|
Houston Beige
Book
An Update on the Houston Economy
August 2006
Bill
Gilmer reviews recent economic conditions in Houston.
Houston
continues to grow rapidly but has slowed from autobahn to open highway
speeds. Between February and July of this year, Houston’s
12-month growth rate slipped from 3.4 percent to 2.5 percent. The
seasonally adjusted growth rate ticked up from 5.1 to 5.2 percent
in July. The goods sectors continue to lead local growth, especially
construction and oil- and gas-related activity. Slower expansion
is based primarily in a widespread slowdown in services.
Retail
and Auto Sales
Houston retailers reported solid results
for August, after a lackluster July. Both department stores and
furniture stores saw a nice pickup in sales. The annual sales tax
holiday contributed to these results but becomes less important
each year in Houston.
A
17.7 percent drop in truck and SUV sales in July compared with 12
months earlier pulled overall Houston auto sales down 9.2 percent.
The weak comparison owes much to the extraordinary incentives that
were being offered last July: employee discounts for everyone.
Real
Estate
Houston existing home sales in July improved
3.3 percent compared with July of last year. New home sales are
up 8 percent through the first half of 2006. Local permitting activity
fell in July, after rising 18.6 percent year-to-date through June.
The
industrial sector is the most active real estate in Houston. Although
the vacancy rate and lease rates were both unchanged in the second
quarter, the sector absorbed over a million net square feet. Another
million square feet is under construction.
Energy
Prices
The price of light, sweet crude oil was
in a range of $72–$77 per barrel, with the high end representing
all-time high crude prices in nominal dollars. Contributing to high
and volatile prices were strong gasoline demand, the shutdown of
Prudhoe Bay production, and geopolitical fears stemming from Iraq,
Iran, North Korea, Nigeria and the Israel –Lebanon conflict.
Gasoline
demand was up about 2 percent from last year, despite high pump
prices. Wholesale prices were volatile, peaking at near $2.45 per
gallon following a series of refinery outages, but fell back to
near $2 in late August with crude prices easing and the end of the
driving season in sight.
The
price of natural gas had fallen as low as $5.18 in early July but
recovered to $6 and higher on the basis of a long-lasting heat wave.
It briefly moved to $7 and $8 per thousand cubic feet on the basis
of tropical storm activity that never developed. Storage inventories
continue to build and are now at 2.8 trillion cubic feet, or 14
percent above normal.
Refining
and Petrochemicals
Most of the major petrochemical chains
report solid demand and good profitability. Butadiene demand is
strong. Ethylene demand has bounced back, with significant help
from resumed exports. High domestic prices due to feedstock and
limited capacity after the hurricanes had pushed the U.S. out of
international markets. The decline in natural gas prices and the
run-up in oil prices have reopened export markets for U.S. ethylene.
Refiners
report that the conversion from MTBE to ethanol and to low-sulfur
diesel encountered few problems. Refiners’ margins were strong
throughout the period—near $15 per barrel. Capacity utilization
on the Texas and Louisiana Gulf Coast rose above 96 percent in early
August.
Oil
Services and Machinery
Oil services and machinery continues
to expand rapidly despite recent weakness in natural gas prices.
The domestic rig count added more than 100 working rigs in six weeks,
and two-thirds were added in Texas. The percentage of rigs drilling
for oil instead of natural gas has shifted only slightly in favor
of oil, and lower natural gas prices have given operators a little
more leverage in negotiating day rates for land rigs. Day rates
have flattened out, but not fallen.
| Gilmer
is a vice president at the Federal Reserve Bank of Dallas.
SUGGESTED
CITATION:
Gilmer,
Robert W.
(2006), Federal Reserve Bank of Dallas Expand Your
Insight Houston Beige Book, August 2006, www.dallasfed.org/eyi/houston/hbb0606.html. |
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