SF Detached Jun '15 225,000 214,500 4.9 209,933 * 194,165 * 8.1 Active Listings Jun '15 31,963 29,513 8.3 29,175 * 28,406 * 2.7

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Jun '15 2,987,000 2,931,300 1.9 2,967,740 * 2,884,980 * 2.9 Goods Producing (Natural Resources/Mining/Const/Mfg) Jun '15 561,100 567,300 -1.1 570,860 0 557,940 * 2.3 Service Providing Jun '15 2,425,900 2,364,000 2.6 2,396,880 0 2,327,040 * 3.0 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Jun '15 4.5 5.3 4.3 * 5.2 * Texas Jun '15 4.4 5.4 4.3 * 5.4 * U.S. Jun '15 5.5 6.3 5.6 * 6.5 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Jun '15 3,855,332 4,023,010 -4.2 24,568,099 22,915,308 7.2 Air Passengers (Houston Airport System) Jun '15 4,976,040 4,774,405 4.2 26,635,902 26,026,366 2.3 Domestic Passengers Jun '15 3,982,190 3,846,786 3.5 21,516,354 21,098,151 2.0 International Passengers Jun '15 993,850 927,619 7.1 5,119,548 4,928,215 3.9 Landings and Takeoffs Jun '15 67,853 68,909 -1.5 328,755 335,892 -2.1 Air Freight (metric tons) Jun '15 32,173 35,327 -8.9 209,188 210,457 -0.6 Enplaned Jun '15 16,392 18,652 -12.1 108,927 111,556 -2.4 Deplaned Jun '15 15,782 16,675 -5.4 100,261 98,902 1.4

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Jun '15 34,424 31,662 8.7 188,818 195,164 -3.3 Cars Jun '15 13,946 16,798 -17.0 77,752 86,850 -10.5 Trucks, SUVs and Commercials Jun '15 20,478 14,864 37.8 111,066 108,314 2.5 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 4Q14 34,260 37,618 -8.9 123 116 5.6 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Jun '15 213.896 214.668 -0.4 212.062 * 212.836 * -0.4 United States Jun '15 238.638 238.343 0.1 236.625 * 236.384 * 0.1 Hotel Performance (Houston MSA) Occupancy (%) 4Q14 68.1 65.9 71.8 * 69.1 * Average Room Rate ($) 4Q14 106.52 101.26 5.2 106.87 * 101.19 * 5.6 Revenue Per Available Room ($) 4Q14 72.49 66.77 8.6 76.76 * 69.92 * 9.8

HOUSTON—THE ECONOMY AT A GLANCE

Nonfarm Payroll Employment, Houston MSA

3,000 150

2,900 120

2,800 90

2,700 60

2,600 30

2,500 0

2,400 -30 MonthChange (000)

2,300 -60 -

12 Nonfarm Payroll Employment (000) 2,200 -90

2,100 -120

2,000 -150 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 12-Month Change Total Payroll Employment Source: Texas Workforce Commission Goods-Producing and Service-Providing Employment Houston MSA 620 2,500

2,400 580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s)

- -

2,000 Goods 460 Service 1,900

420 1,800 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Houston Texas U.S. Source: Texas Workforce Commission Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf 60 6

40 4

20 2

0 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 24 Number 3 — March 2015

Near Record Year — Metro Houston created 104,700 ANNUAL JOB GROWTH – METRO jobs in ’14, according to data revisions released in early Year HOUSTONJobs* METRO Year AREA Jobs* March by the Texas Workforce Commission (TWC). '91 -8,100 '03 -11,600 That’s down from the 120,600 jobs TWC previously re- '92 18,700 '04 39,300 ported for the year. Even with the revision, ’14 still ranks '93 44,300 '05 91,100 1 '94 53,400 '06 107,000 as one of the best years on record for job creation. '95 54,400 '07 90,700 Why the change? — The adjustments came from the '96 53,000 '08 21,.600 annual benchmark revisions, a review that TWC starts '97 106,000 '09 -110,600 each fall, culminating with the release of updated em- '98 92,800 '10 49,700 ployment data in March. The jobs reports that TWC re- '99 17,800 '11 82,900 '00 59,700 '12 118,500 leases throughout the year are based on a survey sample '01 1,300 '13 89,900 of area employers. The revised jobs counts released in '02 -1,700 '14 104,700 March are based on data from unemployment insurance *December to December accounts, and are therefore more accurate. Source: Texas Workforce Commission Traditionally, TWC revises data for the previous 21 months starting with December, i.e., December ’14 back through April ’13. This year, data were revised back to January ’90. The revisions started out small, TWC adding 9,500 jobs to total employment for Decem- ber ’90, but adding a few thousand jobs each year over a quarter of a century resulted in significant revisions to more recent employment data. For instance, TWC added 47,800 jobs to Houston’s total nonfarm employment in December ’13. In spite of their magnitude, the revisions tweaked but didn’t rewrite Houston’s economic history:  Between January ’90 and December ’14, the region created 23,300 more jobs than previously reported (1,268,600 prior report versus 1,291,900 revised).  The duration of the Great Recssion in Houston remained unchanged (December ’08- January ’10). Losses were marginally higher (155,600 prior report versus 156,400 revised). The date the region returned to its previous employment peak (November ’11) remained unchanged.

1 “Metro Houston” refers to the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area, which includes Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller Counties.

March 2015 ©2015, Greater Houston Partnership Page 1  The number of jobs Houston created in the recovery and expansion was revised upward for December ’14 but slipped in January due to seasonal factors. Houston has created 445,400 jobs since the bottom of the recession―nearly three for every one lost. The revisions also show that local employment growth in ’12 and ’13 was stronger than originally reported. Revisions to Metro Houston Payroll Employment Growth Year Original Estimate Revised Estimate Net Change ’12 115,400 118,500 +3,100 ’13 76,200 89,900 +13,700 ’14 120,600 104,700 -15,900 Source: Texas Workforce Commission TWC places total nonfarm payroll employment at 2,946,500 in January ’15. If the region experiences moderate growth in coming months, Houston could approach 3.0 million jobs by the end of the year. The Recent Past — The benchmark revisions provide a clearer picture of employment in ’14. The construction, wholesale, retail, and administrative support sectors performed better than previously reported; energy, manufacturing, health care, engineering, air transportation and clothing stores performed worse.

A handful of sectors accounted for half of all jobs Significant Revisions by Sector created—construction (16,700), professional and Upward Revisions Jobs Wholesale Trade +15,000 business services (15,600), restaurants (13,100), Administration Support Service +14,900 health care (10,400), wholesale (8,200) and retail Retail Trade +5,400 (6,100). Construction benefited from the $8.7 bil- Construction +5,000 lion in permits the City of Houston issued in ’14 Downward Revisions Jobs and the tens of billons in chemical plant construc- Manufacturing -5,100 tion occurring in the region. Growth in population, Health Care -4,900 Architecture & Engineering -3,400 income and consumer confidence drove wholesale, 2 retail, health care and restaurant employment. The Mining and Logging -3,100 Air Transportation -2,900 expansion of the energy sector supported job gains Clothing Stores -2,200 in professional services. Source: Texas Workforce Commission A handful of industries reported job losses of 2.0 percent or more—clothing stores (-5.6 percent), computer manufacturing (-3.8 percent), information (-3.6 percent), air transportation (-3.3 percent), and credit intermediation (-2.2 percent). Most of the losses resulted from ongoing restructuring in their sectors.

2 Though mining and logging was revised downward, the sector still added 7,900 jobs in ’14, the third best year in the past ten.

March 2015 ©2015, Greater Houston Partnership Page 2 TWC reported employment data for January ’15 as well. The region lost 46,100 jobs in the month, which is within the normal range of job losses for the month. Houston typically loses 40,000 to 50,000 jobs in January due to seasonal factors but regains those jobs over time and reaches a new employment peak each spring. The ongoing downturn in the energy industry may disrupt that pattern this year. Houston’s January unemployment rate was 4.5 percent, up from 4.0 percent in December. The rate typically rises between 0.3 and 0.6 percentage points in January, so the increase should be no cause for alarm. The rates are not seasonally adjusted. Energy Update — Four data points for the energy industry:  Baker Hughes reports that the U.S. rig count fell to 1,192 the first week of March, a drop of 739 rigs, or 38.3 percent, from its September ’14 peak.  The U.S. Energy Information Administration (EIA) reports that West Texas Interme- diate, the U.S. benchmark for light, sweet crude, traded between $47 and $52 a barrel in February, half of what crude traded for six months earlier.  RigData notes U.S. exploration firms started one-fifth fewer wells in January and February of ’15 than in the same two months of ’14.  TWC reports energy employment fell by 1,400 jobs in Houston in January. The industry has begun to contract. That’s certain. What’s uncertain is how far the rig count, oil prices, drilling U.S. Rotary Rig Count, '14 - '15 activity and energy employment will fall, and 2,000

what impact their fall 1,800 will have on Houston’s economy. Since the early 1,600 ’80s, oil prices have fallen 30 percent six times.3 1,400

Only twice have the tum- 1,200 bles had a significant impact on the region’s 1,000 economy. Sep Oct Oct Nov Dec Jan Feb Mar Source: Baker Hughes During the ’82-’86 recession, oil prices fell 70 percent, the rig count fell 83 percent, and Houston lost 221,000 jobs―one in every seven in the region. Causes of the ’80s recession: Saudi Arabia flooding the market with cheap oil, overbuilt commercial and resi-

3 The period of significantly falling oil prices included the mid-’80s, ’90-’91, ’98-’99, ’01-’03, ’08-’09 and June ’14 to present.

March 2015 ©2015, Greater Houston Partnership Page 3 dential real estate markets, and the collapse of the Texas banking system. The economy bottomed in January ’87. By March ’90, Houston returned to its previous jobs peak.4 During the ’08-’09 downturn, oil prices fell 70 percent, the rig count slid 59 percent, and the region lost 153,800 jobs―one in every 17 in the region. Causes of the ’08-’09 recession: Collapse of global credit markets and the ensuing collapse in oil prices. For Hou- ston, the trough was January ’10. By November ’11, Houston had recovered as many jobs as it had lost in the Great Recession. Once again, the outlook for Houston depends on the path oil prices will take over the next few months. On that, there’s no clear consensus.

 EIA forecasts WTI will average $55.02 in ’15 and $71.00 in ’16.

 Ed Morse, Citigroup’s head of commodities research, worries oil prices may slump to $20 a barrel and remain there “for a while.”

 ExxonMobil expects oil prices to remain low over the next two years, with Brent, the benchmark European crude, averaging $55 a barrel through ’17.

 Saudi Arabia’s Prince Alwaleed bin Talal told Bloomberg News the world will never see $100 oil again. U.S. production growth must flatten and global demand rise for prices to stabilize.5 Es- timates of global excess supply range from 1.0 to 2.4 million bbl/d. EIA forecasts global consumption to grow by 1.0 million bbl/d in ’15 and ’16. Politics may play a role as well. Recent attacks by Islamic rebels have rendered 11 of Libya’s oil fields non- operational. Sanctions against Moscow over its support of the Ukrainian rebels will eventually impact Russia’s ability to produce oil. If sanctions against Iraq are lifted, within three months the nation could increase production by 600,000 to 800,000 bb/d. Houstonians shouldn’t bemoan the region’s energy ties. Oil remains key to global growth. BP, in its Energy Outlook 2035, forecasts global liquid fuels demand (oil and other liquids) to rise by 19 million bbl/d to 111 million bbd/ by ’35. In The Outlook for Energy: A View to 2040, Exxon Mobil sees global energy consumption rising 35 percent by ’40.The International Energy Agency expects global energy demand to grow 37 percent by ’40.6 In spite of current uncertainties, oil remains a good long-term bet.

4 For a detailed overview of the ’80s recession, go to http://www.houston.org/pdf/comm/Glance-March-2012.pdf. 5 EIA estimates U.S. production averaged 9.2 million bbl/d in ’14 and will reach 9.3 million bbl/d in ‘15 and 9.5 million in ’16. 6 BP’s Energy Outlook 2035 can be found by visiting BP’s website or by clicking here. ExxonMobil’s The Outlook for Energy can be found by visiting Exxon’s website or clicking here. The International Energy Agency’s report can be found at IEA’s website or by clicking here.

March 2015 ©2015, Greater Houston Partnership Page 4 A Favorite Again – For the second consecutive year, Site Selection magazine has ranked Houston second among U.S. metros for corporate relocations and expansions. Chicago ranked first; Cincinnati ranked third. To qualify as a relocation or expansion, a project must meet at least one of three criteria: involve a capital investment of at least $1 million; create at least 50 new jobs; or add at least 20,000 square New Business Announcements 50+ jobs or 20,000+ Sq Ft or $1+ million Investment feet of new floor area. Site 392 Selection does not include

retail stores, government 298 307 projects, schools or hospi- 265 248 tals in its rankings. Over the past five years, more 179 153 than 1,500 companies have announced significant projects in the region. A list of those projects may be purchased through '08 '09 '10 '11 '12 '13 '14 Partnership’s Publication Source: Greater Houston Partnership New Business Database Sales, 713-844-9366.

Construction Activity in ’15 — Construction cranes will continue to dot Houston’s sky- line through ’15. According to Dodge Data and Analytics, a record $30.5 billion in construction contracts was awarded in the Houston metro in ’14 and the City of Houston issued $8.7 billion in construction permits, also an historic high. In the fourth quarter of ’14, CBRE reported 17.6 million square feet (msf) of office construction underway in 50 buildings, 8.4 msf of industrial construction in 85 buildings, and 2.7 msf of retail space.

In the residential market, MetroStudy projects 30,000 single-family homes to be built this year. A shortage of lots continues to constrain building activity, but builders are expected to catch up to demand by the end of the year. The addition of new homes to the market will provide some relief to the resale home market, which has experienced tight inventory for the past two years. Among real estate sectors, multi-family is the most vulnerable to over- building. At the end of ’14, 26,630 apartment units were under construction with 18,781 units proposed. Typically, one apartment unit is needed for every five to seven new jobs created. Given the projected slowdown in employment growth, Kiley Advisors believes multi-family will need to scale back to around 10,000 additional units in ’15, or else land- lords will find themselves providing incentives to fill their vacancies. The January report from the City of Houston building permit office reported a 45.7 percent over-the-year drop in multi-family permit values, signaling restraint in pursuing more projects in this market segment.

March 2015 ©2015, Greater Houston Partnership Page 5 CITY OF HOUSTON BUILDING PERMIT VALUE While the slowdown 12-Month Total in the energy industry 10 will dampen future 9 construction activity, 8 a substantial amount 7 of work will still oc- 6 cur as the region’s in- 5

frastructure catches Billions $ 4 up to its strong popu- 3 lation growth. Hous- 2 ton commuters will 1 continue to see high 0 levels of roadway '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 construction with an Source: City of Houston Residential Nonresidential Total estimated $2.2 billion dedicated to highway and civil sector activity in ’15. The Texas De- partment of Transportation expects $496 million of work, mostly allocated to the US-290 expansion, METRO has designated $172.7 million for rail expansion, Harris County has $188 million budgeted for construction, and the City of Houston has $610.4 million in work planned for the year. Additionally, 29 area school districts anticipate $1.365 billion of construction activity.

Health care construction will also be strong, with nearly $2.0 billion in announced projects, including $533 million for the Memorial Hermann TMC expansion, $540 million for the Methodist North Tower and $506 million for the Texas Children’s Hospital expansion. Al- so, the desire of care providers to reach suburban markets has prompted a $110 million project by CHI St. Luke’s at Springwoods and $168 million by Memorial Hermann in Cy- press.

SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS

Building Permits — Construction permitting in the City of Houston totaled $8.7 billion for the 12 months ending January ’15, a 38.8 percent increase from the $6.2 billion issued during the same period last year. For the 12 months ending January, residential permit values rose 26.4 percent from $2.4 billion to $3.0 billion. Nonresidential permits grew 46.4 percent, from $3.9 billion to $5.6 billion.

Inflation — The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent nationwide from January ’13 to January ’14, the first decline since October ’09. According to the U.S. Bu- reau of Labor Statistics, the decrease can be attributed largely to the 19.6 percent drop in the energy index, the sharpest in a series of five consecutive declines. Had the energy index remained unchanged, the CPI-U would have increased 1.9 percent. Core inflation (all items less the volatile food and energy categories) rose 1.6 percent over the 12 months.

Home Sales — Houston-area realtors began ’15 on a strong note with a 6.1 percent increase in single-family home sales, from 3,799 sold in January ’14 to 4,032 sold in Janu- ary ’15. The Houston Association of REALTORS® reports that the median price of a single-family home rose 6.7 percent to $190,000.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short-term leading indicator for regional production, registered 48.9 in January, down from 51.5 in December, according to the latest report from the Institute for Supply Man- agement-Houston (ISM-Houston). The decline in the PMI was expected, given the sharp decline in oil prices since their peak in June ’14. January is the first month since August ’09 that the Houston PMI has registered less than 50, signaling anticipated contraction in production over the next three to four months.

Vehicle Sales — Houston-area auto dealers sold 27,591 vehicles in January ’15, a 10.4 percent increase from the 24,991 sold January ’14, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. Trucks and SUVs accounted for the majority of the growth, increasing 15.1 percent over the year while car sales rose 4.2 percent.

Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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The Key Economic Indicators table is updated whenever any data change — typically, 11 or so times per month. If you would like to receive these updates by e-mail, usually accompanied by commentary, please email your request for Key Economic Indicators to [email protected] with the same identifying information. You may request Glance and Indicators in the same email.

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Dec '14 Nov '14 Dec '13 Nov '14 Dec '13 Nov '14 Dec '13

Total Nonfarm Payroll Jobs 2,992.6 2,982.7 2,887.9 9.9 104.7 0.3 3.6 Total Private 2,608.9 2,598.8 2,510.0 10.1 98.9 0.4 3.9 Goods Producing 583.0 579.9 552.0 3.1 31.0 0.5 5.6 Service Providing 2,409.6 2,402.8 2,335.9 6.8 73.7 0.3 3.2 Private Service Providing 2,025.9 2,018.9 1,958.0 7.0 67.9 0.3 3.5

Mining and Logging 115.5 113.4 107.6 2.1 7.9 1.9 7.3 Oil & Gas Extraction 55.6 55.3 54.7 0.3 0.9 0.5 1.6 Support Activities for Mining 56.1 55.3 51.7 0.8 4.4 1.4 8.5

Construction 208.8 209.1 192.1 -0.3 16.7 -0.1 8.7

Manufacturing 258.7 257.4 252.3 1.3 6.4 0.5 2.5 Durable Goods Manufacturing 177.5 176.6 171.9 0.9 5.6 0.5 3.3 Nondurable Goods Manufacturing 81.2 80.8 80.4 0.4 0.8 0.5 1.0

Wholesale Trade 172.4 171.4 164.2 1.0 8.2 0.6 5.0

Retail Trade 308.7 303.7 302.6 5.0 6.1 1.6 2.0

Transportation, Warehousing and Utilities 139.0 137.3 134.7 1.7 4.3 1.2 3.2 Utilities 16.0 15.9 15.9 0.1 0.1 0.6 0.6 Air Transportation 20.5 20.5 21.2 0.0 -0.7 0.0 -3.3 Truck Transportation 25.5 25.4 24.3 0.1 1.2 0.4 4.9 Pipeline Transportation 10.4 10.5 9.9 -0.1 0.5 -1.0 5.1

Information 32.6 32.7 33.8 -0.1 -1.2 -0.3 -3.6 Telecommunications 15.3 15.2 15.3 0.1 0.0 0.7 0.0

Finance & Insurance 94.6 94.1 93.4 0.5 1.2 0.5 1.3

Real Estate & Rental and Leasing 54.7 54.7 53.4 0.0 1.3 0.0 2.4

Professional & Business Services 470.4 471.3 454.8 -0.9 15.6 -0.2 3.4 Professional, Scientific & Technical Services 223.1 223.0 213.0 0.1 10.1 0.0 4.7 Legal Services 25.1 24.7 24.0 0.4 1.1 1.6 4.6 Accounting, Tax Preparation, Bookkeeping 23.1 22.4 21.9 0.7 1.2 3.1 5.5 Architectural, Engineering & Related Services 76.8 77.0 71.9 -0.2 4.9 -0.3 6.8 Computer Systems Design & Related Services 33.5 33.0 31.8 0.5 1.7 1.5 5.3 Admin & Support/Waste Mgt & Remediation 213.4 214.5 208.2 -1.1 5.2 -0.5 2.5 Administrative & Support Services 203.6 204.4 198.2 -0.8 5.4 -0.4 2.7 Employment Services 80.5 82.0 78.9 -1.5 1.6 -1.8 2.0

Educational Services 54.2 54.7 51.7 -0.5 2.5 -0.9 4.8

Health Care & Social Assistance 305.0 305.1 294.6 -0.1 10.4 0.0 3.5

Arts, Entertainment & Recreation 28.8 29.2 27.3 -0.4 1.5 -1.4 5.5

Accommodation & Food Services 261.2 259.8 246.6 1.4 14.6 0.5 5.9

Other Services 104.3 104.9 100.9 -0.6 3.4 -0.6 3.4

Government 383.7 383.9 377.9 -0.2 5.8 -0.1 1.5 Federal Government 28.1 27.9 27.6 0.2 0.5 0.7 1.8 State Government 72.4 73.0 72.3 -0.6 0.1 -0.8 0.1 State Government Educational Services 39.5 40.0 39.2 -0.5 0.3 -1.3 0.8 Local Government 283.2 283.0 278.0 0.2 5.2 0.1 1.9 Local Government Educational Services 197.9 197.8 194.5 0.1 3.4 0.1 1.7

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Feb '15 1,348 1,769 -23.8 1,516 * 1,769 * -14.3 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Feb '15 50.38 101.43 -50.3 49.45 * 98.14 * -49.6 Spot Natural Gas ($/MMBtu, Henry Hub) Feb '15 2.82 5.62 -49.8 2.90 * 5.11 * -43.2

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Jan '15 48.9 57.1 -14.4 48.9 * 57.1 * -14.4 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Jan '15 4,409,854 4,202,519 4.9 4,409,854 4,202,519 4.9

CONSTRUCTION Total Building Contracts ($, Houston MSA) Jan '15 1,069,965,000 2,217,170,000 -51.7 1,069,965,000 2,217,170,000 -51.7 Nonresidential Jan '15 435,230,000 1,604,564,000 -72.9 435,230,000 1,604,564,000 -72.9 Residential Jan '15 634,735,000 612,606,000 3.6 634,735,000 612,606,000 3.6 Building Permits ($, City of Houston) Jan '15 580,179,350 580,228,831 0.0 580,179,350 580,228,831 0.0 Nonresidential Jan '15 389,143,624 373,754,501 4.1 389,143,624 373,754,501 4.1 New Nonresidential Jan '15 220,802,201 177,555,227 24.4 220,802,201 177,555,227 24.4 Nonresidential Additions/Alterations/Conversions Jan '15 168,341,423 196,199,274 -14.2 168,341,423 196,199,274 -14.2 Residential Jan '15 191,035,726 206,474,330 -7.5 191,035,726 206,474,330 -7.5 New Residential Jan '15 171,510,471 189,809,880 -9.6 171,510,471 189,809,880 -9.6 Residential Additions/Alterations/Conversions Jan '15 19,525,255 16,664,450 17.2 19,525,255 16,664,450 17.2 Multiple Listing Service (MLS) Activity Property Sales Jan '15 4,874 4,752 2.6 4,874 4,752 2.6 Median Sales Price - SF Detached Jan '15 190,000 178,000 6.7 190,000 * 178,000 * 6.7 Active Listings Jan '15 26,556 28,211 -5.9 26,556 * 28,211 * -5.9

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Dec '14 2,992,600 2,887,900 3.6 2,924,983 * 2,827,525 * 3.4 Goods Producing (Natural Resources/Mining/Const/Mfg) Dec '14 583,000 552,000 5.6 568,750 0 545,967 * 4.2 Service Providing Dec '14 2,409,600 2,335,900 3.2 2,356,233 0 2,281,558 * 3.3 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Dec '14 4.1 5.5 5.1 * 6.2 * Texas Dec '14 4.1 5.6 5.2 * 6.3 * U.S. Dec '14 5.4 6.5 6.2 * 7.4 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Dec '14 3,910,898 3,735,453 4.7 46,636,693 44,756,323 4.2 Air Passengers (Houston Airport System) Dec '14 4,642,859 4,526,540 2.6 53,196,844 50,908,865 4.5 Domestic Passengers Dec '14 3,773,081 3,714,308 1.6 43,384,558 41,922,650 3.5 International Passengers Dec '14 869,778 812,232 7.1 9,812,286 8,986,215 9.2 Landings and Takeoffs Dec '14 74,246 69,227 7.3 823,755 808,364 1.9 Air Freight (metric tons) Dec '14 43,743 35,635 22.8 446,152 414,686 7.6 Enplaned Dec '14 18,195 17,866 1.8 230,175 219,476 4.9 Deplaned Dec '14 25,548 17,769 43.8 215,977 195,210 10.6

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Jan '15 27,591 24,991 10.4 27,591 24,991 10.4 Cars Jan '15 11,216 10,761 4.2 11,216 10,761 4.2 Trucks, SUVs and Commercials Jan '15 16,375 14,230 15.1 16,375 14,230 15.1 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 2Q14 29,665 29,545 0.4 57,177 55,326 3.3 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Jan '15 212.169 209.814 1.1 213.366 * 207.574 * 2.8 United States Jan '15 233.707 233.916 -0.1 233.700 * 233.900 * -0.1 Hotel Performance (Houston MSA) Occupancy (%) 2Q14 74.7 71.9 74.0 * 71.2 * Average Room Rate ($) 2Q14 111.81 104.65 6.8 109.49 * 102.55 * 6.8 Revenue Per Available Room ($) 2Q14 83.52 75.25 11.0 81.05 * 73.00 * 11.0

Nonfarm Payroll Employment, Houston MSA

3,000 150

2,900 120

2,800 90

2,700 60

2,600 30

2,500 0

2,400 -30 MonthChange (000)

2,300 -60 -

12 Nonfarm Payroll Payroll Employment Nonfarm(000) 2,200 -90

2,100 -120

2,400

580 2,300

540 2,200

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s)

- -

2,000 Goods 460 Service 1,900

420 1,800 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Houston Texas U.S. Source: Texas Workforce Commission Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf 60 6

40 4

20 2

0 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 24 Number 1 • January 2015 Here We Go Again — For the third time in as many decades, Houston faces a period of low oil prices and high economic uncertainty. The first episode occurred in the mid-’80s when Saudi Arabia flooded the world with crude, thus driving down prices. The second episode coincided with the Great Recession. Energy demand fell, taking oil prices with it. The most recent drop began in mid-’14 and traces its roots to U.S. overproduction, weak global growth, and the Saudis deciding to put a greater priority on market share than price. On June 23, 2014, West Texas Intermediate (WTI) traded at $107.95 per barrel. At market open on January 13, 2015, the price had fallen to $44.91.

When will prices re- SPOT PRICES WEST TEXAS INTERMEDIATE, $/BBL bound? The consensus is that they won’t Event Oil Peak Oil Trough % Change recover this year. Per- ‘80s Recession Aug ’80 $39.50 Mar ’86 $11.98 69.9

haps in ’16, if two Great Recession Jul ’08 145.31 Dec ’08 30.28 79.2 events transpire—current low oil prices Current Downturn Jun ’14 107.95 Jan ’15 44.91* 58.4 drive a significant a- * Not the trough but the price as of 8 a.m. January 13 mount of production Source: U.S. Energy Information Administration from the market and global economic growth heats up, stimulating demand for energy. Given the weakness of the European and Asian economies, the restructuring of the Chi- nese economy, and slower growth in Latin America, production cutbacks are likely to play a larger role in boosting oil prices. How low will oil prices fall before they recover? That’s anyone’s guess. However, the NYMEX futures strip suggests that WTI will trade between $46 and $54 through the end of the year.1 CitiGroup expects WTI to average in the mid-$50s much of the year. BNP Paribas forecasts WTI to average $55 for the year. The Saudi oil minister, however, has said OPEC will not cut production to prop up prices, even if oil falls to $20 per barrel. Will Houston see a repeat of the ’80s? Not likely. The region’s economy has matured since then. Factors that exacerbated the ’80s collapse are not present today. And there’s enough impetus from other sectors to support growth, albeit at a much slower pace than

1 NYMEX stands for New York Mercantile Exchange, the commodity futures market where fuels, metals and agricultural products are traded.

January 2015 ©2015, Greater Houston Partnership Page 1 in recent years. Houston’s economy this year and next will probably look more like a melding of ’04 and ’05, when oil traded at $40 to $60 a barrel and the region still found a way to add 57,000 jobs. The heady growth of ’12, ’13 and ’14 is behind us for now. Then vs. Now — The differences between Houston today Additional insights into the drop and in the ’80s were discussed in the November’ 14 issue in oil prices and the impact on of Glance, but they’re worth revisiting here. Office and Houston can be found in the housing are not overbuilt, banking is better regulated and Partnership’s 2015 Employment Forecast available on the econ- better capitalized, and Houstonians with memories of the omy tab at www.houston.org/ ’80s knew high oil prices wouldn’t last forever and planned accordingly. A few examples of the differences: • From ’82 to ’86, developers built more than 100,000 single-family homes, most on “spec,” i.e., without a signed contract from a purchaser. And they continued to build homes while the region lost more than 200,000 jobs. Today, few homes are built on spec, the resale market has half the inventory needed to meet demand, and the region is still creating jobs, just not in energy. • In the early ’80s, developers added more than 71.7 million square feet of office space at the same time companies were laying off staff and declaring bankruptcy. The office market is much tighter now. JLL reports only 16.2 million square feet under construction at the end of ’14, of which 56.0 percent is preleased. Overall vacancy rates may rise from 14.6 percent (Q4/14), but they won’t approach any- where near the 30.0 percent rate of July ’87. • In the mid-’80s, many Texas banks made questionable real estate and energy loans that quickly turned sour and led to the institutions’ demise. Texas banks are now part of the banking networks of JP Morgan Chase, Wells Fargo, Bank of America, Comerica and BB&T, thus providing a larger cushion for any nonperforming loans that may emerge. The banks are also more closely supervised now than they were in the ’80s, and thus less likely to overstretch on loan commitments. • In the ’80s, corporate functions included champagne and caviar. Businessmen crossed town via helicopter. “Drive 90 and freeze a Yankee” appeared on bumper stickers around town. Oilman Eddie Chiles appeared on television shouting, “If you don’t have an oil well, get one.” The world saw John Travolta in Urban Cow- boy as the image of the typical Houstonian. Many of today’s business leaders began their careers in the ’80s, remembered the excesses, and didn’t let things get out of hand during the recent boom. The image Houston now projects to the world is the work ethic of J.J. Watt and the humility of Craig Biggio. That’s not to say Houston won’t face challenges in the coming months. Even if crude stabilizes at $50 a barrel, energy companies will face severe restrictions on cash flow. Exploration budgets have already been slashed, sources of outside capital are drying up,

January 2015 ©2015, Greater Houston Partnership Page 2 banks are starting to audit reserves, orders for oil field equipment have fallen off, and service companies have begun quietly handing out pink slips. Don’t expect to see a flood of press releases announcing the layoffs. One’s more likely to hear of them at the soccer field, in the checkout line, or on the church parking lot before the trend appears in the data reported by the Texas Workforce Commission. As of early January, more than 40 energy companies have released their exploration budgets for ’15, according to Tudor Pickering Holt. Overall, spending will be down approximately 40 percent from last year. Exploration firms are trying to stretch those budgets by demanding price concessions from service firms. The requested cuts range from 10 to 50 percent, reports Tudor Pickering Holt. Agreeing to the cuts will compress margins for some firms and result in outright losses for others. A few will accept short- term losses, hoping to keep crews together until oil prices rebound and margins improve, but most are likely to release their crews, hoping to rehire them later. A drop of 40 percent in exploration spending suggests 9,000 to 12,000 fewer wells will be drilled this year than last. Fewer new wells will lead to slower production growth and eventually an outright decline in crude output. The recent surge in U.S. production comes from oil shale formations tapped by horizontal drilling and hydraulic fracturing. Seventy percent of their production occurs in the first year, so any slowdown in U.S. drilling will impact the global oil glut. It’s not just U.S. production that’s under pressure, but high-cost production throughout the world. Production in Canada (oil sands) and Russia (older fields) is thought to be especially vulnerable. With exploration tapering off, Houston will need to look to other sectors for growth. • The U.S. economy should expand at 4.0 percent or better this year. Houston’s economy benefits whenever U.S. economic growth exceeds 3.0 percent. • Dodge Data & Analytics reports that $28.7 billion in construction contracts was awarded in the metro area in the first 11 months of ’14, more than double the contract value awarded during the same period the previous year. Much of that work is concentrated in chemicals plants along the Houston Ship Channel, across Gal- veston Bay, and in Brazoria County. This should continue to provide opportunities for blue collar workers. • Houston’s expanding population (via births and relocations) and aging population (via baby boomers) continues to drive the need for health care. The Partnership’s employment forecast calls for growth in all sectors except oil field services, oil field equipment manufacturing, and oil field exploration. Losses may be a bit steeper in energy (a net loss of 9,200 jobs), and growth may be a bit slower (net gain of 62,900 total jobs) than originally forecast, but the Partnership still expects to see employment growth in ’15―just not at the pace of recent years.

January 2015 ©2015, Greater Houston Partnership Page 3 Employment Update — The Houston-Sugar Land-Baytown metro area led the state in employment growth, creating Follow me on 125,300 jobs in the 12 months ending November, according Twitter @PNJankowski to the Texas Workforce Commission (TWC). The Dallas-Fort Subscribe to my blog Worth-Arlington metro ranked second, adding 111,500 jobs, The Glass Half Full followed by San Antonio-New Braunfels with 29,100 jobs, also posted at Austin-Round Rock-San Marcos with 28,600 jobs, and www.houston.org/economy McAllen-Edinburg-Mission with 7,200 jobs. Since the bottom of the recession, the Houston metro area has added 480,200 net new jobs, or more than three times the 153,800 jobs lost during the recession. With the November employment report, Houston reached a milestone, surpassing 2.95 million jobs.

Houston's November unemployment rate was 4.5 percent, down from 4.7 percent in Octo- ber and 5.7 percent in November ’13. Texas’ unemployment rate was 4.6 percent in No- vember, down from 4.8 percent in October and 5.8 percent in November ’13. The U.S. rate was 5.5 percent in November, unchanged from October and down from 6.6 percent in November ’13. The rates are not seasonally adjusted.

Jobs Total Nonfarm Payroll Employment (Thousands) Houston Metro Area 3,000 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Texas Workforce Commission

SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS

January 2015 ©2015, Greater Houston Partnership Page 4 Building Permits — Construction permitting in the City of Houston totaled $8.7 billion for the 12 months ending November ’14, a 47.7 percent increase from the $5.9 billion issued during the same period in ’13. For the 12 months ending November, residential permit values rose 42.9 percent―from $2.1 billion to $3.1 billion. Nonresidential permits grew from $3.7 billion to $5.6 billion, a 50.4 percent increase. Inflation — The cost of consumer goods and services, as measured by the Consumer Price Index for All Urban Consumers, increased 1.3 percent nationwide from November ’13 to November ’14, according to the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) rose 1.7 percent over the 12 months. Home Sales — Houston-area realtors remained busy through the fall, selling 6,639 single-family homes in October, a 12.3 percent increase from the 5,912 sold October ’13. The Houston Association of REALTORS® (HAR) reports that home prices reached record highs for an October. The average price of a single family home rose 9.8 percent year over year to $262,013, and the median price of a single family home increased 8.3 percent to $192,000. Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short-term leading indicator for regional production, registered 51.5 in December, down from 54.3 in November, according to the latest report from the Institute for Supply Man- agement-Houston. The December PMI is the lowest reading for Houston production since November ’09. Vehicle Sales — Houston-area auto dealers sold 27,693 vehicles in November, down 3.1 percent from November ’13, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. Vehicle sales fell for the second straight month, but produced the second highest November in the past 15 years. In the 12 months ending November ’14, 371,331 vehicles were sold in the Houston region, up 6.0 percent from the 350,454 sold during the prior 12 months.

Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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The Key Economic Indicators table is updated whenever any data change Follow me on — typically, 11 or so times per month. If you would like to receive these Twitter @PNJankowski updates by e-mail, usually accompanied by commentary, please email your Subscribe to my blog request for Key Economic Indicators to [email protected] with the The Glass Half Full same identifying information. You may request Glance and Indicators in the same email. also posted at www.houston.org/economy

HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Nov '14 Oct '14 Nov '13 Oct '14 Nov '13 Oct '14 Nov '13

Total Nonfarm Payroll Jobs 2,955.9 2,939.7 2,830.6 16.2 125.3 0.6 4.4 Total Private 2,565.6 2,551.8 2,449.6 13.8 116.0 0.5 4.7 Goods Producing 584.3 586.5 550.4 -2.2 33.9 -0.4 6.2 Service Providing 2,371.6 2,353.2 2,280.2 18.4 91.4 0.8 4.0 Private Service Providing 1,981.3 1,965.3 1,899.2 16.0 82.1 0.8 4.3

Mining and Logging 117.0 117.7 106.9 -0.7 10.1 -0.6 9.4 Oil & Gas Extraction 63.4 63.2 59.2 0.2 4.2 0.3 7.1 Support Activities for Mining 53.5 53.9 47.0 -0.4 6.5 -0.7 13.8

Construction 205.4 206.1 189.2 -0.7 16.2 -0.3 8.6

Manufacturing 261.9 262.7 254.3 -0.8 7.6 -0.3 3.0 Durable Goods Manufacturing 173.2 174.6 171.9 -1.4 1.3 -0.8 0.8 Nondurable Goods Manufacturing 88.7 88.1 82.4 0.6 6.3 0.7 7.6

Wholesale Trade 155.7 156.6 154.4 -0.9 1.3 -0.6 0.8

Retail Trade 300.2 292.3 293.7 7.9 6.5 2.7 2.2

Transportation, Warehousing and Utilities 142.5 139.3 132.8 3.2 9.7 2.3 7.3 Utilities 16.6 16.4 16.0 0.2 0.6 1.2 3.8 Air Transportation 23.3 23.3 23.3 0.0 0.0 0.0 0.0 Truck Transportation 25.1 25.1 24.0 0.0 1.1 0.0 4.6 Pipeline Transportation 9.9 9.8 9.5 0.1 0.4 1.0 4.2

Information 33.8 33.3 32.6 0.5 1.2 1.5 3.7 Telecommunications 15.2 15.1 14.9 0.1 0.3 0.7 2.0

Finance & Insurance 92.0 92.9 89.8 -0.9 2.2 -1.0 2.4

Real Estate & Rental and Leasing 54.0 54.9 52.3 -0.9 1.7 -1.6 3.3

Professional & Business Services 449.0 447.7 431.8 1.3 17.2 0.3 4.0 Professional, Scientific & Technical Services 222.8 221.8 205.0 1.0 17.8 0.5 8.7 Legal Services 24.2 24.2 23.9 0.0 0.3 0.0 1.3 Accounting, Tax Preparation, Bookkeeping 21.0 20.9 20.5 0.1 0.5 0.5 2.4 Architectural, Engineering & Related Services 80.7 79.7 70.1 1.0 10.6 1.3 15.1 Computer Systems Design & Related Services 32.8 32.4 30.3 0.4 2.5 1.2 8.3 Admin & Support/Waste Mgt & Remediation 201.0 200.9 202.5 0.1 -1.5 0.0 -0.7 Administrative & Support Services 189.5 188.9 191.8 0.6 -2.3 0.3 -1.2 Employment Services 80.7 80.7 74.6 0.0 6.1 0.0 8.2

Educational Services 53.5 53.4 50.9 0.1 2.6 0.2 5.1

Health Care & Social Assistance 311.3 310.6 287.7 0.7 23.6 0.2 8.2

Arts, Entertainment & Recreation 29.1 29.4 28.0 -0.3 1.1 -1.0 3.9

Accommodation & Food Services 257.2 252.0 245.2 5.2 12.0 2.1 4.9

Other Services 103.0 102.9 100.0 0.1 3.0 0.1 3.0

Government 390.3 387.9 381.0 2.4 9.3 0.6 2.4 Federal Government 27.7 27.3 27.3 0.4 0.4 1.5 1.5 State Government 73.7 73.6 73.4 0.1 0.3 0.1 0.4 State Government Educational Services 40.0 39.8 39.8 0.2 0.2 0.5 0.5 Local Government 288.9 287.0 280.3 1.9 8.6 0.7 3.1 Local Government Educational Services 203.8 201.8 196.9 2.0 6.9 1.0 3.5

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Dec '14 1,882 1,756 7.2 1,862 * 1,762 * 5.7 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Dec '14 60.23 97.07 -38.0 93.38 * 98.00 * -4.7 Spot Natural Gas ($/MMBtu, Henry Hub) Dec '14 3.45 4.23 -18.4 4.31 * 3.71 * 16.2

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Dec '14 51.5 55.4 -7.0 56.5 * 58.4 * -3.3 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Nov '14 4,639,848 4,392,870 5.6 49,829,340 48,034,538 3.7

CONSTRUCTION Total Building Contracts ($, Houston MSA) Nov '14 1,562,009,000 965,565,000 61.8 28,675,379,000 11,546,460,000 148.3 Nonresidential Nov '14 928,509,000 339,864,000 173.2 19,615,557,000 3,573,055,000 449.0 Residential Nov '14 633,500,000 625,701,000 1.2 9,059,822,000 7,973,405,000 13.6 Building Permits ($, City of Houston) Nov '14 557,555,813 376,587,045 48.1 8,045,099,536 5,517,636,311 45.8 Nonresidential Nov '14 339,118,105 216,736,377 56.5 5,226,119,177 3,459,875,050 51.0 New Nonresidential Nov '14 222,121,104 90,666,974 145.0 3,020,860,894 1,774,008,338 70.3 Nonresidential Additions/Alterations/Conversions Nov '14 116,997,001 126,069,403 -7.2 2,205,258,283 1,685,866,712 30.8 Residential Nov '14 218,437,708 159,850,668 36.7 2,818,980,359 2,057,761,261 37.0 New Residential Nov '14 203,537,825 145,848,450 39.6 2,518,213,975 1,850,993,759 36.0 Residential Additions/Alterations/Conversions Nov '14 14,899,883 14,002,218 6.4 300,766,384 206,767,502 45.5 Multiple Listing Service (MLS) Activity Property Sales Oct '14 8,106 7,182 12.9 69,635 67,920 2.5 Median Sales Price - SF Detached Oct '14 196,000 182,000 7.7 196,544 * 178,723 * 10.0 Active Listings Oct '14 28,946 32,457 -10.8 28,759 * 32,787 * -12.3

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Nov '14 2,955,900 2,830,600 4.4 2,884,836 * 2,783,700 * 3.6 Goods Producing (Natural Resources/Mining/Const/Mfg) Nov '14 584,300 550,400 6.2 571,491 0 546,773 * 4.5 Service Providing Nov '14 2,371,600 2,280,200 4.0 2,313,345 0 2,236,927 * 3.4 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Nov '14 4.5 5.7 5.1 * 6.2 * Texas Nov '14 4.6 5.8 5.3 * 6.4 * U.S. Nov '14 5.5 6.6 6.2 * 7.5 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Oct '14 3,937,011 3,726,758 5.6 39,197,949 37,552,953 4.4 Air Passengers (Houston Airport System) Oct '14 4,464,317 4,206,141 6.1 44,255,514 42,273,901 4.7 Domestic Passengers Oct '14 3,764,899 3,542,097 6.3 36,035,518 34,791,694 3.6 International Passengers Oct '14 699,418 664,044 5.3 8,219,996 7,482,207 9.9 Landings and Takeoffs Oct '14 71,482 68,236 4.8 682,547 671,626 1.6 Air Freight (metric tons) Oct '14 42,810 36,842 16.2 365,823 344,350 6.2 Enplaned Oct '14 23,424 19,347 21.1 193,329 183,285 5.5 Deplaned Oct '14 19,386 17,495 10.8 172,494 161,065 7.1

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Nov '14 27,693 28,569 -3.1 348,470 324,998 7.2 Cars Nov '14 10,916 12,239 -10.8 149,891 144,041 4.1 Trucks, SUVs and Commercials Nov '14 16,777 16,330 2.7 198,579 180,957 9.7 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 2Q14 29,665 29,545 0.4 57,177 55,326 3.3 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Nov '14 214.8 207.8 3.4 213.500 * 207.200 * 3.0 United States Nov '14 236.151 233.069 1.3 236.911 * 232.949 * 1.7 Hotel Performance (Houston MSA) Occupancy (%) 2Q14 74.7 71.9 74.0 * 71.2 * Average Room Rate ($) 2Q14 111.81 104.65 6.8 109.49 * 102.55 * 6.8 Revenue Per Available Room ($) 2Q14 83.52 75.25 11.0 81.05 * 73.00 * 11.0

Sources Rig Count Baker Hughes Incorporated Port Shipments Port of Houston Authority Spot WTI, Spot Natural Gas U.S. Energy Information Admin. Aviation Aviation Department, City of Houston Purchasing Managers National Association of Houston Index Purchasing Management – Car and Truck Sales TexAuto Facts Report, InfoNation, Inc., Houston, Inc. Sugar Land TX Electricity CenterPoint Energy Retail Sales Texas Comptroller’s Office Building Construction Contracts McGraw-Hill Construction Consumer Price Index U.S. Bureau of Labor Statistics City of Houston Building Permits Building Permit Department, Hotels PKF Consulting/HospitalityAsset City of Houston Advisors International MLS Data Houston Association of Realtors Postings, Foreclosures Foreclosure Information &Listing Employment, Unemployment Texas Workforce Commission Service

Nonfarm Payroll Employment, Houston MSA

3,000 150

2,900 120

2,800 90

2,700 60

2,600 30

2,500 0

2,400 -30 Month Change (000) Change Month

2,300 -60 12 - Nonfarm Payroll Employment (000) Employment Payroll Nonfarm 2,200 -90

2,100 -120

2,000 -150 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,400

2,300

580

2,200 540

2,100

500 Providing Jobs (000s) Producing Jobs (000s) - - 2,000 Goods 460 Service 1,900

420 1,800 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian Force Labor % Civilian 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, $ barrel 80 8 Natural /mcf $ Gas,

60 6

40 4

20 2

0 0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 23, Number 10  October 2014 Half a Trillion Dollars — Houston’s economy grew 5.2 percent (net of inflation) in ’13, according to the U.S. Bureau of Economic Analysis (BEA). That was the fastest growth among the nation’s 50 largest metro areas. BEA estimates Houston’s gross domestic product (GDP) at $517.4 billion, making it the nation’s fourth largest metro economy. To put Houston’s GDP in a global perspective, if the nine-county region were a sovereign nation, it would rank as the world’s 25th GROSS DOMESTIC PRODUCT largest economy, behind Nigeria ($521.8 bil- 20 Largest Metro Economies ’13 GDP % Change Rank Metro lion) and Poland ($517.5 billion) and ahead ($ Billions) ’12 - ’13* of Norway ($512.6 billion) and Belgium 1 New York 1,471.170 1.0 ($508.1 billion).1 2 Los Angeles 826.826 1.2 3 Chicago 590.248 1.3 Since ’08, Houston’s GDP has grown by 4 Houston 517.367 5.2 $83.6 billion (net of inflation), exceeding the 5 Washington 463.925 -0.8 combined growth of the Texas’ next six larg- 6 Dallas-Fort Worth 447.574 2.1 est metro economies—Dallas-Fort Worth 7 Philadelphia 388.272 0.4 ($47.3 billion), Austin ($14.6 billion), San 8 San Francisco 383.401 2.0 Antonio ($11.2 billion), El Paso ($1.3 bil- 9 Boston 370.769 1.6 lion), Corpus Christi ($3.6 billion) and 10 Atlanta 307.233 2.0 2.4 Beaumont ($3.5 billion)—over the same pe- 11 Seattle 284.967 12 Miami 281.076 2.4 riod. To put Houston’s growth in a Gulf 13 Minneapolis 227.793 2.5 Coast perspective, since ’08 Houston has 14 Detroit 224.726 1.3 added the equivalent of New Orleans’ current 15 Phoenix 209.523 1.2 GDP ($81.8 billion). 16 San Jose 197.886 4.4 1.7 Texas’ economy grew 3.7 percent (net of in- 17 San Diego 196.829 18 Denver 178.860 4.3 flation) in ’13. BEA estimates state GDP at 19 Portland 168.845 2.7 $1.532 trillion, of which Houston accounts 20 Baltimore 163.692 0.9 for 33.8 percent, up from 26.3 percent in ’10. * Net of inflation That Houston now represents a larger share Source: U.S. Bureau of Economic Analysis of Texas’ economy is not surprising, given that:

1 BEA’s estimates are for the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area, which includes Austin, Bra- zoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller counties. The comparison of Houston’s economy to global economies is based on International Monetary Fund reports of national GDP.

October 2014 ©2014, Greater Houston Partnership Page 1  Houston’s exports have grown by $34.4 billion since ’10 and account for nearly half of Texas’ export growth over that period.  Many of the 375,000 jobs Houston added between December ’09 and December ’13 were in sectors such as oil exploration, oil field services and oil field equipment manufacturing, where value added per worker is high.  The boom in the Texas shale plays has led a boom in chemical plant construction in the region, with some estimates placing the aggregate value as high as $70 billion. That Nagging Question — BEA’s recent GDP estimates provide some insight into the question, “How large is the energy industry in Houston?” In previous years, BEA did not provide estimates for the mining (i.e., oil and gas) sector in Houston, but it did so this year. The Bureau estimates that mining accounted for $102.7 billion, or 19.8 percent of the region’s GDP, in ’13. This figure doesn’t include sectors that many Houstonians consider part of the industry—chemicals, refining, oil field equipment manufacturing, fabricated metal products, pipeline transportation and engineering services. Unfortunately, BEA didn’t provide data for these industries, but a rough estimate of their size can be calculated using other sources.

According to the 2002 U.S. Cen- INDUSTRY SHARES OF HOUSTON GDP – ’13 sus of Manufactures, chemicals, Sector $ Billions % GDP petroleum refining, and oil field Agriculture, Forestry, Fishing 0.490 0.1 equipment manufacturing ac- Mining 102.685 19.8 counted for 58.9 percent of value Construction 25.656 5.0 added by manufacture in Houston Manufacturing 96.754 18.7 in ’02.2 Given the recent surge in Wholesale Trade 37.260 7.2 activity in these sectors, it’s rea- Retail Trade 19.957 3.9 sonable to assume their share of Utilities D D Transportation, Warehousing 20.325 3.9 value added to local manufactur- Information D D ing output may now exceed 65 Finance, Insurance, Real Estate 57.987 11.2 percent. Based on that assumption, Professional, Business Services 59.045 11.4 GHP estimates chemicals, refining Educational Services, Health Care 23.012 4.4 and oil field equipment manufac- Arts, Entertainment, Recreation 11.259 2.2 turing accounts for $62.9 billion Other Services 8.278 1.6 of Houston’s GDP.3 Combined Government 29.653 5.7 with mining, that would suggest Total All Sectors $517.367 100.0 energy accounts for $165.6 bil- D = Not reported to avoid the disclosure of confidential information. lion, or 32.0 percent of Houston Source: U.S. Bureau of Economic Analysis

2 BEA did not disclose data for these sectors in the 2007 U.S. Census of Manufacturers and data from the 2012 Census of Manu- factures won’t be released until next spring. 3 Calculations assume 65 percent of Houston’s $96.8 billion manufacturing industry.

October 2014 ©2014, Greater Houston Partnership Page 2 GDP. If one assumes that fabricated metal products (e.g., pipes, valves, flanges) accounts for another $7.0 billion,4 pipeline transportation for $4.0 billion5 and engineering services for $10.0 billion,6 the share of Houston’s economy directly tied to energy exceeds $186.6 billion, or 38.1 percent of regional GDP. Bear in mind that this estimate is only as good as its assumptions. Energy’s share of Houston GDP could be higher or lower. The estimates do underscore energy’s dominance in Houston’s economy. Ready for Your Close-Up, Houston? — Each September, the U.S. Census Bureau releases the American Community Survey (ACS), an annual snapshot of the population’s economic, demographic, housing and social characteristics.7 Comparing responses from the ACS over time can provide insights into changes in the population. The Greater Hou- ston Partnership has compared data from the ’09 and ’13 ACS for the nine-county Houston metro area and noted the following:

 Houston continues to diversify. Anglos now RACIAL/ETHNIC PROFILE represent a smaller share of Houston’s popula- % of Metro Houston Population* ’09 ‘13 tion than they did in ’09, while Blacks, Asians American Indian 0.2 0.2 and Hispanics represent larger shares. Asian 6.0 6.9  Labor force participation in Houston has fallen, Black 16.5 16.8 but not to the same extent as nationally. In ’09, Hispanic 34.4 36.1 68.4 percent of Houstonians 16 and older were White 41.7 38.3 Other 1.2 1.7 in the labor force, i.e., employed or actively Total % 100.0 100.0 looking for work. In ’13, Houston’s labor force ’09 based on an estimated 5,865,086 residents. ’13 participation rate slipped to 67.3 percent. Given based on an estimated 6,313,158 area residents. the region’s robust job growth, the local decline Source: American Community Survey is more likely due to an aging population than disillusioned workers, who account for much of the nationwide decline. In Houston, the population 62 and older rose by 132,000 over the four years.  Houstonians love their cars. In ’09, 78.8 percent of all workers drove to work alone each day. In ’13, single-passenger commuters accounted for 79.7 percent of all work trips. That figure equates to 211,000 more vehicles on the road last year than four years earlier. Only 2.4 percent of Houstonians use public transit to get to work.

4 BEA estimated fabricated metal products’ contribution to Houston’s GDP at $6.6 billion in ’12 but did not provide an estimate for ’13. 5 This is a conservative estimate based on fact that nationwide pipeline transportation is a $19.5 billion industry and Houston- based firms control 44 percent of the nation’s oil pipeline capacity and 52 percent of the nation’s gas pipeline capacity. And while certain firms in Houston may report revenues which greatly exceed GHP’s estimates, regional GDP is based on value added locally and thus pipelines’ share of GDP is a fraction of total reported revenues. 6 A very rough estimate based on architectural and engineering services accounting for 17.7 percent of business and professional services employment and BEA estimating the sector contributed $59.0 billion to Houston’s GDP in ’13. 7 Information from the survey helps determine how more than $400 billion in federal and state funds are distributed each year.

October 2014 ©2014, Greater Houston Partnership Page 3  More Houstonians draw paychecks than toil for themselves. Of the 2,995,300 Houston- ians 16 and older who work, 188,200 are self-employed. That’s a drop from 193,000 in ’09, and a decline from 7.0 to 6.3 percent of the working population. During the recession, many Houstonians became entrepreneurs by necessity and not by choice.  Houston has grown smarter. The population 25 and older holding a bachelor’s degree or higher rose from 27.9 percent in ’09 to 30.9 percent in ’13.  Houstonians have become older. In ’09, the median age of all residents was 32.9 years. In ’13, the median age was 33.6 years.  For many Houstonians, incomes have not kept pace with inflation. The median household income for Houston was $54,146 in ’09. The median in ’13 was $57,366. If the median had kept pace with inflation, it would have been $60,030 in ’13.  Houston has more affluent households than before. The ACS recorded 591,000 households in Houston with incomes of $100,000 or more in ’13, up from 409,700 in ’09.  But not everyone has benefited from Houston’s booming economy. In ’09, 12.2 percent of all families lived in poverty. In ’13, 13.2 percent did.  However, there are fewer uninsured. In ’09, 75.4 percent of Houstonians had health insurance. In ’13, 77.2 percent had coverage.  Houston continues to attract residents from overseas. The ’13 ACS found that 1,423,700 Houston residents were born outside the U.S. compared to 1,278,400 in ’09. That means 22.5 percent of Houston’s population was foreign-born in ’13 versus 21.8 percent in ’09. About two- thirds of all foreign-born Houston's Foreign Population By Place of Birth residents, 844,300 according to the ’13 ACS, are not North America, U.S. citizens. 1.3% Europe, 4.7%  Finally, one in every 17 Latin America, adults served in the mili- 65.2% tary, one in every 10 Hous- tonians has been diagnosed Asia, 24.1% with some form of disabil- ity, one in three over the Africa, 4.5% age of five speaks a lan- Oceania, 0.2% guage other than English at Source: 2013 American Community Survey home, and nine out of every 10 households own a computer. For additional information in the ACS, click here.

October 2014 ©2014, Greater Houston Partnership Page 4 From Scarcity to Abundance — At GHP’s inaugural State of Energy event8 held on Oc- tober 2, Rex Tillerson, chairman, president and CEO of ExxonMobil Corporation, noted that the level of exploration and production activity in North America has created a new era of energy abundance. The U.S. produces 3.0 million more barrels of crude and liquids per day than just three years ago, a 57.4 percent increase, from 5.4 million barrels per day in early ’11 to the current daily production rate of 8.5 million barrels per day.

U.S. Crude Oil Production 9,000

8,000

7,000

6,000

5,000 U.S. Crude Oil Production Thousandbarrels per day 4,000

3,000 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: U.S. Energy Information Administration

After decades of operating under a mindset of scarcity, North America now benefits from several game-changing innovations the oil and gas industry has pioneered. The development of the Canadian tar sands has expanded proven oil reserves by approximately 170 billion barrels. Offshore operations in the Gulf of Mexico now reach ultra-deep-water depths of more than 10,000 feet. ExxonMobil projects deep-water production will increase 150 percent worldwide over the next three decades. Finally, the most discussed breakthrough of hydraulic fracturing coupled with horizontal drilling has opened up previously inaccessible and uneconomic energy supplies. This new era of energy abundance offers new challenges as prices decline. The spot price of West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, fell from the monthly average of $101.07 a barrel in October ’13 to $88.86 a barrel on October 7, 2014. Many operators cite $70 a barrel as the threshold below which drilling in shale plays such as the Eagle Ford would no longer be economically feasible.

8 Click here to read Rex Tillerson’s State of Energy speech.

October 2014 ©2014, Greater Houston Partnership Page 5 In its October Short-Term En- WTI, Monthly Average Spot Price 120 ergy Outlook, the U.S. Energy 110 Information Administration 100 (EIA) projected WTI to aver- 90 Shale Drilling age $98.28 this year, down 80 Profitable from the previously projected 70 $100.45. The EIA also lowered 60 50 its ’15 forecast from an aver-

$/Barrel age of $96.08 a barrel to 40 Shale Drilling 30 $94.58 per barrel. Despite the Unprofitable 20 downward revisions, the fore- 10 casted prices remain at a level 0 that should sustain exploration '09 '10 '11 '12 '13 '14 '15 activity at or above current Source: U.S. Energy Information Administration levels through the end of ’15. Commercial Real Estate Update — The Houston office market continues to show signs of leveling off, reports CBRE. The market saw seven buildings break ground in Q3/14, only one of which was spec, compared to three spec groundbreakings in Q2/14. Current office construction totals 17.3 million square feet, up from 16.3 million in Q2. Sixty- seven percent of the space under construction is pre-leased or owner-occupied space. The market absorbed 1.0 million square feet of office space in Q3/14, bringing the year- to-date absorption to 3.8 million square feet. That compares with 3.6 million square feet absorbed in the first three quarters of ’13. Overall asking rates were $26.10 per square foot in Q3/14 compared to $24.40 in Q3/13. The Houston industrial market absorbed 5.9 million square feet of space through Q3/14, reports CBRE, and has already surpassed the ’13 full-year total of 5.8 million square feet. Even though 10.3 million square feet of industrial space has been delivered so far this year, the vacancy rate is holding steady at 5.3 percent. The average asking rental rate was $0.67 per square foot in Q3/14, up from the $0.54 in Q3/13. Only 6.1 million square feet of industrial space is under construction, compared to 7.8 million in Q2. CBRE reports that available retail space is becoming increasingly difficult to find. The vacancy rate dropped to 6.6 percent in Q3/14 compared to 7.4 percent in Q3/13. Only 2.1 million square feet of retail space is under construction in a market with 209.8 million square feet of total space. Annual asking rates averaged $22.06 per square foot in Q3/14 compared to $21.81 in Q3/13.

October 2014 ©2014, Greater Houston Partnership Page 6 Jobs Machine Continues to Hum — The Houston metro area led the state in employment growth, creating 107,400 jobs in the 12 months ending August ’14, according to the Texas Workforce Commission. The Dallas-Fort Worth-Arlington metro ranked second, adding 101,500 jobs, followed by Austin-Round Rock-San Marcos with 31,700 jobs. The three fastest growing sectors in Houston were building construction (14.3 percent annual growth, 7,100 jobs), engineering (13.3 percent annual growth, 9,300 jobs) and oil field services (11.2 percent, 5,400 jobs). These sectors are being driven by the current office construction boom, the massive investment in new chemical plants along the Houston Ship Channel, and the current ongoing activity in the Eagle Ford and Permian Basin. Since the bottom of the recession, the metro area has added 420,700 jobs, or nearly triple the 153,800 jobs lost during the recession. Houston remains 3,600 jobs shy of the 2.9 million job mark, a milestone the region should reach when the Texas Workforce Commission issues the next employment report later this month.

Partnership to Host Economic Outlook Event — Plan to attend GHP’s 2015 Econom- ic Outlook, scheduled for Thursday, December 11. The event features a panel of business leaders discussing Houston economic trends, the Partnership’s 2015 employment forecast, and a luncheon keynote presentation by David Crowe, Chief Economist for the National Associaton of Homebuilders. Additional details will be posted at the Partnership’s website, www.houston.org, starting mid-October.

October 2014 ©2014, Greater Houston Partnership Page 7 SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS Building Permits — City of Houston construction permits set a record in August, the sixth consecutive month to do so. The 12-month total topped $7.8 billion, a 39.2 percent increase from $5.6 billion in permits issued over the 12-months ending August ’13. Inflation —The cost of consumer goods and services as measured by the Consumer Price Index for All Urban Consumers increased 1.7 percent nationwide from August ’13 to August ’14, according to data released by the U.S. Bureau of Labor Statistics. Core inflation (all items less the volatile food and energy categories) rose 1.7 percent over the past 12 months Home Sales —Houston-area realtors sold 89,711 homes in the 12 months ending August ’14, a 5.7 percent increase over the 84,900 homes sold in the comparable period in ’13, according to data released by the Houston Association of REALTORS® (HAR). Dollar volume topped $22.5 billion in the 12 months ending August ’14, a 14.8 percent increase over the $19.6 billion recorded in the same period in ’13. The running total for dollar volume has now set a record for 17 consecutive months. Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short-term leading indicator for regional production, registered 55.6 in August, down from 56.4 in July, according to the latest report from the Institute for Supply Manage- ment-Houston (ISM-Houston). With the August reading, the PMI has held at or above 50 for 60 consecutive months.

Vehicle Sales — Houston-area auto dealers sold 371,488 vehicles in the 12 months ending August ’14, up 11.3 percent from the 333,648 sold during the same period ending ’13. According to TexAuto Facts, published by InfoNation, Inc. of Sugar Land, Houston area auto dealers sold 30,677 vehicles in August ’14, up 0.3 percent from 30,595 in Au- gust ’13. Growth was attributed to the 3.3 percent increase in truck/SUV sales, from 17,359 sold in August ’13 to 17,935 in August ’14. The uptick in truck sales offset the 3.7 percent decrease in car sales, the second consecutive month of year-over-year declines in car sales.

Foreign Trade — In the first eight months of this year, more than $173.7 billion in foreign trade passed through the Houston-Galveston Customs District, up 5.2 percent from the $165.1 billion in trade handled in the first eight months of ’13. Exports totaled $89.9 billion, up 9.5 percent from the $82.1 billion handled during the same period in ’13. Im- ports totaled $83.7 billion, up 0.9 percent from the $83.0 billion handled over the same period in ’13. Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Aug '14 July '14 Aug '13 July '14 Aug '13 July '14 Aug '13

Total Nonfarm Payroll Jobs 2,896.4 2,892.7 2,789.0 3.7 107.4 0.1 3.9 Total Private 2,538.6 2,528.2 2,443.0 10.4 95.6 0.4 3.9 Goods Producing 581.4 573.6 552.2 7.8 29.2 1.4 5.3 Service Providing 2,315.0 2,319.1 2,236.8 -4.1 78.2 -0.2 3.5 Private Service Providing 1,957.2 1,954.6 1,890.8 2.6 66.4 0.1 3.5

Mining and Logging 117.8 116.4 108.9 1.4 8.9 1.2 8.2 Oil & Gas Extraction 63.1 62.9 59.5 0.2 3.6 0.3 6.1 Support Activities for Mining 53.5 52.2 48.1 1.3 5.4 2.5 11.2

Construction 201.4 195.7 190.5 5.7 10.9 2.9 5.7

Manufacturing 262.2 261.5 252.8 0.7 9.4 0.3 3.7 Durable Goods Manufacturing 174.9 174.5 172.1 0.4 2.8 0.2 1.6 Nondurable Goods Manufacturing 87.3 87.0 80.7 0.3 6.6 0.3 8.2

Wholesale Trade 155.9 157.3 152.2 -1.4 3.7 -0.9 2.4

Retail Trade 291.1 288.9 286.7 2.2 4.4 0.8 1.5

Transportation, Warehousing and Utilities 137.8 139.2 131.9 -1.4 5.9 -1.0 4.5 Utilities 16.7 16.7 16.2 0.0 0.5 0.0 3.1 Air Transportation 23.3 23.3 23.2 0.0 0.1 0.0 0.4 Truck Transportation 25.0 24.9 24.1 0.1 0.9 0.4 3.7 Pipeline Transportation 9.7 9.8 9.5 -0.1 0.2 -1.0 2.1

Information 33.3 33.3 32.8 0.0 0.5 0.0 1.5 Telecommunications 15.1 15.2 14.9 -0.1 0.2 -0.7 1.3

Finance & Insurance 92.3 92.3 91.9 0.0 0.4 0.0 0.4

Real Estate & Rental and Leasing 54.8 54.2 52.5 0.6 2.3 1.1 4.4

Professional & Business Services 447.6 446.1 431.6 1.5 16.0 0.3 3.7 Professional, Scientific & Technical Services 219.7 220.7 204.1 -1.0 15.6 -0.5 7.6 Legal Services 24.4 24.6 23.9 -0.2 0.5 -0.8 2.1 Accounting, Tax Preparation, Bookkeeping 20.3 20.4 20.0 -0.1 0.3 -0.5 1.5 Architectural, Engineering & Related Services 79.4 78.6 70.1 0.8 9.3 1.0 13.3 Computer Systems Design & Related Services 32.3 32.2 29.9 0.1 2.4 0.3 8.0 Admin & Support/Waste Mgt & Remediation 202.5 200.1 203.4 2.4 -0.9 1.2 -0.4 Administrative & Support Services 191.4 189.1 193.7 2.3 -2.3 1.2 -1.2 Employment Services 80.2 78.2 76.1 2.0 4.1 2.6 5.4

Educational Services 51.7 50.4 49.3 1.3 2.4 2.6 4.9

Health Care & Social Assistance 302.7 298.1 286.1 4.6 16.6 1.5 5.8

Arts, Entertainment & Recreation 32.6 33.6 30.7 -1.0 1.9 -3.0 6.2

Accommodation & Food Services 255.0 257.7 246.2 -2.7 8.8 -1.0 3.6

Other Services 102.4 103.5 98.9 -1.1 3.5 -1.1 3.5

Government 357.8 364.5 346.0 -6.7 11.8 -1.8 3.4 Federal Government 27.2 27.5 27.4 -0.3 -0.2 -1.1 -0.7 State Government 70.3 70.3 69.7 0.0 0.6 0.0 0.9 State Government Educational Services 37.1 37.1 36.8 0.0 0.3 0.0 0.8 Local Government 260.3 266.7 248.9 -6.4 11.4 -2.4 4.6 Local Government Educational Services 174.6 180.3 164.9 -5.7 9.7 -3.2 5.9

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Sept '14 1,930 1,763 9.5 1,845 * 1,763 * 4.7 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Sept '14 93.37 106.09 -12.0 100.23 * 98.14 * 2.1 Spot Natural Gas ($/MMBtu, Henry Hub) Sept '14 3.89 3.58 8.7 4.48 * 3.66 * 22.4

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Aug '14 55.6 58.0 -4.1 57.0 * 58.6 * -2.7 Nonresidential Electric Current Sales (Mwh, CNP Service Area) July '14 4,808,711 4,660,412 3.2 30,226,473 29,221,239 3.4

CONSTRUCTION Total Building Contracts ($, Houston MSA) Aug '14 1,458,201,000 933,592,000 56.2 23,262,418,000 8,230,291,000 182.6 Nonresidential Aug '14 738,751,000 197,370,000 274.3 16,887,462,000 2,345,566,000 620.0 Residential Aug '14 719,450,000 736,222,000 -2.3 6,374,956,000 5,884,725,000 8.3 Building Permits ($, City of Houston) Aug '14 695,960,968 422,778,418 64.6 5,634,859,690 3,933,521,700 43.3 Nonresidential Aug '14 370,587,621 250,043,895 48.2 3,692,023,223 2,526,813,746 46.1 New Nonresidential Aug '14 88,272,884 98,006,548 -9.9 2,044,636,168 1,250,054,134 63.6 Nonresidential Additions/Alterations/Conversions Aug '14 282,314,737 152,037,347 85.7 1,647,387,055 1,276,759,612 29.0 Residential Aug '14 325,373,347 172,734,523 88.4 1,942,836,467 1,406,707,954 38.1 New Residential Aug '14 302,815,828 142,699,944 112.2 1,740,783,387 1,249,870,075 39.3 Residential Additions/Alterations/Conversions Aug '14 22,557,519 30,034,579 -24.9 202,053,080 156,837,879 28.8 Multiple Listing Service (MLS) Activity Property Sales Aug '14 8,953 8,806 1.7 61,756 60,558 2.0 Median Sales Price - SF Detached Aug '14 206,000 186,510 10.4 196,613 * 178,314 * 10.3 Active Listings Aug '14 29,574 32,834 -9.9 28,736 * 32,828 * -12.5

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Aug '14 2,896,400 2,789,000 3.9 2,864,438 * 2,771,113 * 3.4 Goods Producing (Natural Resources/Mining/Const/Mfg) Aug '14 581,400 552,200 5.3 566,663 0 544,663 * 4.0 Service Providing Aug '14 2,315,000 2,236,800 3.5 2,297,775 0 2,226,450 * 3.2 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Aug '14 5.4 6.3 5.3 * 6.3 * Texas Aug '14 5.5 6.4 5.4 * 6.5 * U.S. Aug '14 6.3 7.3 6.5 * 7.7 *

TRANSPORTATION Port of Houston Authority Shipments (Short Tons) July '14 4,282,705 3,962,804 8.1 27,198,013 26,058,126 4.4 Air Passengers (Houston Airport System) July '14 4,990,070 4,746,868 5.1 31,019,874 29,770,752 4.2 Domestic Passengers July '14 3,975,402 3,807,525 4.4 25,076,991 24,386,975 2.8 International Passengers July '14 1,014,668 939,343 8.0 5,942,883 5,383,777 10.4 Landings and Takeoffs July '14 71,490 69,529 2.8 475,933 471,552 0.9 Air Freight (metric tons) July '14 39,032 34,404 13.5 249,493 240,376 3.8 Enplaned July '14 20,176 18,721 7.8 131,736 127,489 3.3 Deplaned July '14 18,856 15,683 20.2 117,757 112,887 4.3

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Aug '14 30,677 30,595 0.3 256,368 232,739 10.2 Cars Aug '14 12,742 13,236 -3.7 111,896 103,820 7.8 Trucks, SUVs and Commercials Aug '14 17,935 17,359 3.3 144,472 128,919 12.1 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 4Q13 35,486 31,561 12.4 114,476 108,258 5.7 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Aug '14 214.1 208.6 2.6 213.200 * 207.000 * 3.0 United States Aug '14 237.8 233.9 1.7 236.800 * 232.700 * 1.8 Hotel Performance (Houston MSA) Occupancy (%) 1Q14 73.3 70.4 73.3 * 70.4 * Average Room Rate ($) 1Q14 107.17 100.46 6.7 107.17 * 100.46 * 6.7 Revenue Per Available Room ($) 1Q14 78.58 70.76 11.1 78.58 * 70.76 * 11.1

Nonfarm Payroll Employment, Houston MSA

3,000 150

2,900 120

2,800 90

2,700 60

2,600 30

2,500 0

2,400 -30 MonthChange (000)

2,300 -60 -

12 Nonfarm Payroll Employment (000) 2,200 -90

2,100 -120

2,000 -150 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,400

2,300 580

2,200 540

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s) -

- 2,000 Goods 460 Service 1,900

420 1,800 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf

60 6

40 4

20 2

0 0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 23, Number 9  September 2014 Growth Accelerates — The Houston metro area created 112,200 jobs in the 12 months ending July ’14, a 4.0 percent annual growth rate.1 That performance is the seventh largest 12-month gain in 25 years. The 4.0 percent also represents acceleration in job growth, which had slowed considerably last December before picking up again this spring. As strong as 4.0 percent is, that doesn’t represent a record. Over the past quarter-century, Houston has experienced faster growth spurts in ’97 –’98, ’06–’07, and ’12–’13. The mod- ern record was set in late ’97 through mid-’98, when employment grew at an annual rate of 5.0 percent or better, an exceptional pace at a time when oil traded for less than $20 a barrel and natural gas for less than $2.50 per million Btu. Houston once again leads the nation’s major metros in job growth, ahead of Dallas-Ft. Worth (3.9 percent) and Miami (3.3 percent). Twenty-three metros reported higher percentage growth, but those are much smaller economies.

% Change in Employment, 20 Most Populous Metros, July '13 - July '14

4.0 3.9 3.3 3.0 2.8 2.8 2.8 2.7 2.7 2.6 2.6 2.2 2.1 1.8 1.8 1.7 1.2 1.1 0.9 0.6

1 Metro Houston includes Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, San Jacinto and Waller counties.

September 2014 ©2014, Greater Houston Partnership Page 1 Since the bottom of the recession (January ’10), JOB GROWTH―MOST POPULOUS METROS the region has created 420,000 jobs. One met- January ’10 – July ’14 ro―New York―has created more jobs, but no Jobs % major metro area has added larger share of jobs Metro Added Change to its employment base. New York 758,100 9.3 Houston 420,000 17.0 Houston has enjoyed month-to-month job Los Angeles 419,800 8.1 growth in 50 of the past 60 months. The hand- Dallas-Fort Worth 403,500 14.4 ful of months with job losses were either Janu- Chicago 362,100 8.7 ary or July, the losses in those months due to San Francisco 267,800 14.1 predictable seasonal factors. Houston always Atlanta 230,800 10. reports job losses in January, as retailers lay off Boston 215,900 9.0 workers hired temporarily for the holiday Seattle 209,200 12.8 shopping season, and almost always in July, as Washington 205,000 7.1 educators with 10-month contracts are tempo- Miami 199,100 9.1 rarily removed from the employment estimates. Minneapolis 180,100 10.9 The Texas Workforce Commission (TWC) fac- Detroit 168,900 10.0 tors these predictable events into a “seasonally Phoenix 132,700 7.9 San Diego 131,200 10.8 adjusted” employment number that provides a Baltimore 119,300 9.6 more accurate picture of employment condi- Philadelphia 114,600 4.3 2 tions. According to TWC, on a seasonally ad- Riverside 106,100 9.3 justed basis Houston has added jobs in 53 of Tampa 95,600 8.8 the past 60 months, with February ’11 being St. Louis 66,000 5.2 the most recent month in which the region lost Source: U.S. Bureau of Labor Statistics jobs. On a seasonally adjusted basis, the region has created 106,700 jobs in the past 12 months. July’s employment gains helped Houston pass a milestone. The region has created more than 700,000 jobs since January ’00. Only the New York metro area has created more. To put that in perspective, Houston’s job creation this century exceeds the total employment of all but 38 U.S. metro areas. That’s the equivalent of taking every current job in Salt Lake City and dropping them into Houston. Unlike a year ago, when several sectors still struggled to create jobs, every sector in Hou- ston grew over the past 12 months.  Sectors creating the most jobs: professional, scientific, and technical services (18,900 jobs), health care and social assistance (15,100 jobs) and accommodation and food services (12,400 jobs).

2 TWC reports seasonally adjusted data only for total employment. Seasonally adjusted data for individual industries are not available, so to evaluate industry trends, economists must examine the unadjusted data.

September 2014 ©2014, Greater Houston Partnership Page 2  Subsectors with the fastest annual growth rates: building construction (13.6 percent), engineering services (13.2 percent), and oil field services (9.2 percent). High oil prices are supporting employment growth in exploration, oil field services, and oil field equipment manufacturing. Expansion of chemical plants along the Texas Gulf Coast now drives growth in construction, metal fabrication and energy services. Popula- tion growth (fed by employment growth) is creating more retail, health care, restaurant, building construction and local education jobs. Expansion of international trade is push- ing growth in transportation and, to a lesser extent, wholesale trade.

July’s unemployment rate stood at 5.5 percent, a rate that might be the natural rate of unemployment at the national level, and is probably close to the natural rate for Houston.3 Local unemployment rates are not seasonally adjusted, but the 5.5 percent is in the neighborhood of July unemployment rates for ’05 through ’08, periods when Houston had a healthy economy. Now that school has resumed and educators and students are back in the classroom (and the educators no longer defined as unemployed), Houston may see even lower unemployment rates. If the unemployment rate continues to fall, local employers will find it harder to fill open positions, putting additional upward pressure on local wages. METRO EXPORTS – ’13 At the current rate of growth, Houston should sur- %  Metro Area $ Billions pass 2.9 million jobs in September, and if the econ- ’13–’12 omy continues along its current expansion path, Houston 114.963 4.2 Houston should hit a milestone this time next year New York 106.923 4.5 Los Angeles 76.306 1.7 and surpass 3.0 million jobs. Seattle 56.686 12.7 Another First Place Finish — In ’13, Houston led Detroit 53.906 -2.7 the nation in exports for the second consecutive Chicago 44.911 10.7 Miami 41.772 -12.7 year, according to data recently released by the New Orleans 30.031 23.3 U.S. International Trade Administration. The re- Dallas-Ft. Worth 27.596 -0.8 gion shipped nearly $115.0 billion in goods over- San Francisco 25.305 9.9 seas, up 4.2 percent from $110.3 billion in ’12, Philadelphia 24.929 8.4 slightly ahead of New York and well ahead of Los Minneapolis 23.747 -5.6 San Jose 23.413 -12.3 Angeles. Boston 22.213 4.6 Over the past 10 years, Houston’s exports have Cincinnati 20.976 5.1 grown by more than $73 billion, the largest gain of San Antonio 19.288 37.7 Atlanta 18.828 3.6 any U.S. metro area. Over that period, Houston has San Diego 17.886 4.1 risen from third to first place among the nation’s Portland 17.607 -13.4 exporting metros. Washington 16.225 11.1 Source: U.S. International Trade Administration

3 Economists define the natural rate of unemployment as the lowest level of unemployment at which inflation remains stable. This is also sometimes referred to as the nonaccelerating inflation rate of unemployment, or NAIRU.

September 2014 ©2014, Greater Houston Partnership Page 3 ITA’s export data differ somewhat from the Houston-Galveston Customs District data often cited in local publications. Customs district data reflect cargo that passes through the region’s ports. ITA data are an “origin of movement” series and reflect the metro from which cargo began its overseas journey. This includes goods manufactured locally shipped out of Houston, goods manufactured locally that leave the U.S. from a port outside the Houston metro area, and goods produced elsewhere and consolidated in Houston for export. The ITA reports the primary goods exported from Houston include petroleum and coal products, chemicals, nonelectrical machinery, computers and a category ITA defines as “oil and gas extraction.” The primary destinations for Houston’s exports: Brazil, Canada, China, Colombia, Japan, Mexico, Netherlands, Singapore, South Korea and Venezuela. Where’s Everyone Coming From? —Given the number of out-of-state license plates on the freeways these days, one would assume all the newcomers are from outside the Lone Star State. But that’s not the case. According to GHP’s analysis of recently released Census Bureau data, Texas accounts for the largest share of new residents to the region, followed by California, Louisiana, Florida and New York. Most of the Texas residents come from counties associated with large urban areas or college towns.

The data come from the Ameri- Top Ten Sources of New Houston-Area Residents - 2013 can Community Survey (ACS), By U.S. By Texas the bureau’s on-going census of State Residents County Residents the U.S. population. The bureau Texas 73,221 Travis 5,862 analyzed responses the ACS from California 14,046 Dallas 5,604 ’08 to ’12 to measure domestic Louisiana 11,213 Bexar 4,781 migration patterns, including Florida 8,699 Jefferson 4,178 New York 4,457 Brazos 3,978 those who migrate out of as well Illinois 4,403 Tarrant 3,446 as into each county. Two points to North Carolina 4,121 Walker 2,403 be aware of: (1) the data represent Oklahoma 3,687 Hidalgo 2,211 an estimate, not an actual count, Georgia 3,569 Bell 1,939 and (2) since the Bureau included Virginia 3,187 Cameron 1,782 responses gathered during the re- Source: 2008-12 American Community Survey Estimates cession, it may underrepresent inmigration from some states. Given those caveats, the patterns in the most recent data don’t vary significantly from GHP’s analysis of previous data sets.

September 2014 ©2014, Greater Houston Partnership Page 4 SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS Building Permits — Construction permitting in the City of Houston hit another record in July. The running 12-month total reached nearly $7.6 billion, the fifth consecutive record-setting month. The $7.6 billion represents a 30.5 percent increase from $5.8 billion in permits issued over the 12-months ending July ’13. Inflation — The Consumer Price Index for All Urban Consumers (CPI-U) grew 2.0 percent nationwide from July ’13 to July ’14. Core inflation rose 1.9 percent over that period. The energy index increased 2.6 percent, food prices grew 2.5 percent, and the cost of housing rose 2.7 percent. Home Sales — Houston-area realtors sold 89,666 homes in the 12 months ending July ’14, a 7.1 percent increase over the 83,746 homes sold in the comparable period in ’13, according to data released today by the Houston Association of REALTORS® (HAR). The running total for units sold has hovered around 89,600 units for the past five months, suggesting sales may be reaching a plateau. Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short-term leading indicator for regional production, registered 56.4 in July, up from 52.4 in June, according to the latest report from the Institute for Supply Management-Houston (ISM-Houston). The PMI is based on eight components: Sales/New Orders, Production, Employment, Purchases, Prices Paid, Lead Times, Purchased Inventory and Finished Goods Inventory.

Vehicle Sales — Houston-area auto dealers sold 371,406 vehicles in the 12 months ending July ’14, according to TexAuto Facts, published by InfoNation, Inc. of Sugar Land. This is the first month-to-month decline in the 12-month total of vehicle sales after five consecutive months of increases. July was a slower month for Houston area auto dealers, selling 30,527 vehicles in July ’14, down 13.1 percent from 35,133 in July ’13.

Foreign Trade — In the first seven months of this year, more than $150.9 billion in foreign trade passed through the Houston-Galveston Customs District, up 5.1 percent from the $143.5 billion in trade handled in the first seven months of ’13. Exports totaled $77.7 billion, up 9.4 percent from the $71.0 billion handled during the same period in ’13. Im- ports totaled $73.2 billion, up 1.0 percent from the $72.5 billion handled over the same period in ’13. Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from July '14 June '14 July '13 June '14 July '13 June '14 July '13

Total Nonfarm Payroll Jobs 2,895.7 2,895.3 2,783.5 0.4 112.2 0.0 4.0 Total Private 2,533.5 2,516.8 2,430.9 16.7 102.6 0.7 4.2 Goods Producing 575.3 571.7 550.0 3.6 25.3 0.6 4.6 Service Providing 2,320.4 2,323.6 2,233.5 -3.2 86.9 -0.1 3.9 Private Service Providing 1,958.2 1,945.1 1,880.9 13.1 77.3 0.7 4.1

Mining and Logging 116.4 114.6 108.5 1.8 7.9 1.6 7.3 Oil & Gas Extraction 63.0 62.4 59.4 0.6 3.6 1.0 6.1 Support Activities for Mining 52.4 50.7 48.0 1.7 4.4 3.4 9.2

Construction 197.9 196.6 189.0 1.3 8.9 0.7 4.7

Manufacturing 261.0 260.5 252.5 0.5 8.5 0.2 3.4 Durable Goods Manufacturing 174.5 174.1 172.0 0.4 2.5 0.2 1.5 Nondurable Goods Manufacturing 86.5 86.4 80.5 0.1 6.0 0.1 7.5

Wholesale Trade 157.1 157.8 151.3 -0.7 5.8 -0.4 3.8

Retail Trade 288.7 287.8 284.1 0.9 4.6 0.3 1.6

Transportation, Warehousing and Utilities 139.1 137.5 131.0 1.6 8.1 1.2 6.2 Utilities 16.8 16.5 16.2 0.3 0.6 1.8 3.7 Air Transportation 23.3 23.4 23.1 -0.1 0.2 -0.4 0.9 Truck Transportation 24.8 24.9 24.1 -0.1 0.7 -0.4 2.9 Pipeline Transportation 9.8 9.7 9.4 0.1 0.4 1.0 4.3

Information 33.3 33.2 32.8 0.1 0.5 0.3 1.5 Telecommunications 15.2 15.2 14.8 0.0 0.4 0.0 2.7

Finance & Insurance 92.8 91.5 91.6 1.3 1.2 1.4 1.3

Real Estate & Rental and Leasing 54.4 54.0 52.5 0.4 1.9 0.7 3.6

Professional & Business Services 448.6 443.1 429.1 5.5 19.5 1.2 4.5 Professional, Scientific & Technical Services 222.1 216.9 203.2 5.2 18.9 2.4 9.3 Legal Services 24.6 24.5 24.2 0.1 0.4 0.4 1.7 Accounting, Tax Preparation, Bookkeeping 20.7 20.5 20.0 0.2 0.7 1.0 3.5 Architectural, Engineering & Related Services 78.8 76.3 69.6 2.5 9.2 3.3 13.2 Computer Systems Design & Related Services 32.3 31.7 29.9 0.6 2.4 1.9 8.0 Admin & Support/Waste Mgt & Remediation 201.2 201.1 201.9 0.1 -0.7 0.0 -0.3 Administrative & Support Services 190.2 190.3 192.2 -0.1 -2.0 -0.1 -1.0 Employment Services 78.8 78.5 74.9 0.3 3.9 0.4 5.2

Educational Services 50.4 50.9 47.6 -0.5 2.8 -1.0 5.9

Health Care & Social Assistance 298.7 296.7 286.3 2.0 12.4 0.7 4.3

Arts, Entertainment & Recreation 33.4 33.2 31.6 0.2 1.8 0.6 5.7

Accommodation & Food Services 257.8 256.8 245.4 1.0 12.4 0.4 5.1

Other Services 103.9 102.6 100.3 1.3 3.6 1.3 3.6

Government 362.2 378.5 352.6 -16.3 9.6 -4.3 2.7 Federal Government 27.3 27.2 27.7 0.1 -0.4 0.4 -1.4 State Government 70.3 70.7 69.7 -0.4 0.6 -0.6 0.9 State Government Educational Services 37.1 37.6 36.8 -0.5 0.3 -1.3 0.8 Local Government 264.6 280.6 255.2 -16.0 9.4 -5.7 3.7 Local Government Educational Services 180.2 194.8 171.3 -14.6 8.9 -7.5 5.2

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs Aug '14 1,904 1,781 6.9 1,835 * 1,763 * 4.1 Spot Crude Oil Price ($/bbl, West Texas Intermediate) Aug '14 96.60 106.76 -9.5 100.57 * 94.66 * 6.2 Spot Natural Gas ($/MMBtu, Henry Hub) Aug '14 4.54 3.39 33.9 4.64 * 3.67 * 26.4

UTILITIES AND PRODUCTION Houston Purchasing Managers Index July '14 56.4 57.1 -1.2 57.2 * 58.7 * -2.6 Nonresidential Electric Current Sales (Mwh, CNP Service Area) July '14 4,808,711 4,660,412 3.2 30,226,473 29,221,239 3.4

CONSTRUCTION Total Building Contracts ($, Houston MSA) July '14 5,853,774,000 1,285,612,000 355.3 21,580,591,000 7,296,699,000 195.8 Nonresidential July '14 5,095,015,000 398,728,000 1177.8 15,989,213,000 2,148,196,000 644.3 Residential July '14 758,759,000 886,884,000 -14.4 5,591,378,000 5,148,503,000 8.6 Building Permits ($, City of Houston) July '14 733,370,015 715,175,322 2.5 4,938,898,722 3,510,743,282 40.7 Nonresidential July '14 493,204,753 486,441,733 1.4 3,321,435,602 2,276,769,851 45.9 New Nonresidential July '14 201,438,031 316,886,234 -36.4 1,956,363,284 1,152,047,586 69.8 Nonresidential Additions/Alterations/Conversions July '14 291,766,722 169,555,499 72.1 1,365,072,318 1,124,722,265 21.4 Residential July '14 240,165,262 228,733,589 5.0 1,617,463,120 1,233,973,431 31.1 New Residential July '14 213,973,631 210,105,547 1.8 1,437,967,559 1,107,170,131 29.9 Residential Additions/Alterations/Conversions July '14 26,191,631 18,628,042 40.6 179,495,561 126,803,300 41.6 Multiple Listing Service (MLS) Activity Property Sales July '14 9,250 9,189 0.7 52,803 51,752 2.0 Median Sales Price - SF Detached July '14 202,000 189,180 6.8 194,114 * 177,143 * 9.6 Active Listings July '14 29,880 32,966 -9.4 28,616 * 32,828 * -12.8

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment July '14 2,895,700 2,783,500 4.0 2,860,300 * 2,768,557 * 3.3 Goods Producing (Natural Resources/Mining/Const/Mfg) July '14 575,300 550,000 4.6 564,800 0 543,586 * 3.9 Service Providing July '14 2,320,400 2,233,500 3.9 2,295,500 0 2,224,971 * 3.2 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA July '14 5.5 6.5 5.3 * 6.4 * Texas July '14 5.6 6.7 5.4 * 6.6 * U.S. July '14 6.5 7.7 6.5 * 7.7 *

CONSUMERS New Car and Truck Sales (Units, Houston MSA) July '14 30,527 35,133 -13.1 225,691 202,144 11.6 Cars July '14 12,304 15,402 -20.1 99,154 90,584 9.5 Trucks, SUVs and Commercials July '14 18,223 19,731 -7.6 126,537 111,560 13.4 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 4Q13 35,486 31,561 12.4 114,476 108,258 5.7 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA July '14 214.668 207.882 3.3 212.836 * 206.584 * 3.0 United States July '14 238.25 233.596 2.0 236.651 * 232.542 * 1.8 Hotel Performance (Houston MSA) Occupancy (%) 1Q14 73.3 70.4 73.3 * 70.4 * Average Room Rate ($) 1Q14 107.17 100.46 6.7 107.17 * 100.46 * 6.7 Revenue Per Available Room ($) 1Q14 78.58 70.76 11.1 78.58 * 70.76 * 11.1

Nonfarm Payroll Employment, Houston MSA

3,000 150

2,900 120

2,800 90

2,700 60

2,600 30

2,500 0

2,400 -30 MonthChange (000)

2,300 -60 -

12 Nonfarm Payroll Employment (000) 2,200 -90

2,100 -120

2,000 -150 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,400

2,300 580

2,200 540

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s) -

- 2,000 Goods 460 Service 1,900

420 1,800 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf

60 6

40 4

20 2

0 0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 WTI Natural Gas Source: U.S. Energy Information Administration

A publication of the Greater Houston Partnership Volume 23, Number 6  June 2014

Measuring Four Years of Growth — The Houston-Sugar Land-Baytown Metro Area added nearly 10,000 firms, and wages paid to workers grew by more than $33.5 billion, since the end of ’09. That’s the conclusion of GHP’s analysis of recently published data from the Quarterly Census of ECONOMIC SNAPSHOT – HOUSTON METRO AREA Employment and Change, ’09 – ’13 Wages (QCEW). The Q4/09 Q4/13 # % QCEW differs in sev- Total Employment 2,478,567 2,797,317 318,750 12.9 eral ways from the # Firms 105,895 115,726 9,831 9.3 Current Employment # Establishments1 129,911 141,888 11,977 9.2 Statistics (CES) pro- Total Salaries & Wages2 $136.211 $169.761 $33.550 19.8 gram, which receives Average Weekly Wage $1,133 $1,247 $114 9.1 broader coverage in 1 A firm may have multiple establishments, e.g., branches of a bank, outlets for a store. 2 Billions the media. Source: Quarterly Census of Employment & Wages, Texas Workforce Commission  The Texas Workforce Commission (TWC) releases CES data monthly while the QCEW, as its names implies, is released four times a year.  The CES counts only jobs. 1 The QCEW counts jobs, firms, and establishments, and reports total wages and average weekly wages in each industry in a region.  CES data come from a national survey of more than 440,000 establishments. Houston is a subset of that survey, and as such, it’s subject to sampling errors and frequently revised. The QCEW comes from reports filed with state employment agencies, covers 99.7 percent of all U.S. civilian employment, and is seldom revised.  In Houston, the CES covers about 75 industries, the QCEW covers more than 300. GHP’s analysis of QCEW data for Q4/13, the most recent available, found the following:

 More Houstonians (202,565) are employed in restaurants and eating places than in any other industry in the region. That’s followed by elementary and secondary schools

1 The one exception is that the CES provides some detail for the broad durables and nondurables goods manufacturing sectors.

 Oil and gas exploration paid more in total wages ($37.5 billion in ’13) than any other industry. Oil and gas was followed by architectural and engineering services ($25.9 billion), elementary and secondary schools ($22.5 billion), oil field services ($18.5 billion) and general medical and surgical hospitals ($15.5 billion).

 In ’13, the average annual compensation for industries with 2,800 or more employees (around 0.1 percent of the region’s workforce) was highest in securities and commodities investments ($228,696), oil and gas extraction ($223,652), pipeline transportation of natural gas ($172,068), miscellaneous financial activities ($159,484) and management of companies and enterprises ($157,456).

 In ’13, the average annual compensation in industries with 2,800 or more employees is lowest in home health care services ($19,084), bars ($18,876), shoe stores ($18,536), restaurants and eating places ($17,680) and civic and social organizations ($17,056). GHP compared QCEW data for December ’09 and December ’13. The results:

 Industries that added the most jobs since December ’09 are food services and drinking places (36,042), employment services (22,190), agricultural, construction and mining machinery manufacturing (16,304), oil field services (13,930), architectural and engineering services (11,539) and management and technical consulting (10,615). Oil and gas extraction ranked sixth with 10,254 additional employees.

 Industries that lost the most jobs since year-end ’09 are department stores (1,766), business support services (1,843), investment funds (1,844), scientific research and development services (2,585) and elementary and secondary schools (5,229).

 Industries that have seen significant growth in the number of firms operating in Houston are management and technical consulting (881), computer systems design (483), dentist offices (300), miscellaneous health practitioner offices (278) and general freight trucking firms (265). Of note, there are 150 more oil field service firms, 75 additional oil and gas companies, and 72 more engineering firms in Houston at the end of ’13 than at the end of ’09.

The Outlook for Exports — In May, the Greater Houston Partnership released Houston’s Next Boom: Exporting Innovation, a study of the potential for export growth driven by chemical plant expansions underway along the Gulf Coast, the export of liquefied natural gas (LNG) from the terminals under construction at Sabine Pass and in Brazoria County, and

 The impact of the massive investment in chemical Houston’s Top Trading Partners – 2013 plants and liquid natural gas (LNG) export terminals Combined Exports and Imports underway on the Texas Gulf Coast and the opening Country Value - $B up of Mexico’s oil production to Houston businesses Mexico $28.357 could add 55,185 jobs to the region’s economy, just Venezuela 15.167 with a 15 percent increase in exports. If that proves Brazil 13.892 to be the case, then the export expansion about to Saudi Arabia 13.712 occur is worth at least 10 months of job growth to China 13.491 the region’s economy. Colombia 11.874 Netherlands 9.627  While the expansion of the Panama Canal is often Germany 8.870 touted as a “game changer” for container traffic, ex- Russia 8.285 Republic of Korea 6.314 ports of LNG and petrochemicals are more likely to drive export growth in the near future. Driving this growth are innovations in horizontal drilling and hydraulicSource: WISERTradefracturing that will lead to increased natural gas exports out of Houston.

 The opening of Mexico’s oil and gas industry to foreign investment will allow Houston to export two innovations pioneered here – deepwater drilling and hydraulic fracturing. Many already attribute Houston’s survival in the 1990s and quick economic recovery from the Great Recession to these innovations, but the opening of Mexico to foreign investment will likely further spur investment and jobs.

 Trading patterns have shifted: Mexico is now Houston’s largest trading partner. Driving this change are policy and demographic shifts that have better enabled Houston businesses to conduct business with its Top Commodities – Imports & Exports closest trading partner. Houston-Galveston Customs District - 2013 Commodity $ Billions % of Total  Over the past 10 years, 19,000 jobs Crude & Refined Products $118.4 47.0% have been supported by foreign direct Industrial Machinery 28.4 11.3 investment totaling $7.4 billion. Most Chemicals 30.9 12.3 FDI comes from the UK and Europe; Iron and Steel Products 13.1 5.2 however, almost 20 percent comes Electrical Machinery 10.4 4.1 from Asia, Africa, and South Amer- All Others 50.7 20.1 ica. Total $251.9 100.0% Source: WISERTrade To see the full study, click here. Hard copies are available in the reception area of GHP’s offices.

June 2014 ©2014, Greater Houston Partnership Page 3 Employment Update — The Houston-Sugar Land-Baytown Metro Area created 85,800 jobs in the 12 months ending April ’14, according to the Texas Workforce Commission. Employment growth trended down in the latter half of ’13, slowing to a 2.8 percent annual rate in December, but has since picked up. From April ’13 to April ’14, employment grew at a 3.1 percent annual rate.

Several factors fueled the surge in job growth. The harsh winter in much of the country caused spot natural gas prices to jump from less than $4 per mcf in late November to more than $6 per mcf in late February. That sharp rise provided a windfall for gas producers which they reinvested in oil directed drilling; hence, the growth in oilfield services employment. CBRE reports that 17.5 million square feet of office space, 7.0 million square feet of industrial space, 2.5 million square feet of retail space, and 22,000 apartment units are currently under construction, spurring growth in construction jobs. The income growth noted earlier continues to support expansion of Houston’s retail and restaurant industries. Population and employment growth continues to support growth in education and health.

Sectors leading job growth in the past 12 months include trade, transportation, and utilities, 14,800 jobs, primarily in retail trade; professional and business services, 12,200 jobs, mainly in architectural and engineering services; leisure and hospitality, 12,200 jobs, the bulk in restaurants and bars; government, 10,500 jobs, mostly in local school districts; and educational and health services, 10,100 jobs, weighted toward hospitals and outpatient centers.

Within those sectors, indus- Metro Houston Unemployment Rate tries with the fastest rate of 10 job growth in the past 12 months are architectural and 9 engineering services (9.0 8 percent), specialty trade contractors (6.8 percent), 7 construction of buildings 6 (6.6 percent), private educa-

tional services (6.2 percent), %Unemployed 5 computer systems design (6.1 percent), oil field ser- 4 vices (5.8 percent), and oil 3 and gas extraction (5.7 per- '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 cent). Source: Texas Workforce Commission

The April ’14 unemployment rate fell to 4.6 percent, the lowest rate for Houston since May ’08, when the rate dipped to 4.4 percent. In only 42 of the past 360 months has Houston experienced a lower unemployment rate. The rate is not seasonally adjusted.

June 2014 ©2014, Greater Houston Partnership Page 4 Aviation Update — The Houston Airport System (HAS) handled 52,455,760 passengers for the 12 months ending April ’14, the highest 12-month total since GHP began tracking HAS data in ’81. The previous peak occurred in the 12 months ending July ’08 with 52,327,414 passengers. For the 12 months ending April ’14, domestic passengers totaled 43.18 million and international passengers totaled 9.27 million. The year-over-year change in the 12-month total has remained above 2.0 percent for the past five months, the longest sustained period at this level since before the recession.

Houston Airport System Passenger Trends 10.0 60 52,327,414 52,455,760 8.0 (July ’08) (April ’14) 50 6.0

4.0 month total

- 40 2.0

0.0 30 month total,millions)

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 - -2.0

20 year change % 12 in

- -4.0 over - -6.0 10 Passengers (12 Year -8.0

-10.0 0 Year-over-year % change in 12-month total Source: Houston Airport System Passengers (12-month total) For the month of April, HAS handled 5.0 million passengers, a 5.3 percent increase from the 4.8 million passengers in April ’13. Domestic travel increased 4.1 percent from 4.07 million in April ’13 to 4.24 million in April ’14. International passenger traffic rose 12.1 percent from 719,443 in April ’13 to 806,285 in April ’14. Large year-over-year increases are expected throughout ’14 as the data reflect last year’s launch of nonstop routes to Istanbul in April and Beijing in July and this year’s additional service to South Korea, Munich and Tokyo.

June 2014 ©2014, Greater Houston Partnership Page 5 SNAPSHOT — HOUSTON’S KEY ECONOMIC INDICATORS Building Permits — Construction permitting in the City of Houston continued to set records in April. The running 12-month total topped $6.8 billion, the highest value in GHP records dating back to January ’02. The $6.8 billion represents a 28.2 percent increase from $5.3 billion in permits issued over the prior 12-month period. Inflation — The Consumer Price Index for All Urban Consumers (CPI-U) grew 2.0 percent nationwide from April ’13 to April ’14. Core inflation rose 1.8 percent over that period. The energy index increased 3.3 percent, food prices grew 1.9 percent, and the shelter index rose 2.8 percent.

Home Sales — Houston-area realtors sold 6,438 single-family homes in April, only a slight increase of 0.3 percent from the 6,419 sold in April ’13. The Houston Association of REALTORS® (HAR) notes that the increase is statistically flat, bringing an end to Hou- ston’s record run of 34 consecutive months of over-the-year sales increases. A low supply of homes finally constrained sales in the market with inventory at 2.6 months for the fifth consecutive month.

Purchasing Managers Index — The Houston Purchasing Managers Index (PMI), a short- term leading indicator for regional production, registered 59.2 in April, up from 57.1 in February, according to the Institute for Supply Management-Houston. The PMI has a pos- sible range from zero to 100. Readings above the neutral point of 50 indicate likely growth in production over the next three to four months; readings below 50 suggest contraction. With the April reading, the PMI has held at or above 50 for 56 consecutive months.

Vehicle Sales —New vehicle sales reached 361,838 for the 12 months ending April ’14, the highest 12-month total since 363,236 autos were sold in July ’02 and slightly higher than the 360,252 sold in 12-month period ending July ’07. According to TexAuto Facts, published by InfoNation, Inc. of Sugar Land, Houston-area dealers sold 31,328 vehicles in April ’14, up 10.5 percent from 28,351 in April ’13.

Foreign Trade — In the first four months of this year, more than $83.5 billion in foreign trade passed through the Houston-Galveston Customs District, up 4.7 percent from the $79.8 billion in trade handled in the first four months of ’13. Exports totaled $43.6 billion, up 9.6 percent from the $39.8 billion handled during the same period in ’13. Imports totaled $39.89 billion, down 0.1 percent from the $39.93 billion handled over the same period in ’13. Patrick Jankowski and Jenny Philip contributed to this issue of Houston: The Economy at a Glance

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HOUSTON MSA NONFARM PAYROLL EMPLOYMENT (000) Change from % Change from Apr '14 Mar '14 Apr '13 Mar '14 Apr '13 Mar '14 Apr '13

Total Nonfarm Payroll Jobs 2,862.8 2,847.2 2,777.0 15.6 85.8 0.5 3.1 Total Private 2,478.8 2,463.6 2,403.8 15.2 75.0 0.6 3.1 Goods Producing 564.9 561.1 544.5 3.8 20.4 0.7 3.7 Service Providing 2,297.7 2,286.1 2,232.5 11.6 65.2 0.5 2.9 Private Service Providing 1,903.1 1,882.6 1,852.1 20.5 51.0 1.1 2.8

Mining and Logging 111.1 109.3 105.4 1.8 5.7 1.6 5.4 Oil & Gas Extraction 60.8 60.5 57.5 0.3 3.3 0.5 5.7 Support Activities for Mining 49.5 48.2 46.8 1.3 2.7 2.7 5.8

Construction 196.3 195.3 189.1 1.0 7.2 0.5 3.8

Manufacturing 257.5 256.5 250.0 1.0 7.5 0.4 3.0 Durable Goods Manufacturing 172.9 172.5 170.0 0.4 2.9 0.2 1.7 Nondurable Goods Manufacturing 84.6 84.0 80.0 0.6 4.6 0.7 5.7

Wholesale Trade 152.5 154.1 148.6 -1.6 3.9 -1.0 2.6

Retail Trade 287.5 287.7 280.1 -0.2 7.4 -0.1 2.6

Transportation, Warehousing and Utilities 133.5 133.1 130.0 0.4 3.5 0.3 2.7 Utilities 16.2 16.2 16.2 0.0 0.0 0.0 0.0 Air Transportation 23.2 23.1 23.2 0.1 0.0 0.4 0.0 Truck Transportation 24.3 24.1 23.6 0.2 0.7 0.8 3.0 Pipeline Transportation 9.6 9.5 9.2 0.1 0.4 1.1 4.3

Information 32.7 32.6 32.0 0.1 0.7 0.3 2.2 Telecommunications 15.1 15.1 14.5 0.0 0.6 0.0 4.1

Finance & Insurance 89.5 89.3 90.1 0.2 -0.6 0.2 -0.7

Real Estate & Rental and Leasing 52.6 52.4 51.3 0.2 1.3 0.4 2.5

Professional & Business Services 437.0 433.0 424.8 4.0 12.2 0.9 2.9 Professional, Scientific & Technical Services 214.6 210.7 203.2 3.9 11.4 1.9 5.6 Legal Services 23.9 23.8 23.9 0.1 0.0 0.4 0.0 Accounting, Tax Preparation, Bookkeeping 22.6 23.0 21.9 -0.4 0.7 -1.7 3.2 Architectural, Engineering & Related Services 74.1 71.6 68.0 2.5 6.1 3.5 9.0 Computer Systems Design & Related Services 31.2 30.8 29.4 0.4 1.8 1.3 6.1 Admin & Support/Waste Mgt & Remediation 197.9 198.0 197.8 -0.1 0.1 -0.1 0.1 Administrative & Support Services 186.6 187.9 188.3 -1.3 -1.7 -0.7 -0.9 Employment Services 74.7 73.2 74.4 1.5 0.3 2.0 0.4

Educational Services 51.4 51.5 48.4 -0.1 3.0 -0.2 6.2

Health Care & Social Assistance 293.5 289.8 286.4 3.7 7.1 1.3 2.5

Arts, Entertainment & Recreation 29.3 28.6 28.2 0.7 1.1 2.4 3.9

Accommodation & Food Services 252.6 249.6 241.5 3.0 11.1 1.2 4.6

Other Services 101.8 100.8 97.9 1.0 3.9 1.0 4.0

Government 384.0 383.6 373.2 0.4 10.8 0.1 2.9 Federal Government 27.3 27.4 27.5 -0.1 -0.2 -0.4 -0.7 State Government 73.9 73.9 73.4 0.0 0.5 0.0 0.7 State Government Educational Services 40.1 40.1 39.9 0.0 0.2 0.0 0.5 Local Government 282.8 282.3 272.3 0.5 10.5 0.2 3.9 Local Government Educational Services 199.0 198.3 190.5 0.7 8.5 0.4 4.5

SOURCE: Texas Workforce Commission

Houston Economic Indicators YEAR-TO-DATE TOTAL or A Service of the Greater Houston Partnership MONTHLY DATA YTD AVERAGE*

Most Year % Most Year % Month Recent Earlier Change Recent Earlier Change ENERGY U.S. Active Rotary Rigs May '14 1,859 1,767 5.2 1,807 * 1,759 * 2.7 Spot Crude Oil Price ($/bbl, West Texas Intermediate) May '14 102.23 94.51 8.2 100.39 * 93.80 * 7.0 Spot Natural Gas ($/MMBtu, Henry Hub) May '14 4.53 3.99 13.5 4.95 * 3.71 * 33.4

UTILITIES AND PRODUCTION Houston Purchasing Managers Index Apr '14 59.2 58.4 1.4 58.0 * 59.9 * -3.2 Nonresidential Electric Current Sales (Mwh, CNP Service Area) Apr '14 4,038,056 4,086,503 -1.2 16,504,075 15,651,778 5.4

CONSTRUCTION Total Building Contracts ($, Houston MSA) Apr '14 4,667,911,000 1,208,583,000 286.2 9,736,621,000 3,946,032,000 146.7 Nonresidential Apr '14 3,789,817,000 343,728,000 1002.6 6,728,287,000 1,168,787,000 475.7 Residential Apr '14 878,094,000 864,855,000 1.5 3,008,334,000 2,777,245,000 8.3 Building Permits ($, City of Houston) Apr '14 976,947,825 431,902,143 126.2 2,672,303,150 1,964,983,997 36.0 Nonresidential Apr '14 674,846,994 261,606,266 158.0 1,820,948,436 1,341,635,037 35.7 New Nonresidential Apr '14 533,986,412 81,865,214 552.3 1,134,176,430 699,702,742 62.1 Nonresidential Additions/Alterations/Conversions Apr '14 140,860,582 179,741,052 -21.6 686,772,006 641,932,295 7.0 Residential Apr '14 302,100,831 170,295,877 77.4 851,354,714 623,348,960 36.6 New Residential Apr '14 254,679,379 150,355,422 69.4 745,548,458 553,398,825 34.7 Residential Additions/Alterations/Conversions Apr '14 47,421,452 19,940,455 137.8 105,806,256 69,950,135 51.3 Multiple Listing Service (MLS) Activity Property Sales Apr '14 7,857 7,806 0.7 25,766 24,781 4.0 Median Sales Price - SF Detached Apr '14 195,000 185,000 5.4 185,700 * 167,625 * 10.8 Active Listings Apr '14 28,114 32,498 -13.5 28,052 * 33,024 * -15.1

EMPLOYMENT (Houston-Sugar Land-Baytown MSA) Nonfarm Payroll Employment Apr '14 2,862,800 2,777,000 3.1 2,772,325 * 2,751,925 * 0.7 Goods Producing (Natural Resources/Mining/Const/Mfg) Apr '14 564,900 544,500 3.7 560,000 * 539,600 * 3.8 Service Providing Apr '14 2,297,900 2,232,500 2.9 2,212,325 * 2,212,325 * 0.0 Unemployment Rate (%) - Not Seasonally Adjusted Houston-Sugar Land-Baytown MSA Apr '14 4.6 5.9 5.3 * 6.0 * Texas Apr '14 4.7 6.0 5.4 * 6.1 * U.S. Apr '14 5.9 7.1 6.7 * 7.1 * TRANSPORTATION Port of Houston Authority Shipments (Short Tons) Apr '14 3,937,494 3,541,821 11.2 14,742,516 14,352,458 2.7 Air Passengers (Houston Airport System) Apr '14 5,046,321 4,792,617 5.3 17,491,858 16,794,141 4.2 Domestic Passengers Apr '14 4,240,036 4,073,174 4.1 14,347,757 13,928,083 3.0 International Passengers Apr '14 806,285 719,443 12.1 3,144,101 2,866,058 9.7 Landings and Takeoffs Apr '14 66,724 67,148 -0.6 266,983 263,872 1.2 Air Freight (metric tons) Apr '14 35,608 34,315 3.8 139,524 136,454 2.2 Enplaned Apr '14 18,680 18,144 3.0 74,036 70,813 4.6 Deplaned Apr '14 16,928 16,171 4.7 65,488 65,641 -0.2

CONSUMERS New Car and Truck Sales (Units, Houston MSA) Apr '14 31,328 28,351 10.5 127,037 113,058 12.4 Cars Apr '14 13,261 12,491 6.2 54,459 49,405 10.2 Trucks, SUVs and Commercials Apr '14 18,067 15,860 13.9 72,578 63,653 14.0 Total Retail Sales ($000,000, Houston MSA, NAICS Basis) 3Q13 23,730 26,922 -11.9 79,027 76,697 3.0 Consumer Price Index for All Urban Consumers ('82-'84=100) Houston-Galveston-Brazoria CMSA Apr '14 213.3 207.5 2.8 212.100 * 206.000 * 3.0 United States Apr '14 237.1 232.5 2.0 235.500 * 231.900 * 1.6 Hotel Performance (Houston MSA) Occupancy (%) 4Q13 65.9 62.4 69.0 * 65.4 * Average Room Rate ($) 4Q13 101.39 93.74 8.2 101.36 * 94.10 * 7.7 Revenue Per Available Room ($) 4Q13 66.82 58.51 14.2 69.99 * 61.50 * 13.8

POSTINGS AND FORECLOSURES Postings (Harris County) Mar '14 993 1,652 -39.9 1,151 1,804 -36.2 Foreclosures (Harris County) Mar '14 337 469 -28.1 380 499 -23.8

Nonfarm Payroll Employment, Houston MSA

3,000 150

2,900 120

2,800 90

2,700 60

2,600 30

2,500 0

2,400 -30 MonthChange (000)

2,300 -60 -

12 Nonfarm Payroll Employment (000) 2,200 -90

2,100 -120

2,000 -150 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 12-Month Change Total Payroll Employment Source: Texas Workforce Commission

Goods-Producing and Service-Providing Employment Houston MSA 620 2,400

2,300 580

2,200 540

2,100

500

Providing Providing Jobs(000s)

ProducingJobs (000s) -

- 2,000 Goods 460 Service 1,900

420 1,800 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Goods-Producing Jobs Service-Providing Jobs

Source: Texas Workforce Commission

Unemployment Rate - Houston, Texas and U.S. 11

6 % Civilian %Civilian LaborForce 5

3 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Houston Texas U.S. Source: Texas Workforce Commission

Spot Crude and Natural Gas Prices Monthly Averages 160 16

140 14

120 12

100 10

WTI, WTI, barrel $ 80 8 Natural $ Gas, /mcf

60 6

40 4

20 2

0 0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 WTI Natural Gas Source: U.S. Energy Information Administration