Houston Economic Indicators – Dallasfed.org

April 7, 2022

Data for the Houston area continues to imply strong economic momentum in 2022. Leading indicators, broad measures of output and payrolls continue to register growth well above historical averages. Unemployment reflected recent improvements as the labor force grew. The region’s export value and tonnage are at an all-time high, and manufacturing activity in Houston’s top export partners is showing steady growth. Overall, the outlook for Houston is positive.

Coincident and Leading Indicators

The Houston Business Cycle Index, a timely measure of broad shifts in Houston’s economy, rose at an annualized rate of 7.3% in the three months ending February 2022 (Chart 1). Although still subject to revision, particularly in the last six months, this pace is well above its average annual rate of 2.9% from 2000 to 2020. With the employment recovery expected to slow in 2022 and the headwinds of rising prices, the pace of growth across Houston’s economy is expected to stabilize at more subdued levels for the rest of the year.

Chart 1

That said, the pace of growth in the Houston leading index slowed slightly to an annualized 2.8% in the three months to February. This implies that over the next three to six months, payroll employment growth will slow but retain much of its current momentum.

The growth of the 10 components of the index was widespread. However, chemical carloads, new orders in the Purchasing Managers Index (produced by the Houston Institute for Supply Management) and the Texas Leading Index saw outsized improvements.

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Leisure and hospitality lead payroll employment growth

Employment in Houston grew at a 1.3% pace in the three months ending February 2022, an annualized rate of 5.4% (Chart 2). Almost all sectors have seen growth during this period. Leisure and hospitality led employment growth (added 13,355 jobs) and experienced the fastest growth. Trade, transportation and utilities added the second largest number of jobs (10,917). Mining and logging increased by 3.2% (1,989).

Chart 2

Houston’s payroll was still down 1.0% from pre-pandemic levels. Much of the remaining shortfall was split between construction (-21,335 jobs; mostly heavy and civil construction), manufacturing (-17,513; mostly durable goods), and mining and logging (-13 263, mainly oil services). Job shortages in these sectors were primarily associated with the oil and gas sector.

Houston’s unemployment rate is stable at nearly 5.4%

Houston’s unemployment rate was flat at nearly 5.4% in February as the size of the labor force increased (Chart 3). By comparison, the unemployment rate in Texas fell to 5.0%. Nationally, the rate fell to 3.6% in March. The higher unemployment rates in Texas were in part due to the faster recovery of the region’s total labor force compared to the nation.

Chart 3

International Purchasing Managers Indexes

Manufacturing PMIs are timely measures of the extent of production growth or contraction around the world. PMIs from emerging markets – where countries like China and Brazil are given a lot of weight – showed modest monthly growth in February with a reading of 50.9 (Chart 4). In contrast, developed economies like the United States and Germany collectively saw very broad-based growth in manufacturing output with an index value of 56.6.

Chart 4

To bring this data back to Houston, an export-weighted average of international PMIs for the Houston-Galveston Customs District’s top export destinations shows steady growth in production. The survey index has been between 52.8 and 55.7 since the end of 2020.

Tracking international manufacturing activity is relevant for Houston, as exports from the Houston-Galveston Customs District consist primarily of higher value-added intermediate goods that fuel global supply chains. Crude oil, chemicals, and fuels like diesel and propane account for almost three-quarters of the value of its exports, and most of the rest is made up of durable manufactured goods.

Exports

The nominal value of Houston’s exports has increased during the pandemic, driven first by a recovery in volumes in 2020 and then by higher energy and other commodity prices since winter storm Uri (Chart 5). Both value and volume (tonnage) fell sharply a year ago when the winter storm damaged much of the region’s heavy industry. The robust recovery that followed put the district on pace for the highest export volume on record in 2021, at nearly 273.7 million metric tons.

Chart 5

The Texas Trade-Weighted Dollar Value (TWVD) declined slightly from January to February 2022 (reversed in the chart). The TWVD has an inverse relationship with Texas exports. When value declines, it tends to promote exports and export-related production and vice versa. The currency index increased by 6.7% from its low point in January 2021 to February 2022, but the impact was small compared to other factors generating strong export demand.

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

About Houston Economic Indicators

Questions can be directed to Jesse Thompson at [email protected] Houston Economic Indicators is released the second Monday after the release of monthly employment data for the Houston area.

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