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Houston Economic Indicators

Economic Indicators

February 4, 2022

Houston payroll growth accelerated in the second half of 2021 despite headwinds from COVID-19’s delta and omicron waves. Multiple indicators showed further local producer and consumer price inflation, but Houston-centric prices lagged behind other measures in 2021. Overall, the recovery is carrying a lot of momentum into 2022, but elevated inflation and tight labor markets have continued to mount as impediments to the pace of recovery.

Employment

Seventy-six percent of all pandemic job losses have been recovered, and at a growth rate of 4.4 percent over the past year, Houston is on pace to fully recover by August 2022. Houston payrolls ended 2021 on a strong note, growing by 83,000 jobs in the second half of the year versus 49,000 in the first (Chart 1).

Acceleration in the pace of payroll growth was broad based. Professional and business services (led by administrative and support services) and education and health (led by social assistance) saw the largest gains. Job sectors that have languished through most of the recovery picked up the pace as well. Gains in mining employment and manufacturing (led by fabricated metals) usually signal growth in oil and gas activity. Construction payrolls (led by specialty contractors like carpenters and plumbers) also expanded.

Chart 1

In contrast, the leisure and hospitality recovery nearly ground to a halt in the second half of 2021. A high-contact industry beset by both the delta and omicron surges, the sector added fewer than 2,000 jobs from June to December.

Restaurant Demand

Houston—and Texas overall—saw the number of seated diners at area restaurants fully recover by early 2021. However, reservations slipped in early January 2022—similar to what was observed in August and September 2021 (Chart 2). The setbacks were likely driven by pullbacks in demand amid waves of COVID-19 as well as sharp increases in worker absenteeism, particularly in January 2022. A challenging hiring market and normal seasonal variation (back to school and end of the holidays) may also have contributed those weaker numbers.

Chart 2

COVID-19 Hospitalizations

Houston-area COVID-19 hospitalizations began to trend down in early January (Chart 3). Cases, hospitalizations and fatalities are all expected to decline over the next two months, according to projections from the University of Texas and the Institute for Health Metrics and Evaluation, though the arrival of the omicron BA.2 variant in the U.S. casts uncertainty on the improvement.

Chart 3

Prices

Surveyed Firms Report Rising Input Prices

Based on the Dallas Fed’s Texas Business Outlook Surveys (TBOS) and the Houston Purchasing Managers Index (PMI), the share of firms reporting that input prices increased rather than decreased rose considerably in 2021 (Chart 4). Texas manufacturing input prices moved up early in the year, amplified by February’s winter storm. By mid-2021, service sector firms were also broadly noting increases in input prices. This was followed by the Houston PMI reading, which was slower to rise, likely due to relatively anemic manufacturing demand in the energy sector.

In January 2022, responses to the TBOS manufacturing survey indicated that although input prices were still rising, increases were not as broad based across firms. These results are consistent with trends in U.S. PMI and imply that the pace of price increases has slowed among manufacturers. Respondents to the service sector survey indicated no moderation in input prices.

Chart 4

Houston Inflation Has Trailed U.S. Levels Since Start of Pandemic

Houston’s consumer prices fell further than the nation’s in 2020 and took longer to return to prepandemic levels (Chart 5). This is due at least in part to the devastating oil bust that compounded Houston’s pandemic woes. Overall, prices in Houston have grown at an average annual rate of 3.6 percent since February 2020, while U.S. consumer prices have grown at an average annual rate of 4.4 percent.

Chart 5

Slower Shelter Cost Growth Slowed Houston Inflation in 2021

U.S. consumer price inflation was 7.1 percent from December 2020 to December 2021, compared with 6.6 percent in Houston (Chart 6). Several components stand out as contributors to overall inflation, including motor fuel, new and used vehicles, and food and beverage prices. In Houston, shelter costs (rent and owners’ equivalent rent) have grown at a slower pace than in the U.S., a factor in the metro’s lower inflation reading in 2021. Shelter costs account for over one-third of total of the U.S. Consumer Price Index, though the component’s weight is slightly lower in Houston than the nation.

Chart 6

NOTE: Data may not match previously published numbers due to revisions. 

About Houston Economic Indicators

Questions can be addressed to Jesse Thompson at jesse.thompson@dal.frb.org. Houston Economic Indicators is posted on the second Monday after monthly Houston-area employment data are released.