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www.bauer.uh.edu/irf
Institute for Regional Forecasting
Houston’s Economy Hitting on All Cylinders in 2014
Robert W. Gilmer Institute for Regional Forecasting
Bauer College of Business University of Houston
Houston’s economy rests on four major driving forces
• Energy market – Upstream exploration and production still going
strong thanks to high oil prices – Downstream construction booming based on low
natural gas prices • U.S. economy is putting both the Great Recession
and the polar vortex behind it • The only nagging worry is a slowing global
economy • The economic outlook is good – but how good?
Houston employment: Off to the races again?
4.9
-6
-4
-2
0
2
4
6
Note: December to December changes, except 2014 which is year-to-date, annualized and s.a.
Houston employment sees job growth accelerate in 2014
(3-month percent change at annual rates)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Jan-
07M
ay Sep
Jan-
08M
ay Sep
Jan-
09M
ay Sep
Jan-
10m
ayse
pt11
-Jan
may sep
12-Ja
nm
ayse
pt13
-Jan
may
sept
14-Ja
nm
ay
US
Houston
Bureau of Labor Statistics
How fast are jobs growing?
• Year-to-date is at a pace of 140,000 new jobs • Texas Workforce Commission estimates too high?
– Likely understated 2013 job growth substantially – Building 2013 job growth into 2014, so they will be at
the right level when they revise data in spring 2015? • One-time events complicate the count: large
construction projects start, relocation of large numbers of company employees, polar vortex
• Simple statistical extrapolation breaks down quickly
Is 2014 growth really that fast?
• Do other data series show this kind of powerful surge?
• Where does TWC say this fast growth is coming from?
• Job growth is probably fast? Question here is how fast? What would be good planning assumptions if we have to guess?
Purchasing managers’ index US and Houston compared (s.a.)
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
Houston
US
Index > 50 means expansion Index < 50 contraction
Gap between Houston and US PMI closes in 2013, reopens early 2014 … now?
47.0
49.0
51.0
53.0
55.0
57.0
59.0
61.0
63.0
Jan-13 Jun-13 Nov-13 Apr-14
Houston
US
52
57
62
67
72
Jan-13 Jun-13 Nov-13 Apr-14
Hou sales
Hou prod
Houston unemployment rate falls on strong job growth
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
U.S.Houston
Bureau of Labor Statistics
%, s.a.
The number of unemployed in Houston continue to decline in recent months
(index = 100 in Oct 2010, s.a.)
60
65
70
75
80
85
90
95
100
105
110
Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14
Unemployed
Faster progress in reducing unemployed
Slower progress
Where does this surge come from? It is led by oil and construction
(3-mo % change in jobs at annual rates, s.a.)
-5.0
0.0
5.0
10.0
15.0
20.0
Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14
Oil & GasConstMfgfab+mach
Construction surge comes from all construction sectors
(3-mo % change in jobs, s.a.)
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
bldgheavytrades
The greatest oil boom ever is still underway
We are experiencing the greatest drilling boom in U.S. history
Constant $ billion E&P spending
65.3
13.9 44.8
286.5
0
50
100
150
200
250
300
350
1982 1992 2002 2012
• Horizontal drilling and
fracturing lead the increased spending
• Inflation-adjusted expenditures have increased 6x in a decade
• By 2012 they are four times the infamous 1982 peak
Oil and Gas Journal, annual capital expenditure issues
Houston’s upstream exploration jobs now total over 100,000
0.0
20.0
40.0
60.0
80.0
100.0
Producers
Bureau of Labor Statistics
Oil Services
Annual earnings in upstream oil four times the typical Houston job in 2012
($000/worker)
Bureau of Economic Analysis
302.9
71
0
50
100
150
200
250
300
350
Upstream Oil All Jobs
2012
0
50
100
150
200
250
300
350
2001 2003 2005 2007 2009 2011
Upstream Oil
All Houston Jobs
2001-2012
Houston adds manufacturing jobs since 2003
180.0
190.0
200.0
210.0
220.0
230.0
240.0
250.0
260.0
270.0
manufacturing employment (000)
Bureau of Labor Statistics
Machinery and fabricated metal bring 115,000 jobs to Houston
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
199019921994199619982000200220042006200820102012
Fab MetalMachinery
Thousand
Bureau of Labor Statistics
Drilling activity slowed with collapse of natural gas prices in late 2011
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
1/5/2007 1/5/2009 1/5/2011 1/5/2013
% DIR.% HORIZ.% VERT.
Horizontal Drilling Grows with Shale Gas, Complex Oil Projects
Baker Hughes
Since 2005 U.S. Marketed Natural Gas Production Has Grown Rapidly
1200.01300.01400.01500.01600.01700.01800.01900.02000.02100.02200.0
DOE/EIA, six month average, seasonally adjusted
(Billion cubic feet)
Natural gas prices collapsed in late 2011
($/mcf)
0
2
4
6
8
10
12
14
Jan-1997 Aug-1999 Mar-2002 Oct-2004 May-2007 Dec-2009 Jul-2012
DOE/EIA
Natural gas production has not peaked after removing 600 rigs from gas-directed drilling
17001750180018501900195020002050210021502200
DOE/EIA, six month average, seasonally adjusted
(Billion cubic feet)
E&P spending has pulled back from the 20 percent growth of the last decade
Real $ billion capital expenditures
050000
100000150000200000250000300000350000400000
Baker Hughes rig count
500
700
900
1100
1300
1500
1700
1900
2100
Upstream job growth slows through late 2013 – but then …?
(3-mo change in jobs, annual rate, s.a.)
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14
Upstream
Machinery/Metal
Surge in energy hiring?
• Through June, seasonally adjusted 6,300 new workers, split between producers and services? What caused this spike?
• Is it real? – Relocation of large number of producer
employees into Houston? – Jump in natural gas prices over the winter created
a surprise bonus for producers – Building 2013 under-estimate into 2014?
Polar Vortex: Higher heating bills mean revenue for natural gas producers
Cold briefly drives up natural gas prices
($/mcf)
1
2
3
4
5
6
7
Jan-2009 Nov-2009 Sep-2010 Jul-2011 May-2012 Mar-2013 Jan-2014
DOE/EIA
$4.50/mcf
Natural gas inventories at record lows after cold winter in North America
(percent above or below 5-year average)
-80
-60
-40
-20
0
20
40
60
80
Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
DOE/EIA
Gas producers pump revenues into Permian Basin and oil
(rig count)
300
350
400
450
500
550
600
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Permian Basin
Texas Land exPermian
Meanwhile – a lot depends on the price of oil
High Oil/Low Gas Price Push Drilling Toward Oil-Directed Activity
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
01/05/07 01/05/09 01/05/11 01/05/13
Oil-DirectedGas-Directed
Baker Hughes
Oil price above $65/b keeps oil-directed rigs busy
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
0
200
400
600
800
1000
1200
1400
1600
1800
Jan-02 Mar-04 May-06 Jul-08 Sep-10 Nov-12
Oil RigsOil Price$65/b
Oil Rigs
Oil Price
Oil price forecasts ($/bbl)
World Bank IMF DOE/EIA
2013 104 104 98
2014 103 104 97
2015 99 98 91
2016 98 93 93
2017 98 -- 92
DOE/EIA is WTI price; World Bank and IMF a global averages of several marker crudes
Downstream construction becomes a force in 2014
Refining Capacity on the Texas and Louisiana Gulf Coast
Region Number of Refineries
Distillation Capacity (000 b/d)
Houston/Texas City 8 1,900.5
New Orleans 8 2,024.4
Baton Rouge 1 502.5
Beaumont/Lake Charles
6 1,554.9
Corpus Christi 3 647.2
Total 26 6,629.5
Energy Information Administration
Gulf Coast Refining Margin ($/bbl)
0
5
10
15
20
25
30
marginSix-mo avg
Pace refining margins, Oil and Gas Journal
Mont Belvieu is the hub for U.S. gas processing
• Mont Belvieu is the settlement point for 90 percent of U.S. natural gas liquids
• 70 percent of those liquids are subsequently processed on the Gulf Coast
• The Houston Ship Channel will pass Qatar in 2016-2017 to become the number one exporter of propane and butane
Four of eight largest ethylene complexes in the world are in Houston
Company Plant location Capacity (million tpy) Formosa Taiwan 2,935.0 Nova Alberta 2,811.7 Arabian Petrochem Saudi Arabia 2,250.0
ExxonMobil Baytown 2,197.0 ChevronPhillips Sweeny 1,865.0 Dow Netherlands 1,800.0
Ineos Chocolate Bayou 1,752.0 Equistar Channelview 1,750.0 Yanbu Saudi Arabia 1,705.0 Equate Kuwait 1,650.0
Oil and Gas Journal, 7/1/2013
Natural gas energy content equivalent to $20-$40 per barrel for oil
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
oil $/bnat gas $/b
DOE/EIA and calculations of the author
0
10
20
30
40
50
60
70
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 2014
cent
s per
pou
ndEthylene Margins
(cents per pound)
June margins for ethylene were 39 cents per pound in North America, -19 cents elsewhere
Feedstock
Feedstock
Margin
Margin
-30
-10
10
30
50
70
90
110
130
150
Ethane NaphthaMuse, Stancil Cash Ethylene Margins, Oil and Gas Journal, 2013
Two of the biggest proposed projects are like peas in a pod
ChevronPhillips • $6 billion investment • 1.5 million ton cracker in
Baytown • Two 2,500 metric ton
polyethylene plants near Sweeny
• 10,000 construction jobs, 400 permanent jobs
• Completed 2016-2017
Exxon • $5-$6 billion investment • 1.5 million metric ton
cracker in Baytown • Two 2,600 metric ton
polyethylene plants near Mont Belvieu
• 10,000 construction jobs, 350 permanent jobs
• Completed 2016-2017
There are five more ethylene projects in the US, four on the Gulf Coast
Company Scale Location Completion
Dow 1.5 m tons Freeport 2017
Sasol 1.5 m tons Lake Charles 2017
Occidental .5 m tons Ingleside 2017
Formosa Plastic
1.2 m tons Point Comfort 2017
Shell World scale Pennsylvania 2019-2020
These giant ethylene projects are rapidly moving forward
• Speed counts, and the first finished are best positioned
• Permitting is a major concern, with multiple groups typically challenging the process
• Craft availability is a another big concern with everyone trying to squeeze into a 2014-2016 window. Also, is there machine shop capacity?
• Over-building? These are export facilities, built to for global markets. But billions are at stake
More than just ethylene: Totals for chemicals on the ship channel
Under construction $6,229 Permitting $4,000 Board approval $492 Under study $400 Total $11,121
Plus three projects with undisclosed costs
More than just chemicals
• There have been 19 applications for LNG export terminals, 6 have been approved
• Four are located on the Gulf Coast: Two in Cameron Parish, La; one each in Lake Charles and Freeport
• These projects have a typical construction cost of $10 billion and recent permits hope for initial operation in 2018
The US economic outlook
Output growth in this recovery has disappointed badly
(Real gross product %-change, annual rates)
-10
-8
-6
-4
-2
0
2
4
6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U.S. payroll jobs finally match Jan 2008 peak employment
128000
130000
132000
134000
136000
138000
140000
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
U.S. Employment Growth In Thousands of New Jobs per Month,1990 to 2011
-850
-650
-450
-250
-50
150
350
Bureau of Labor Statistics
3-month average
Can we find the missing GDP growth?
Period GDP Personal Consumption
Residential Construction
State & Local Gov’t
90Q1 - 07Q3 3.0 2.2 0.1 .25
07Q4 - 14Q1 1.1 0.9 -0.2 -0.1
Loss to Great Recession
-2.0 -1.3 -0.3 -0.4
Missing sectors add to GDP again (percent contribution to GDP growth)
-6
-4
-2
0
2
4
6
8
St/Local Gov'tHousingPers Cons
Housing recovery staggers in early 2014
Housing recovery staggers in early 2014
• More than just winter weather has conspired to keep the housing recovery slower than expected
• Interest rate shock from the end of the Fed’s QE program raised mortgage rates
• Affordability is stretched for first time home buyers by higher rates and credit standards
• Institutional buyers backed out of the market as prices rose
• Recovery is in place, but will unfold slowly
Home prices rise more slowly in 2014 (index: 3-mo percent change at annual rate)
-20
-15
-10
-5
0
5
10
15
FHFA
FHFA purchase -only home price index
New and existing home sales recover from winter weather
20
40
60
80
100
120
140
160
NewExisting
Index Jan 2000 = 100
St Louis Federal Reserve Bank
US months of supply of existing homes still below six months
3
4
5
6
7
8
9
10
11
12
New home starts and permits have stabilized after the winter
0
200
400
600
800
1000
1200
1400
1600
1800
2000
00 '01
'02
'03
'04
'05
'06
'07
'08
'09
10 11 12 13 14
PermitsStarts
normal
Annual rates
Homebuilder optimism works its way out of winter slump (NAHB homebuilder sentiment)
0
10
20
30
40
50
60
70
80
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Optimism
Pessimism
Houston single-family long on demand and short on supply
Existing home sales in Houston return to 2006 levels
(sales/month, s.a.)
30003500400045005000550060006500700075008000
Home prices stable through crisis, but now rising quickly
(median price, s.a.)
100
110
120
130
140
150
160
170
180
190
200000 Dollars
MLS, Texas A&M Real Estate Center
Houston single-family at less than 3 months supply
2
3
4
5
6
7
8
9
MLS, Texas A&M Real Estate Center
Houston single-family permits constrained by lot shortages
(monthly permits, s.a.)
6-mo average SF Permits
FRED, St Louis Federal Reserve Bank, s.a.
Local multi-family permits still trending up?
(units/month, s.a.)
0
500
1000
1500
2000
2500
3000
3500
State and local tax revenues now growing strongly
State tax revenue turns also stagger with winter weather
(20.0)
(15.0)
(10.0)
(5.0)
0.0
5.0
10.0
15.0
20.0
2014
Q1
2012
Q4
2011
Q3
2010
Q2
2009
Q1
2007
Q4
2006
Q3
2005
Q2
2004
Q1
2002
Q4
2001
Q3
2000
Q2
1999
Q1
1997
Q4
1996
Q3
1995
Q2
1994
Q1
1992
Q4
1991
Q3
1990
Q2
1989
Q1
Quarterly percent change, s.a.
Percent contribution of state and local governments to GDP turns positive
Four-quarter average
-1-0.8-0.6-0.4-0.2
00.20.40.60.8
1
1999
2001
2002
2004
2005
2007
2008
2010
2011
2013
• State revenues up 5.6% in Q4-2012/Q4-2013
• Local property taxes up 5.25 in same period
• Income taxes up 5.1% • Winter weather a
temporary setback
Weak consumer spending a product of loss income, wealth and confidence
Consumer makes progress reducing debt after the build-up post-2000
0.90.95
11.05
1.11.15
1.21.25
1.31.35
1.4
Jan-00 Jun-01 Nov-02 Apr-04 Sep-05 Feb-07 Jul-08 Dec-09 May-11 Oct-12
(Ratio of debt to disposable personal income)
Federal Reserve Board, BEA
Consumer debt payments as percent of disposable income
4
4.5
5
5.5
6
6.5
7
Stock market holdings add to consumer net worth again
(trillion $ 2009)
0
2
4
6
8
10
12
14
16
Jan-69 Aug-74 Mar-80 Oct-85 May-91 Dec-96 Jul-02 Feb-08
Housing Bubble
Tech Bust
Home equity again over $10 trillion: Back on a healthy trend?
0
2
4
6
8
10
12
14
Jan-69 Aug-73 Mar-78 Oct-82 May-87 Dec-91 Jul-96 Feb-01 Sep-05 Apr-10
Trillion $ 2009
Federal Reserve, U.S. Financial Accounts
University of Michigan: consumer sentiment trends up
50
55
60
65
70
75
80
85
90
95
100
Retail sales have accelerated over the last six months
Seasonally adjusted data
Monthly change at annual rates Monthly sales ($million)
* -20
-15
-10
-5
0
5
10
15
20
retail sales 6-mo average250000
270000
290000
310000
330000
350000
Dec-04 Mar-08 Jun-11
Auto sales back at pre-crisis levels (million units at annual rate)
8
9
10
11
12
13
14
15
16
17
18Million units, s.a annual rate
Cash for clunkers
US economic outlook continues to strengthen
GDP (%)
Jobs/month (000)
Unemployment Rate (%)
10-year Treas (%)
Consumer Prices (%)
2014Q1 -2.1 189.7 6.7 2.8 1.9
Q2 4.2 266.7 6.2 2.6 3.0
Q3 3.0 228.6 6.1 2.7 2.2
Q4 3.1 211.2 6.0 2.8 2.0
2015 Q1 3.1 208.3 5.8 3.0 2.1
Q2 3.1 209.2 5.8 3.2 2.2
Q3 3.0 200.7 5.6 3.5 2.1
2014 2.1 204.8 6.3 2.7 2.3
2015 3.1 214.0 5.7 3.3 2.2
2016 2.9 -- 5.4 3.9 2.3
2017 2.8 -- 5.3 4.4 -- Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters
Emerging markets drive local exports and high oil prices
For the last decade world oil prices have been driven by emerging markets • Since 2003, all the growth in the global
demand for oil has come from emerging markets, especially Brazil, China, and India
• It has not just been oil, but food, agricultural products, and metals that have seen prices soar
• China alone accounts for one-third of increased oil demand since 2003. China and other Asia are nearly 60 percent.
Growth in the demand for oil comes from the emerging markets
(million b/d)
-5
0
5
10
15
20
1996-2003 2003-2013
GlobalOECDNon-OECD
International Energy Agency
Oil part of a wider commodity price boom since 2003
0
100
200
300
400
500
600
FoodMetalsCrude Oil
International Monetary Fund
Where has the emerging market growth come from?
• They have developed deep and rapidly growing domestic markets
• They have been good policy actors – balanced fiscal budgets, independent central banks, and enormous foreign exchange reserves
• They are now large markets, last year passing the developed nations in total GDP
Global Growth Sluggish in 2014-15 (% GDP Growth)
2011 2012 2013 2014 2015
World 3.9 3.5 3.2 3.4 4.0
US 1.8 2.8 1.9 1.7 3.0
Europe 1.5 -0.7 -0.4 1.1 1.5
Japan -0.7 1.4 1.5 1.6 1.1
--- --- --- --- China 9.3 7.7 7.7 7.7 7.1
India 6.3 4.7 5.0 5.4 6.4
Brazil 2.7 1.0 2.5 1.3 2.0 Source: IMF World Economic Outlook: Update, July 2014
Where did emerging market growth go?
• Their central banks raised interest rates in 2012-13 to slow growth in the face of emerging inflation
• China is trying to engineer a tricky transition from export- to consumer-led growth; India and Brazil face chaotic economic conditions and chronic corruption
• All will need to undertake significant structural reforms to keep growth on a high-growth path
• All will have to cope with rising U.S. interest rates and protect their currency by raising rates themselves
A soft landing for world economic growth: Back above the long-term trend by 2014?
(percent change in GDP)
-1
0
1
2
3
4
5
6
Long-term trend = 3.5 percent
IMF, World Economic Outlook, July 2014
Houston Outlook
How good will it be in 2014? Better than we thought
• Energy strong – Oil prices high, natural gas prices low – Unexpected help for drilling from winter weather – Downstream construction projects moving quickly to
capture scarce construction workers and machine shop capacity
• U.S. healing and moving to historic trend growth rates • Risks stem from a fragile global market • Watch out for the unforeseen – events like the Asian
financial crisis, tech bust, the American financial crisis
Working assumptions for Houston’s job growth to 2018?
2.42.52.62.72.82.93.03.13.23.3
Mill
ions
Houston Payroll Employment Year New Jobs
% Growth Q4/Q4
2008 28,677 1.10% 2009 -105,376 -4.00% 2010 43,634 1.70% 2011 76,094 3.00% 2012 116,981 4.50% 2013 79,213 2.90% 2014 88,891 3.20% 2015 79,700 2.70% 2016 80,750 2.70% 2017 69,900 2.30% 2018 68,190 2.20%
www.bauer.uh.edu/irf
Institute for Regional Forecasting
Back to deep space
Obama administration cancels the Constellation program in 2011
• Constellation was to develop a heavy lift rocket and new crew capsule
• Would deliver crews to the space station by 2015, return a crew to the moon by 2020, and on to Mars after that
• With cancellation, the International Space Station was extended to 2020, and serious funding was given commercial development of delivery of supplies and astronauts to the space station
• Cancellation would mean 7,000 jobs lost in Clear Lake area
Funding restored with a new and reconfigured program
• NASA is now developing a new heavy lift SLS rocket, crew capsule, service module, and launch abort system
• Goals remain the ISS, the moon and Mars • Exploration Test Flight-1 in December 2014 will
see a Delta VI rocket take an un-crewed Orion capsule/spacecraft on an orbit deeper into space than we have been since 1972
• The first flight of the SLS rocket will take Orion and circumnavigate the moon in December 2017
The bumpy ride for the Clear Lake area over for now
• 2010 employment of 16,500 Space Center and NASA contractors has stabilized at 14,000
• Payrolls have declined further because of the retirement opportunities for many senior staff
• But many of these retirees remain in the area • Many of those laid off found opportunities in
a hot technical and engineering market in Houston
Back to deep space
• The plan is once more for the moon -- and perhaps Mars -- to be in Houston’s future
• JSC and Clear Lake dodged a big bullet in 2011, but both are now preparing for exciting and stable economic times ahead
• The current plans envision 2-3 launches per year • The main question still open is where we are
going once the tools are in place – to harness an asteroid, to establish a moon base, or on a mission to Mars?
A new model for medicine
Old model is private health insurance
• Spend the highest share of GDP of any country in the world on healthcare
• That share grows rapidly • Get very poor health outcomes in longevity,
infant mortality, and many other measures • Perverse financial incentives
– Based on volume: more treatment = more revenue – No incentive for quality care: today’s infection =
tomorrow’s revenue – No incentive for prevention
New model of capitation
• Provider is assigned a large group of potential patients – hundreds of thousands
• Given a flat fee of maybe $300 per potential patient with expectations of particular health outcomes
• Provider can keep part of the cost savings – Cares about prevention – Cares about quality outcomes if the quality
improvements limits treatment – Also has strong incentives to limit treatment. Require
monitoring to be sure treatment in adequate
Moving from one model to the other?
• No deadline is set at three years into the Affordable Healthcare Act, but there are expectations that there will be one imposed once the market tilts to capitation
• Houston hospitals and healthcare providers moving much more slowly than other parts of the country – Houston is relatively rich in corporate and public insurance.
Other parts of the country are losing those policies more rapidly – Rapid growth in Houston keeps pulling more private policies into
the city • We are still building hospitals in Katy, Pearland, Sugarland,
and the Woodlands. Why the suburbs? – It is where the patient growth and the private insurance is found – It is where healthcare workers live – and would like to work
Implications • End of Cadillac Care? Think of it as a giant HMO with a single-
provider option – Can you get a referral to the Texas Heart Institute or M.D. Anderson? – Probably not without a very high deductible or other very high out-of-
pocket expense • End of uncompensated care?
– There are 1.1 million uninsured in Harris County – The exchanges might have provided insurance to 150,000 local
uninsured – with half of those previously insured -- and most selected high deductibles
– For many, including the large number of illegal immigrants, the emergency room model is still working
• Don’t lose sight of the end-game: Limit admissions and treatment and dramatically shrink the industry . On the current path, Houston simply delays the new model
Houston is again hitting on all cylinders
• Upstream oil has gotten at least a temporary boost from cold winter weather, low natural gas inventories, and higher prices.
• The downstream construction push is starting, and should gain momentum through 2014
• The manned space flight program is back in place • Houston patient care – so far – is still enjoying
great success under the old patient care model
Prior forecast for Houston
110
74 65
74 79.2 81.3
0
20
40
60
80
100
120
2012 2013 2014 2015 2016 2017
Houston Annual Job Growth (000) Q4/Q4
How good will it be in 2014? Better than we thought
• The surge of 39,000 new jobs in Houston in the first four months of 2014 is based in energy and construction
• On the energy side, perhaps helped by one-time events – Producer consolidation of employees? – Winter weather produces mini-drilling boom that will fade
• About the 5,800 new construction jobs – 2,500 jobs in heavy construction are mostly catch-up for
infrastructure and lot development – But it looks like the petrochemical push is underway, and will
accelerate through 2014 and into 2015 • Based on these facts, we have revised the forecast for
2014 to 86,000 jobs – 21,000 more than previously forecast
Why the focus on upstream capital expenditures? Historically it dominates
Inflation-adjusted cap-ex
0
500
1000
1500
2000
2500
3000
3500
4000
Share of oil industry cap-ex
0%10%20%30%40%50%60%70%80%90%
100%
Midstream
Upstream
Downstream
After big turn toward recovery, housing pauses over the winter
What happened? • Sales of new and existing
home sales fall • Supplies of new homes
are very tight • Mortgage applications fall • Prices still rising – just not
as fast
Why? • Brutal winter weather • Affordability has taken a
big hit – Rising mortgage rates – Home prices up
• Supplies extremely tight – Homeowners without
equity – Developed lot
shortages
Housing adds to GDP growth (percent contribution to GDP growth)
-2
-1.5
-1
-0.5
0
0.5
1
1.5
Winter weather
Federal Reserve bank of Dallas