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November 2006
The Houston economy continues
to boom. Seasonally adjusted unemployment has fallen
to 4.7 percent, the lowest rate since 2001. Allowing
for known data revisions to come, Houston has created
99,000 wage and salary jobs in the past 12 months. While
there are dark clouds in the distance—most notably,
a slowing U.S. economy and rising natural gas inventories—the
immediate problem in key local industries remains labor
shortages, backlogs and long lead times.
Retail and Auto Sales
Retail sales turned weak
in recent weeks, with most retailers failing to meet
their October or early November plans. Year-ago comparisons
would be misleading because of consumer buying after
the hurricanes. But recent strong months had led retailers
to plan on solid increases for October. Now, the results
of the past few weeks have raised concerns about the
coming holidays.
September autos sales were very
healthy, up 14 percent from a year earlier.
Real Estate
Strong job growth is supporting
most of Houston’s real estate markets. Existing-home
sales were up 18 percent in September from a year earlier,
with the median price rising 3.1 percent. New-home sales
were up 6 percent. The office market has made dramatic
absorption and occupancy gains in recent months, led
by Class A and central business district space. Industrial
real estate remains strong, but the retail market has
softened. The post-Katrina apartment market continues
to move in reverse, with falling occupancy and lower
rents over the past six months.
Energy Prices and Drilling
The price of West Texas Intermediate
is near $60 per barrel and has moved in a narrow range
between $57 and $61 in recent weeks. Natural gas fell
under $6 per thousand cubic feet in late August, under
$5 in mid-September and briefly under $4 in late September.
Price has steadily strengthened and been in the $6–$8
range since mid-October. This apparent strength defies
the fundamentals of over 3.4 trillion cubic feet of
gas in storage, when the Energy Department estimates
maximum storage of 3.6 Tcf.
In response to possible
weak natural gas prices, domestic drilling has flattened
at high levels over the past three months. Unconventional
gas in the Rockies and Canadian drilling in Alberta
have been most affected so far. A few smaller land-based
rigs have come offline, and day-rates continue to rise—just
more slowly than before. International activity continued
to grow significantly, with every continent adding rigs
in recent months.
Refining
Gulf Coast refineries have
returned from maintenance and are now operating at high
levels. The return was delayed in some cases by labor
and construction shortages or relatively weak margins
that offered less incentive to hurry back into production.
Refining margins have been $8–$10 per barrel,
strong by historical standards but half to one-third
the margins enjoyed over the summer.
Petrochemicals
Petrochemicals were mixed.
Ethylene production has been affected by a series of
planned and unplanned outages that have supported prices
and kept profit margins high. Expectations are for lower
prices in the future as outages end, the price of natural
gas falls and the demand for downstream plastics shrinks.
Demand for butadiene, in contrast, is very strong. Price
is high, helped by strong demand for natural rubber,
and margins are excellent. Isobutylene, used in the
production of many consumer products, weakened in October,
but returned strongly and is pushing capacity limits
in November.
—Bill Gilmer
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