September 2020 Economy At A Glance

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Sep 19, 2020

September 2020 Economy At A Glance

Energy

A March survey by the Federal Reserve Bank of Dallas found most exploration firms need West Texas Inter-mediate (WTI) at $49 per barrel or higher to profitably drill a well. EIA doesn’t forecast WTI to reach that level until late in ’21. And Rystad Energy doesn’t see drilling activity returning to last year’s level for at least five years.

 

Manufacturing

Ninety percent of the losses in manufacturing were in durable goods, i.e., items that not easily consumed or that wear out quickly. Two-thirds of those losses can be tied to the energy downturn. Fabricated metal products (i.e., pipes, valves, flanges) and oil field equipment manufacturing have cut a combined 9,600 jobs. Without an increase in drilling activity, the jobs are unlikely to return.

 

Transportation and Warehousing

Passenger traffic through the Houston Airport System (HAS) traffic has improved. Early in the pandemic, it was down 90 percent. Today, traffic is down only 75 percent.

 

Though container volume at the Port of Houston is down 4.5 percent, the total weight of those containers is up 3.9 percent. Shippers, to economize, appear to be packing more cargo into each box. 

 

Finance, Insurance, Real Estate, & Rental

Finance has fared well, with employment at banks, broker-ages and insurance agencies now above pre-pandemic levels. Consumers rushing to buy or refinance a home, the opening of dozen or so bank offices and branches, and until recently a hot stock market has helped create finance jobs during the pandemic. This momentum should support additional growth over the coming months.

 

Commercial real estate has struggled, however. The market recorded negative absorption for office, industrial and retail space in the second quarter. Some tenants have adopted a wait-and-see attitude, wanting to assess the impact of the recession on their business before considering new space. Others are struggling to pay their current rent. Brokers have reported an uptick in inquiries in recent weeks, suggesting demand may improve by Q4/20 or Q1/21. Employment in commercial real estate will remain flat until that happens. 

 

Government

Job losses in the public sector are overstated. Every June and July, the sector drops 20,000 to 25,000 jobs as school districts, community colleges and universities close for the summer. Outside of public education, the government sector appears to have shed about 4,000 jobs. The employment outlook for this sector will depend on how well tax collections hold up as the economy reopens. 

 

A False Assumption

The energy job losses layered on top of the pandemic losses have not made Houston worse off than other metros. In fact, Houston is faring better than many of its peers.

 

Houston is the nation’s fifth most populous metro. One might assume Houston would rank fifth or higher in jobs lost due to COVID shutdowns and the energy crunch. Houston actually ranks tenth among its peers, with fewer layoffs than less populous metros like Boston, Detroit, Miami, Philadelphia and San Francisco. 




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