Economic outlook: Region has ‘hard pills to swallow’

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The long-term economic outlook for the region that includes Brazoria County is optimistic, but the short-term one raises concerns, according to an official with the Greater Houston Partnership.

Pearland City Council last week heard a presentation from Patrick Jankowski, senior vice president of research for the Greater Houston Partnership, which monitors a 9-county region.

Pearland Mayor Tom Reid says the city pays close attention to regional changes and forecasts.

“This is an area we need to keep our eye on as we grow, and focus on what type of development we want to bring into the Pearland area,” he said. “A lot of time the market makes that decision for us.”

The number of companies announcing relocations to the area have grown significantly since 2009, Jankowski said, and the population grown in the Houston area has led the nation.

“We’ve had a period of extremely strong employment growth,” he said.

“That’s the sugar,” he said, referring to a popular song from Mary Poppins, “now it’s time to look at a few pills we have to swallow – mainly what the impact of crude prices has done to the region.”

Oil prices since June are now between $30 and $60 a barrel – $50 less than last year, resulting in an extreme slowdown in cash flow, he said, a result of nearly doubling production.

Now with half the number of rigs working in the field, the future holds 30 to 40 percent less being spent on exploration and “significant layoffs in the oil patch this year; I’m starting to read about it already.”

Layoffs start in the field and eventually move to the factory floor, he warned. “If you have 1,000 fewer rigs then you don’t have to build as many replacement rigs.

“After a while, it moves from the people in the factories to the people in the offices who provide for oil and gas operations,”he said, “and at some point it will start affecting other workers in the economy. Right now, we’re at that spot where it’s around the factory getting ready to move into the corporate office.”

In the past, oil price fluctuations have triggered a different response in the Houston area.

“When oil prices are high, this region booms, when they are flat, we find a way to grow in spite of oil prices,” he said.

This time around, things are different than in the infamous 80s, for example. For one thing, Jankowski said, the area is not overbuilt with office space as it was then.

Since coming out of the Great Recession, building has remained somewhat cautious, and he predicted a real estate collapse won’t happen.

“In that horrible recession in the 80s, we lost 221,000 jobs, one in every 7 jobs in the region was eliminated, but even though we were laying people off, we continued to build houses,” he said. “It’s almost as if for every job we lost, we built one extra housing unit. It made no sense.”

The Houston Association of Realtors cites a lower inventory than is currently needed.

The general excess that comes about when oil is $100 a barrel hasn’t happened.

“People said, ‘How long do you think it’s going to say?’” he said. “Business decisions weren’t made with oil at $100 expecting it to go to $150.”

“A lot of businesses did not overextend expecting oil prices to go up,” he said. “They made their planes expecting oil prices to slip.

“The attitudes in this region were so different in this last boom, there wasn’t the smugness, the arrogance. As a result, we didn’t get overextended. Yes, we are going to have some challenges in the next 12 to 18 months. Pearland may not have them to the extent that the Energy Corridor does, but this region as a whole has some challenges.”

It’s not yet clear how bad the contraction will get, he said.

“There’s not enough data yet to know how bad it will get. It might not be bad at all; we might just flatline,” he said. “It will be the end of July before we know what the first half of the year looks like.”

Long-term, population is a big driver, especially in Pearland, he said.

Even in 2009, Houston’s worst year since the 80s, the region’s population increased 40,000.

“Even in a weak economy, people still move here,” he said.

Thus, the long-term outlook remains bright. The challenge will be over the next 12 to 18 months, Jankowski said, but the region has proven it can grow regardless of oil prices.

“Pearland is in a good position in terms of having close proximity to petro-chem construction, Hobby, NASA – and you can’t talk about the economy in Pearland without talking about the Med Center,” City Manager Clay Pearson said. “We have a lot of strong cards to play.”

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