HoustonBusiness A Perspective on the Houston Economy

FEDERAL RESERVE BANK OF DALLAS • HOUSTON BRANCH • JUNE 2002

Houston in 1900 links, access to capital and growing managerial expertise. Part 1. The Rise of the Regional City When Houston was founded in 1836, its economic role was that of merchant and trader. It received and marketed agricul- tural goods from the country- This newly designed At the beginning of the side and sent consumer goods, 20th century, Houston was hardware and other supplies issue of Houston riding a wave of economic ex- back to the farm. The original Business traces the pansion that would transform market area was centered in the Texas economy. Houston seven counties directly west of Houston economy's had a population of only 44,600 the city. The railroad would in 1900, and there were 182,000 later extend Houston’s market transition from growth residents in what is now the area into the Blackland Prairie powered by cotton and eight-county metro area, includ- to the north and the Piney ing the competing city of Gal- Woods of East Texas. lumber to growth veston. Between 1875 and Houston’s merchant and 1900, Houston found itself at trader role continued as the fueled by oil and the the center of the state’s rapidly city’s hinterland expanded. opening of Houston's maturing rail network, which But by 1900 Houston had also for the first time afforded developed into an important deepwater port. Part 1 access to the inland regions of regional capital by offering the Texas. best transportation and commu- covers the years 1836, Beginning in 1875, three nications links and administra- the year Houston was resource booms—in cattle, cot- tive and technical skills on the ton and lumber—transformed Gulf Coast. founded, to 1900. different parts of the state. Cattle This article documents the was not a significant Gulf Coast Houston economy up to the industry, nor did Houston grow turn of the 20th century, when much cotton or cut much timber. the city transitioned from growth But the city capitalized on the powered by cotton and lumber expansion of Texas cotton and to growth fueled by oil and the lumber production on a grand opening of Houston’s deepwater scale through its transportation port. Early Transportation At peak market periods in Railroad to private interests, Before the arrival of the rail- winter, ox-drawn freighters lined which extended it 50 miles to road, much of Texas was iso- Houston streets. But there were the southeast, to the sugarcane lated and landlocked. A num- few bridges, and winter rains fields of Brazoria County. In ber of Texas rivers run north brought mud and high water 1857 a third line, the Houston to south and into the Gulf of that could shut down Houston and Texas Central, reached 50 Mexico, but none was navigable business for a week or more. miles northwest from Houston for long distances.1 Brothers The difficulty of getting to Hempstead. Augustus C. and John K. Allen goods out of the interior before The first train reached Gal- arrived in Texas shortly after the the Civil War can also be illus- veston Island from Houston in battle of San Jacinto in search trated by the inland port of Jef- 1860, and by 1861 the Texas of the state’s most interior point ferson on Cypress Bayou in and New Orleans Railroad had with year-round water transpor- northeast Texas—a distant sec- completed 100 miles of track tation to the gulf. They selected ond to Houston in terms of running east from Houston to the headwaters of Buffalo cargo volume. The bayou was Beaumont and Port Arthur. Bayou as the site for the new navigable only a few months of This Gulf Coast web of rail- city, which they named for Sam the year, but it allowed cotton roads, all centered in Houston, Houston, hero of San Jacinto. to move across Caddo Lake to accounted for 90 percent of the The Allen brothers founded Louisiana and ultimately down- state’s track on the eve of the Houston to provide an inland river to New Orleans. Civil War. market for the produce of the Bad roads persisted in Texas The railroads solved the rich agricultural region along well into the 20th century. Be- difficult problem of intercity the Brazos River bottoms. ginning in 1882, downtown transportation. Reconstruction Houston merchants shipped the Houston experimented with brought a burst of railroad produce on to Galveston Bay, planks, bricks, macadam, gravel, building in Texas. Half the where it was loaded on coastal and blocks of limestone, cypress track built in the 19th century vessels headed to New Orleans and bois d’arc. But by 1903, (4,548 miles) was laid between or Matamoros. In return for the city still had only 26 miles 1875 and 1885, and by 1900 cotton, sugar, wool and hides of paved roads. The first all- Texas was No. 1 among the from the interior, Houston mer- weather road to Galveston (a states in miles laid.4 By 1910, chants provided consumer goods necessary precursor for a truck- 17 railroads served Houston, and hardware for the farms and ing industry) would not be and only one more would fol- plantations. completed until 1928.3 low—the Missouri Pacific in Cutting 50 miles off the trip 1927. By the turn of the cen- to Galveston Bay was a sig- Railroads and Resources tury, the railroads had reached nificant step forward in 1836. The agricultural riches and all parts of the state. Interior travel in Texas at that population density surrounding time was by stagecoach for pre–Civil War Houston, along The Texas Cattle Industry passengers, ox- or mule-drawn with the high cost of freight, Railroads opened the state’s freighter for goods. Oxcarts or prompted construction of a resources to intensive and Conestoga wagons typically railroad network radiating from rapid exploitation. Cattle, cot- carried about 7 tons of freight. Houston. Texas’ first railroad ton and lumber boomed. Hous- Rates were high, as much as $1 was built by Gen. Sidney Sher- ton was at the center of this per 100 pounds per 100 miles. man in 1850 in an attempt to railway expansion from the Roads were often quarter-mile- revive the town of Harrisburg, beginning. Not only did the wide ruts that turned to bog seven miles south of Houston. extent of the hinterland served when it rained. According to Just as the Buffalo Bayou, Bra- by Houston’s merchants and John Stricklin Spratt, “In tim- zos and Colorado Railway traders grow rapidly after 1875; bered regions, roads were clas- reached the Brazos River bot- economic activity within the sified according to the height tomlands in 1856, the city of region flourished as well. of the stump, and where none Houston built a connecting The rapid but short-lived were higher than six inches, line, the Tap Railroad, to fore- expansion of the cattle industry the road was [considered] first stall expansion at Harrisburg. across the Great Plains had lit- class.” 2 Houston later sold the Tap tle impact on the upper Texas

2 Table 1 Population of Texas Cities, 1890–1910 Growth rate, Gulf Coast. As Walter Prescott tural belt. 1890–1910 Webb points out, the birthplace The planters 1890 1900 1910 (percent) of the Texas cattle industry lay brought Houston 27,557 44,633 78,800 5.4 deep in South Texas, within a slaves and Galveston 29,084 37,789 36,981 1.2 Dallas 38,067 42,638 92,104 4.5 diamond-shaped area running established Fort Worth 23,076 26,668 73,312 5.9 from San Antonio to Laredo, on Southern- San Antonio 37,673 53,321 96,614 4.8 to Matamoros, and then along style planta- Austin 14,575 22,258 29,860 3.7 the lower Gulf Coast as far as tions. Cotton SOURCE: U.S. Census, various years. Old Indianola.5 The combina- and sugar tion of Mexican cattle, abun- were both dant grass, water and horses important early cash crops, but world’s largest inland cotton created a vast agricultural area especially cotton. market. Further, the cotton gin that served as the foundation After the Civil War, the machinery industry, which of San Antonio’s economy well Blackland Prairie region to the began in the 1880s, would into the 20th century. north of Houston gradually dis- make the city the world’s sec- With the arrival of the rail- placed the Brazos Valley as the ond largest manufacturer of roads west of the Mississippi state’s leading cotton-producing farm equipment by the turn of in 1866, the cattle industry ex- area. The end of slavery dis- the century.7 At the same time, ploded onto the Great Plains. rupted the Gulf Coast’s planta- Dallas began to develop an Removal of Native Americans tion-based system. Meanwhile, important banking and life and decimation of buffalo herds the prairie regions of northeast insurance sector, as companies created vast areas of open Texas opened up to agriculture such as Southwestern Life and range. Long cattle drives started for reasons similar to the devel- Southland Life opened in the in Texas and ended at Missouri opment of the cattle industry in first decade of the century. and Kansas railheads. But by West Texas and the Panhandle: Smaller Blackland Prairie 1885 overgrazing, homesteading removal of Native American communities also experienced and barbed-wire fences had and buffalo populations, arrival rapid population and economic largely ended the era of the of the railroad and the barbed- growth due to cotton. Wilmer open range. As the railroads wire fence. However, the Black- and Richardson sprang up on moved onto the plains, the land Prairie had the added the route of the Houston and cattle industry transformed advantages of access to national Texas Central, the first railroad itself once more by raising markets via rail and the devel- to reach Dallas from the south improved breeds of cattle in opment of a sod plow to break in 1872. Grand Prairie and large fenced-in pastures, with up the prairie soils. Mesquite were established on water provided by windmills. So the area’s population the route of the Texas and While the cattle boom made exploded. Thousands of immi- Pacific, the next railway to a lasting impact on Texas folk- grants poured in from the arrive in Dallas from the east. lore, cotton and lumber dwarfed upper Southern states and from Greenville, a connecting point it in economic impact. Houston Europe. As cotton took hold, a for four railroads by 1899, be- was well positioned to profit system of small-farm owners, came a leading cotton-marketing from both Blackland Prairie sharecroppers and tenant farm- location. Its population nearly cotton and East Texas timber. ers spread rapidly, replacing tripled, from 3,000 in 1884 to slavery. In 1899, according to 8,500 by 1900. By 1912, Green- Cotton and the Blackland Prairie the Census of Agriculture, 18 ville would have a daily paper, Commercial cotton planting Blackland Prairie counties, three weeklies, two national came to Texas in 1821, when stretching from the Red River banks, two opera houses and Louisiana planters arrived seek- through Dallas and southwest an ice factory.8 Similar success ing free land from the Mexican to Austin, produced 972,000 stories could be told for other government. Seven counties bales of cotton, while the North Texas towns, such as along the Brazos River just west seven Brazos Valley counties Commerce, Denton, McKinney of Houston (Austin, Brazoria, produced only 216,000 bales.6 and Waxahachie. Colorado, Fayette, Fort Bend, Dallas quickly became a Table 1 shows the popula- Washington and Wharton) major cotton-processing center. tion of the state’s largest cities formed the state’s first agricul- By the 1920s it would be the from 1890 to 1910, as the

3 Table 2 Population of Selected Texas Metro Areas (1890–1910) Under the Current Definition of MSA, PMSA and CMSA in organizing, trading, Growth rate, tion with 9 1890–1910 Dallas. banking, and not only in 1890 1900 1910 (percent) With more dealing with cotton itself, Texas 2,235,523 3,048,710 3,896,542 2.8 tenuous ties but in carrying on transac- to the Black- tions with many foreign Houston PMSA 76,959 122,785 176,598 4.2 Galveston MSA 31,476 44,116 44,479 1.7 land Prairie, countries and the curren- Brazoria MSA 11,506 14,861 13,299 .7 Houston cies of those countries. In Houston CMSA 119,941 181,762 234,376 3.4 assumed its many cases, they had to be Dallas PMSA 228,581 320,362 381,298 2.6 traditional organizers or purchasers or Fort Worth MSA 92,751 121,164 179,371 3.4 role of mer- operators of warehouses, Dallas–Fort Worth 321,332 441,526 560,669 2.8 chant, trader vegetable oil mills, refiner- CMSA and adminis- ies and cotton gins….Some San Antonio MSA 81,496 111,776 170,029 3.7 trator in the had to be qualified as Austin MSA 110,088 148,210 162,947 2.0 cotton indus- diplomats who knew how try. The emer- to deal with government NOTE: MSA, metropolitan statistical area; PMSA, primary MSA; CMSA, consolidated MSA, consisting of the primary MSA plus any adjacent MSAs. gence of officials and with great 11 SOURCE: U.S. Census, various years. Anderson, bankers in other countries. Clayton and Thus, Houston and Dallas Co. illustrates began differentiating their terri- the logistical torial approaches early in the development of the Blackland and business advantages of last century. In 1900 Dallas was Prairie reached its zenith. From Houston’s location. Monroe D. clearly focused inward, building the Civil War until 1890, San Anderson opened the Houston an economic territory in North Antonio and Galveston had office of Anderson, Clayton, Texas; today it serves as an im- shared the No. 1 and No. 2 then headquartered in Okla- portant financial center and dis- positions in population among homa City, in 1907. Partners tribution point for Texas, Okla- the state’s cities. But in 1890, Ben and Will Clayton and homa and Arkansas. Houston’s Dallas briefly surged into the Frank Anderson, Monroe’s focus turned outward, and today lead. It would be 1930 before brother, would arrive over the it is home to the nation’s largest the pattern would be set for next several years, and the foreign port and the state’s for- the rest of the century, with company would be reorganized eign business community. Houston and Dallas as the in Texas in 1920. Anderson, state’s top two cities. Clayton would become the East Texas Lumber Using a more modern per- world’s largest cotton-marketing The other wave of economic spective, however, Table 2 firm after the opening of the activity brought by the railroads describes the populations of Houston Ship Channel. and helping shape the Houston these cities as they reflect cur- According to Will Clayton, of 1900 was East Texas lumber. rent metropolitan statistical “We moved to Houston because The great stands of pine had areas. The combined Dallas Houston was at the little end of largely been ignored because and Fort Worth consolidated the funnel that drained all of of a lack of transportation and metropolitan statistical area Texas and the Oklahoma terri- access to export markets. (CMSA) in 1900 surges to twice tory…in other words, we were Because of its superior access the size of the Houston CMSA, at the back door and wanted to to capital and its communica- and Austin (also in the Black- be at the front door.” 10 tions and transportation link- land Prairie) pulls close to Anderson, Clayton thrived ages, Houston would assume Houston. Dallas took advan- by integrating its business from financial and administrative tage of the population density field to mill: ginning, compress- control of much of the industry in its hinterland to spur its own ing, warehousing and transport- despite its location at the very growth by building four inter- ing. With mills located mostly edge of the eastern forests. urban electric railways into the outside the state, rail and water The first large-scale lumber surrounding communities and links through Houston were mills in Texas were established sponsoring weekly Dallas crucial. Ben Clayton explained in Beaumont in 1876 and 1878. Chamber of Commerce visits to the business thus: Logs were originally floated encourage economic interac- [Employees] required skill down the Sabine River to Beau-

4 mont and Orange, but railroads men as John Henry Kirby and autos in Detroit, financial serv- quickly replaced water trans- Jesse H. Jones. Houston-based ices in New York, software in port. Before the Civil War, the operations controlled 40 per- San Jose, oil services in Hous- railroads had only skirted the cent of the 1.1 million board ton. Similarly good data are edge of the East Texas Piney feet cut in 1899.14 The lumber not available on movement of Woods. The Houston East and never entered Houston but went goods in Texas in 1900; how- West Texas Railway was the directly from East Texas mills ever, we can infer much about first to enter the region, cross- to customers in other parts of specialization in 1900 by deter- ing the San Jacinto River from Texas (60 percent), in states mining the pattern of employ- Houston to Cleveland, Living- north of Texas (24 percent), ment and wages paid in spe- ston and Moscow. By the time and in Europe and Mexico cific manufacturing industries this railroad reached Cleveland, (16 percent). and examining how the pattern five lumber mills were operat- Houston’s advantages over varies across cities. A high con- ing in its wake. In 1886, when Beaumont were size, better centration of employment or it reached Shreveport, it was transportation and communica- wages paid in a particular in- the most important railroad in tion links, and business sophis- dustry and city would suggest the region. Other railroads fol- tication.15 Houston had become urban specialization and local lowed, reaching into the Tyler a regional gateway, with 60 exports of that industry’s prod- and Lufkin areas from the east years of experience in capital- ucts from that city.16 Differences or west. Dozens of logging rail- izing on the development of in specialization between cities roads developed off each main Texas’ natural resources. and the surrounding country- line to serve the sawmills. side can tell us about the exis- By the turn of the century, The Regional City tence and direction of trade lumber had become the state’s The focus of city building between city and hinterland. dominant manufacturing indus- before the railroad arrived was To investigate Texas’ urban try measured by either employ- to serve the largest and richest exports to other cities in 1900, ment or value added. Lumber surrounding territory possible. we selected Houston, Dallas did not rival cotton as an eco- Certainly, Houston used the rail- and San Antonio as well as 18 nomic power, however; in 1900, roads to cement existing ties to other cities in the southeastern there were 225,000 cotton farms the Brazos Valley and to expand United States or the Midwest. and 22 million acres under cul- its hinterland into East Texas. We then chose 22 manufacturing tivation.12 In 1907, when the However, with completion industries that had both em- lumber industry peaked, 2.25 of the rail network in Texas ployment and wages reported million board feet was cut; 99 and connection of the state’s in 1900 for all three Texas cities. large mills accounted for over cities to the eastern United Reporting for these industries half of this production.13 States, the toolbox for achieving was generally good in the other In one important sense, economic growth expanded. 18 cities as well. Houston’s economic role relative Sales of manufactured goods to Table 3 lists the 22 indus- to lumber was unchanged from the hinterland remained impor- tries considered and the flow when the city was founded. tant to the city, but sales to of trade for each between the Houston still operated as mer- other large cities were now three Texas cities and their sur- chant and trader, using the new possible. For much of the 19th rounding areas.17 In 1900 Texas railroads into the Piney Woods century, sales from Texas to cities and their hinterlands gen- to pull lumber out and sell the rest of the nation had been erally enjoyed a lively trade in consumer- and farm-related primarily confined to raw or these goods and services. In goods in return. semiprocessed agricultural the table, “h to c” indicates a Beaumont remained the goods. Cheap, reliable rail good typically sold from the center of the region’s lumber transportation opened the door hinterland to the city (black- mill operations, with logs or cut for Houston to specialize in smithing and saddlery, for ex- lumber moving to Beaumont manufactured goods and be- ample); “c to h” indicates the by rail and then shipped out of come a supplier to other Texas reverse flow (plumbing, foundry Port Arthur. However, Houston or national cities. and machine shop products); controlled the lumber market Today, it is easy to identify and “local” means no trade through the companies of such urban economic specialization: occurs (photography, house

5 Table 3 Relationship of City and Hinterland: Flow of Trade and Its Direction, 1900 Industry Dallas Houston San Antonio Bicycle and tricycle repair local local local tration, equal to the Blacksmithing and wheelwrighting h to c h to c h to c average for all cities. Boots and shoes, custom work and repair h to c h to c h to c A ratio of 1.2 indicates a Bread and bakery products local local c to h concentration of activity Carpentering local local local 20 percent higher than Clothing, men’s custom work and repair c to h local c to h normal (shown in bold Confectionary local h to c h to c in the table). Because a Dyeing and cleaning c to h c to h c to h high level of activity Foundry and machine shop products c to h c to h c to h indicates potential ex- Furniture, cabinetmaking, repairing and upholstering local local local ports, we chose 20 per- Lock- and gunsmithing local local local cent and above to indi- Lumber, planing mill products c to h c to h local Millinery, custom work h to c h to c h to c cate likely export activity. Painting, house, sign, etc. local local local Location quotients based Photography local local local on both wages and jobs Plumbing, gas and steamfitting c to h c to h c to h are given. Printing and publishing, book and job c to h c to h c to h As seen in the table, in Printing and publishing, newpapers and periodicals h to c h to c h to c 1900 Dallas specialized Saddlery and harness h to c h to c h to c in printing and publish- Tinsmithing, coppersmithing and sheet-iron working local h to c h to c ing, lumber, saddlery and Tobacco, cigars and cigarettes c to h local c to h harness, blacksmithing Watch, clock and jewelry repair h to c h to c h to c and wheelwrighting, NOTE: c to h = typical flow of goods is from city to hinterland; c to h = the opposite; and local = no flow between city and hinterland. carpentry and tobacco SOURCES: Census of Manufactures, 1900; authors’ calculations from urban wage data. products. Some of these exports are probably indirect—from providing and sign painting). The results terion, the nontraded goods inputs to other exported shown here are for wage data, among our 21 cities include goods. Carpentry and black- but the results are similar for custom millinery, plumbing, smithing, for example, are employment data. While details dyeing and cleaning, men’s likely to be inputs to Dallas’ vary, both analyses indicate custom work clothes and their large cotton gin and farm extensive intraregional interac- repair, printing and publishing implement industry. Similarly, tion for all Texas cities. of newspapers and periodicals, Houston exported carpentry, photography, metalsmithing, probably in support of produc- Specialization and Intercity Trade and house and sign painting. ing and repairing railroad cars. Initially, isolated cities pro- The highest variations dis- Houston and San Antonio both duce all goods for themselves played among our 21 cities exported confectionary, and and their hinterland. For some were for the eight industries San Antonio exported bread goods, however, transportation listed in Table 4. These indus- and bakery goods as well as links among cities will allow tries are our best candidates printed material, saddlery and specialization of production, for intercity trade. The ques- blacksmith services. and only a few cities will see tions that arise are whether the Thus, we see the emerg- their local industry grow to three Texas cities participate ence of urban specialization in serve the others. In other words, as specialists in production Texas as early as 1900. Among after specialization occurs and of these goods and whether the 22 selected industries, the trade emerges, the variance in they export these goods to eight most likely to be traded the concentration of activity other cities. all have a presence in Texas, among cities should be high.18 Table 4 shows concentration with a high concentration in In contrast, if a good is not ratios, or location quotients, at least one of Texas’ three traded and does not move from which are the percentage of major cities. The state’s gradual city to city, the concentration manufacturing wages or employ- shift in focus from farm to fac- of activity should be similar in ment in the industry for that tory would become the most each city and its variance low city divided by the average per- important demographic and across cities. centage for all 21 cities. A ratio economic change of the last Using the low-variance cri- of 1 indicates a normal concen- century.

6 Table 4 Concentration of Selected Export Industries in Texas Cities, 1900 Based on wages Based on jobs Dallas Houston San Antonio Dallas Houston San Antonio Carpentering 1.00 2.62 .20 1.29 2.83 .29 Bread and bakery products .65 .84 3.78 .57 .75 1.66 Printing and publishing, book and job 1.58 .83 2.29 1.50 .87 2.42 Tobacco 1.19 .16 .42 1.74 .28 .62 Lumber and planing mill products 1.27 .68 .27 1.04 .85 .29 Confectionary .61 2.05 7.64 .59 2.47 7.13 Saddlery and harness 9.23 .44 3.64 11.06 .45 4.24 Blacksmithing and wheelwrighting 5.19 .94 1.69 2.23 1.13 2.02

NOTE: Values greater than 1.20 (in bold) indicate likely export activity. SOURCES: Census of Manufactures, 1900; authors’ calculations.

Conclusion Economic Change in Texas, 1875–1901 15 For a general discussion, see Pratt, By the beginning of the 20th (Dallas: Southern Methodist University pp. 27–30. Press, 1955), pp. 81–84, and Kenneth 16 The basic methods used here are century, the resource boom W. Wheeler, To Wear a City’s Crown: described in three sources: Stanley R. that had driven the Texas econ- The Beginnings of Urban Growth in Keil and Richard S. Mack, “Identifying omy since 1875 was coming to Texas, 1836–1865 (Cambridge: Harvard Export Potential in the Service Sector,” an end. By 1900, as the state’s University Press, 1968), pp. 19–25. Growth and Change 17 (April), 1986, railroad network neared com- 2 Spratt, pp. 23–24. pp. 1–10; Robert W. Gilmer, Stanley 3 David G. McComb, Houston: A History R. Keil and Richard S. Mack, “The pletion, cattle, lumber and cot- (Austin: University of Texas Press, Service Sector in a Hierarchy of Rural ton had already reached their 1981), pp. 70 and 73. Places: Potential for Export Activity,” peak or were rapidly approach- 4 Spratt, pp. 26 and 32. Land Economics 65 (August), 1989, ing it. The railroads forever 5 Walter Prescott Webb, The Great Plains pp. 217–27; and Robert W. Gilmer, changed the state’s cities, pro- (Boston, Ginn and Co., 1931), p. 208. “Identifying Service-Sector Exports 6 1900 Census of Agriculture, Part II, from Major Texas Cities,” Federal viding cheap and easy trans- “Crops and Irrigation,” Table 10. Reserve Bank of Dallas Economic portation and giving rise to Cotton production is reported in 500- Review, July 1990, pp. 1–16. urban exports and intercity pound bales. 17 The results here are based on the competition. 7 Herbert Gambrell, “Dallas, Texas,” in value of two location quotients, or But a new set of economic Walter Prescott Webb, ed., The Hand- concentration ratios, as suggested by book of Texas (Austin: Texas State Keil and Mack. The first location quo- forces would have to drive the Historical Association, 1952), pp. tient is the share of the local industry Texas economy into the next 456–58. in local employment compared with century. The next issue of 8 Brian Hart, “Greenville, Texas,” in The the statewide share of the same indus- Houston Business will look for- Handbook of Texas Online (Austin: try. The second changes the denomi- ward from 1900 at the eco- Texas State Historical Association, nator of the location quotient from the 2002), www.tsha.utexas.edu/ state share to the share of a group of nomic impact of two events handbook/online. comparably sized cities. The difference that ensured Houston’s growth 9 Char Miller and Heywood T. Sanders, between the location quotients indi- throughout the 20th century— eds., Urban Texas: Politics and cates the direction of the flow between the destruction of rival Galves- Development (College Station: Texas city and hinterland. In the table, a flow ton by a hurricane in Septem- A&M University Press, 1990), p. 19. is indicated if the change in the loca- 10 McComb, p. 77. tion quotient is ±20 percent or more. ber 1900 and the discovery of 11 N. Don Macon, Monroe Dunaway 18 These results depend on the adjusted oil at Spindletop in January 1901. Anderson, His Legacy: A History of the location quotients suggested in Note Texas Medical Center (Houston: Texas 17—those having a base of compara- — Robert W. Gilmer Medical Center, 1994), pp. 45–46. bly sized cities. The adjusted location Camella Clements 12 1900 Census of Agriculture, “General quotients serve as a better measure of Statistics,” Table 10. intercity trade. Table 4 shows adjusted 13 Clements was a summer intern in Robert S. Maxwell and Robert D. location quotients (see Gilmer). Baker, Sawdust Empire: The Texas economics at the Federal Reserve Lumber Industry, 1830–1940 (College Bank of Dallas Houston Branch Station: Texas A&M University Press, in 2001. 1983), p. 159. 14 McComb, p. 78, and Joseph A. Pratt, Notes The Growth of a Refining Region 1 Background information is from John (Greenwich, Conn.: Jai Press, 1980), Stricklin Spratt, The Road to Spindletop: p. 27.

7 Houston BeigeBook May 2002

Job losses seem to have balance sheets are driving creased cost of production due ended last fall, when the Hous- improved drilling activity. to higher oil and gas prices. ton economy reached bottom at –8,000 jobs, or –0.4 percent. Refining and Petrochemicals Real Estate Local employment is still down Refiners hurried to finish The Enron effect is taking 3,000 from the April 2001 peak, the turnaround season so they a toll on the downtown office but the last three months have could take advantage of im- market and spreading to the brought slow gains. An April proving profit margins. Instead Galleria area. Office absorption turnaround in the domestic rig they found crude oil prices ris- was negative by nearly 2 million count and a return of the Hous- ing in response to turmoil in square feet in the second quar- ton Purchasing Managers Index the Middle East and wholesale ter, with the central business to the break-even level point gasoline prices falling slightly district and the Galleria area to likely expansion through the due to increased production. roughly dividing the losses. second half of 2002. The result has been downward It was the worst absorption pressure on profit margins and figure since the early 1990s. Retail and Auto Sales cutbacks in production in Upscale apartments inside Retail sales continue soft, recent weeks. the loop or near downtown and expectations are for con- Petrochemical producers have seen a slight increase in tinued weakness through 2002. have experienced strong de- vacancy rates, while class B Retailer pessimism for much of mand since early spring, partly apartments outside the loop this year has been rewarded. driven by inventory accumula- have made gains. Citywide, Retailers who planned for weak tion. Until this spring, basic rents are up about 4 percent sales have not been badly hurt petrochemicals had been readily over the past year. Sales of by bloated inventories or forced available and their prices had existing single-family homes into last-minute promotions. been falling for a year or continue to register solid im- A strong March was good more—giving customers little provement, up 10 percent in news for auto dealers. Sales incentive to hold inventory. April from a year earlier. In were up 14 percent from the As rising oil and natural contrast, new home sales were year earlier, but April wiped gas prices drove up production off about 5 percent through the out these gains with a 20 per- costs, however, there was a first quarter. cent decline. Year-to-date auto surge in demand by customers sales are off 5 percent com- seeking to rebuild inventory in pared with the same period last advance of price hikes. This year. restocking continues, but it is now apparent that the eco- Oil Services nomic recovery is also playing The domestic rig count has a significant role in increasing picked up sharply, with seven demand. Excess capacity is still consecutive weeks of increases a problem for most products, and a 16 percent gain. The in- and it continues to limit profits. creases have mostly been land- Numerous price increases have based and gas-directed, but been implemented, but most respondents indicate that back- are simply covering the in- logs are building for offshore work, and day rates offshore are just beginning to rise. For more information or copies of this publication, contact Bill Gilmer at Higher oil and natural gas (713) 652-1546 or [email protected], or write Bill Gilmer, Houston Branch, prices, improved cash flows Federal Reserve Bank of Dallas, P.O. Box 2578, Houston, TX 77252. This publication is for producers and healthier also available on the Internet at www.dallasfed.org. The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System.