Oil Prices Are Low. So Why Are Houstonians Optimistic About the Economy?

RESEARCH :  Apr. 25, 2016

Ryan Holeywell | April 25, 2016Despite cheap oil, Houstonians aren't too worried about jobs.

Oil rig in a field

Despite cheap oil, Houstonians aren't too worried about jobs.

Image via Ryan Holeywell Image via Ryan Holeywell

logosurveyDespite the long-lasting decline in oil prices, residents of Houston – a city more closely associated with oil than any other in the U.S. – still remain optimistic about job opportunities and living conditions in the city.

This year about 62 percent of Houston-area residents rated the local economy “excellent” or “good,” according to the new results of the Kinder Houston Area Survey, the annual public opinion poll conducted by the Kinder Institute for Urban Research.

That figure is a dip from last year’s rate, when 69 percent of Houstonians gave local job opportunities high marks. But it still represents the second-highest rating residents have given local job opportunities in 14 years, according to the findings of Stephen Klineberg, the Kinder Institute’s founding director, who conducts the annual study.

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Source: Kinder Houston Area Survey Source: Kinder Houston Area Survey

“The surprise this year is there’s no lessening of the optimism, given the continuing loss of jobs in the oil and gas sector,” Klineberg said. “Residents are as upbeat as they’ve ever been, if not more so.”

Indeed, those findings are a stark contrast to the situation unfolding in the oil industry – and in the local workforce.

Though the Houston metro area had positive job growth in 2015 -- just barely -- it had had the lowest job growth of any of the state's major cities that year, according to a recent report by the Federal Reserve Bank of Dallas.

The situation wasn’t much better in the rest of the state. For the first time since 2003, Texas’s job growth is below the national average, driven largely by a 19.4 percent decrease in Texas oil and gas employment, according to the Fed.

The agency said the situation should improve in Texas this year. But it warned that continued low oil prices could jeopardize that forecast.

“Oil prices averaging less than $30 per barrel pose the greatest risk to the outlook and could result in overall job losses,” the Fed’s economists wrote.

As of late April, U.S. oil was priced at around $45 per barrel -- well above the level the Fed warned of, but well below the levels the industry, as well as Houston, have enjoyed in recent years.

And the situation is even worse when we focus on Houston. From December 2014 to December 2015, Houston employment increased just 0.6 percent, according to Texas Workforce Commission data cited by the University of Houston's Institute for Regional Forecasting. In more recent years, employment growth has been five to seven times that rate.

So what’s going on here? A few factors might be at play.

First, though Houston’s economy relies heavily on oil, as many observers have noted, its economy is much more diverse than it was during the oil busts of the 1980s. A little less than 5 percent of Houston's jobs are in the mining sector (which includes oil and gas), according to Fed data. That's slightly higher than places like Austin and Dallas, though dramatically lower than places like Odessa and Midland. It’s also much lower than the rate of oil and gas employment Houston has seen in the past, when Houston employment was more closely tied to the sector. In 1980, for example, an estimated 82 percent of all Houston jobs were directly or indirectly tied to the oil and gas industry, Klineberg said. Not coincidentally, in 1987, that high concentration of energy sector jobs is likely the reason only 11 percent of residents had an optimistic rating of job opportunities that year.

Even if Houston’s economy relies heavily on oil and gas, today, Houston's economy is more diverse. Large number of workers outside of that sector might not be too concerned about the job prospects in their own fields, especially given increases in jobs in sectors like hospitality, education and healthcare.

“It’s a different story today,” Klineberg said.

Second, Houston’s economic downturn is coinciding with a period in which the broader U.S. economy is recovering. This is ironic: the shale boom that brought Houston success from 2009 to 2014 coincided with the U.S.’s slog through a very slow post-recession recovery in which the rest of the country experienced economic pain as Houston largely flourished.

When national media, policymakers and other leading voices describe the country’s increasingly solid financial footing, the message may be resonating with Houstonians – even if, for now, their own city is experiencing financial headwinds.

Third, there is a significant number of Houston workers who are benefiting from the oil and gas industry’s pain. In a sprawling city where, historically, transit has been lacking, residents rack up plenty of miles on their vehicles. And with oil prices so low, that’s translated into immediate, direct savings in the pocket books of most residents, even if it’s having broader impacts on the city at-large. Moreover, the downstream energy sector – which dominates the eastern, industrial half of the city but often is overlooked by those focused on the upstream workers downtown – is thriving, in large part due to low energy prices.

All those factors contribute to a place where residents aren’t too worried -- yet -- about the economy, even though their community’s bedrock industry is facing a significant shift.

Ryan Holeywell


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