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January 2006
The Houston economy continues
to roar ahead. Figures for the most recent 12 months'
data show drilling activity up 16 percent, local building
contracts up 8 percent, tonnage at the Port of Houston
up 10 percent and local retail sales up 11 percent.
The Houston Purchasing Managers Index remains above
60. Only the local job market looks mediocre, with job
growth at 1.3 percent and the unemployment rate still
at 5.9 percent.
Retail and Auto Sales
Retail sales were OK for
the holidays but fell short of expectations. Upscale
retail was well above expectations, while discounters
generally fell short. It should be noted that expectations
may have been higher in Houston than elsewhere. The
purchase of gift cards may have changed the holiday
counting scheme to some extent, as shoppers are increasingly
buying the cards as gifts, then holding them for the
winter sales to come.
Car and truck sales increased
3.4 percent in November, compared with the previous
November. Car sales were up 15.7 percent and truck and
SUV sales down 5.1 percent, indicating that even truck-loving
oil producers can react to high gasoline prices.
Real Estate
The national housing market
may show some signs of cooling, but not in Houston.
Existing home sales in November rose 8.7 percent over
the past 12 months, while new home sales jumped 32 percent
over the same period. The median price of an existing
home increased nearly 10 percent over the past year.
Traffic is up for new home developers, and spec inventory
is down sharply.
Apartments and offices are waiting
for the next shoe to fall from the continuing New Orleans
recovery effort. Apartment vouchers were discontinued
in December, and the question remains as to how many
evacuees will now stay in Houston. Apartment occupancy
is up more than 3 percent in recent months, while rents
have risen only slightly in the past 12 months. Which
businesses will keep former New Orleans employees in
Houston and who moves back is also the open question
for the office market. Office occupancy and rent in
Houston remain flat.
Energy Prices
In recent weeks, the dominant
factors in crude and other energy markets have been
cold weather and the ongoing recovery of the Gulf of
Mexico. Crude prices were mostly in the high $50s per
barrel range, strengthening to the low $60s in late
December. The U.S. is well-supplied with crude; inventories
are more than 10 percent above normal. Demand is improving
as more refineries come back online.
Cold December weather briefly
drove natural gas prices to new records near $15 per
thousand cubic feet. Prices then weakened sharply to
$9 in late December and early January as warm weather
returned and inventories remained healthy.
Retail gasoline prices fell steadily
through December, then popped back up with the price
of crude oil. Heating oil prices strengthened with cold
weather but fell back afterward. Refinery margins began
a sharp and consistent decline in early October that
continued through November, then stabilized at still-healthy
levels in December. Gulf Coast refinery utilization
rose from 78 percent to 85 percent.
Oil Services and Machinery
Oil service companies reported
unchanged—but excellent—business conditions.
Several recent surveys of drilling intentions indicate
these good conditions will continue through 2006. The
domestic rig count has been flat, but respondents emphasized
that this is due to full utilization of crews and equipment.
Reports of labor and material shortages continue at
all levels of the industry.
Petrochemicals
Petrochemical producers noted
that demand and prices began to weaken for a number
of products. Demand was weak as downstream processors
held back building inventories for tax reasons. Also,
they expected price declines ahead and didn’t
want to be caught with expensive inventories. The spike
in natural gas prices in December briefly froze the
downward price momentum, but it is expected to continue.
Another factor affecting the price of some products
was high levels of imports, attracted by high post-hurricane
prices.
—Bill Gilmer
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