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Houston and the US Recovery: Last In, First Out?. Robert W. Gilmer Vice President and Senior Economist Federal Reserve Bank of Dallas November 2010. Percent Change in Houston Employment, 1996-2010. Note: December to December changes, except 2010 which is year-to-date .

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Houston and the us recovery last in first out l.jpg

Houston and the US Recovery: Last In, First Out?

Robert W. Gilmer

Vice President and Senior Economist

Federal Reserve Bank of Dallas

November 2010


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Percent Change in Houston Employment, 1996-2010

Note: December to December changes, except 2010 which is year-to-date


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Houston Employment Moving Toward Recovery, On Same Track as US Economy(3-month percent change at annual rates)




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Purchasing Managers’ Index Only 2.0 PercentUS and Houston Compared


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Unemployment Rate Only 2.0 PercentHouston vs. US, SA


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Why Isn’t Houston Doing Better? Only 2.0 Percent

  • Reorientation and future of space program

  • Continental airlines merger

  • Continued reductions at HP Compaq

  • Healthcare reform and future of the Texas Medical Center

  • Deepwater drilling moratorium

  • Cap and trade proposals


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External Forces that Drive the Houston Economy Only 2.0 Percent

  • US Economy

  • Global Economic Conditions

  • Oil and Natural Gas Markets


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US Recovery Is Sluggish Only 2.0 Percent


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Overall Coincident Index Hit Bottom in Only 2.0 Percent

June 2009, Recovery Is Slow


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Why fears of a double-dip? Only 2.0 Percent

  • Slow growth exposed as the inventory cycle ended

  • Sudden weakness in the housing market in recent months

  • All eyes on Europe and worries about another financial crisis



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Year over year changes*: Only 2.0 Percent

New starts -14.4 %

New home sales -21.5%

Existing home sales -20.8%

Existing home median price -2.4%

*12-month change Sep 2009 to Sep 2010


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Existing U.S. Home Sales Stabilized in 2008, Improved in 2009, No Progress in 2010 (million units)





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Impact of the European Debt Crisis Again(Percent Change)

Estimates of the Bank of Canada, Monetary Policy Report (July 22, 2010)



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Oil Part of a Wider Commodity Boom and now the recovery?


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What Was Behind the Commodity Boom? and now the recovery?

Primarily, it is the growth of the developing world. From 2002-2007, the IMF estimates they account for 90% of the growth in consumption of oil, 90% of metals’ growth, and 80% of food.

Dollar depreciation raises the purchasing power of other currencies, and stimulates the demand for commodities priced in dollars. Raises the price to US consumers.

Low U.S. interest rates (other things equal) can raise the price of commodities by lowering the price of storage, encouraging speculation.



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Throughout the last decade, the developing world outperformed by wide margin

%/yr


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Multi-Speed Recovery Is Led By the Developing World outperformed by wide margin

Consensus Economics, September 2010


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Could Emerging Country Growth Really Decouple from the US, Europe and Japan?

Strong internal growth dynamics

A rising share of the global economy

More resilient policy framework

But spillovers from the developed world still a factor – accounting for maybe 35 percent of growth for emerging economies, 45 percent for more commodity dependent


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The World Is Doing Better than You Think: Forecast Growth Rates

Consensus Economics, September 2010



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World oil demand staggered under global recession, Ratesrecovers in 2010(million barrels per day)


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Recovery in Oil Demand Led By Asia and the Developing World in 2010(change in million barrels per day)

Source: International Energy Agency


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International Rig Count Continues to Hold Up in 2010

Excludes Iran and the Sudan


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Wellhead Price of Natural Gas in 20101994 to Present


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Natural Gas-Directed Drilling in 2010

  • Demand is still weak. Industrial loads hurt by recession, still down by one-third over last 24 months

  • Natural gas marketed production still up 5.5 percent over the last 24 months. Drilling increasingly directed to oil, not natural gas.

  • Inventories remain above normal despite a lot of help from weather-driven demand.

  • Shale more prolific than expected, technology continues to improve.

  • Longer-run, will we need 1600 gas-directed rigs to maintain current level of production? Probably not


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High Oil/Low Gas Price Push Drilling in 2010

Toward Oil-Directed Activity


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Horizontal Drilling Grows with Shale Gas, in 2010

Complex Oil Projects


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Natural Gas Inventories 10% Above Normal in 2010

Going Into Heating Season




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Manufacturing Jobs in Houston Jobs1990 to Present



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The Gulf Coast Reached the End of a Long Chain of Events Jobs

  • Slow growth turns to recession and financial crisis in the US economy, and a slowdown in the developing world turns to global recession

  • A sharp reverse in the commodity boom, and especially in oil markets means a setback in Houston and the Gulf Coast in 2009.

  • We have gotten help from commodity markets that should have moved local growth back in front of the US growth rate

  • If that has not happened, it is because of the many policy and other uncertainties that hang over the regional economy – space, drilling moratorium, cap and trade, healthcare, airline mergers, etc


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Houston Employment Moving Toward Recovery, On Same Track as US Economy(3-month percent change at annual rates)


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Houston and the US Recovery: US EconomyLast In, First Out?

Robert W. Gilmer

Vice President and Senior Economist

Federal Reserve Bank of Dallas

November 2010