Photo: Michael Ciaglo, Staff / Houston Chronicle
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Economic activity in the Houston region remains strong, but a recent dip in key leading indicators suggests it is likely to slow in coming months.
That dip was driven primarily by declines in an index of Houston corporate stocks, crude oil prices, job ads and single-family construction permits, all of which are factors economists at the Federal Reserve Bank of Dallas use to help anticipate changes in the economy.
“Overall, the outlook for Houston has weakened but remains positive,” according to a monthly report on Houston economic indicators just released by the Dallas Fed.
The Fed reports that Houston’s employment and business-cycle index – an aggregate measure of local employment and unemployment rates, wages and retail sales – continues to register healthy growth.
The Houston Business-Cycle Index grew at an annual rate of 6.4 percent over the three months ending in November, driven by healthy initial estimates of employment growth over that period. In contrast, growth in an index of 11 leading indicators for Houston dipped just below zero for the three-month period ending in November.
Houston employment and the business-cycle index continue to register healthy growth, and drilling activity has flattened at a high level. Oil prices, however, fell drastically toward the end of 2018, contributing to the Houston index dropping to near neutral.
The price of West Texas Intermediate crude oil peaked in October to near $71 per barrel and fell to an average of under $50 in December.
A stock index of 150 Houston companies fell 109 points from its high in September to an average value of 474 in December 2018. That cascade of nearly 19 percent was the largest over-the-quarter decline since the end of 2008 when the Great Recession had already taken hold.
“The decline in stock prices of Houston companies suggests slower earnings growth in the future, likely leading to less-robust job growth,” the report said.
Houston has enjoyed a robust economy that has been buoyed by the recovery of the energy industry from the oil price collapse that began in late 2014. The region has increased jobs for 14 consecutive months and exceeded the rate of job growth in both the state and the nation. The region has added more than 114,000 jobs over the past year, an increase of nearly 4 percent that easily outpaced that state’s 3 percent employment growth rate and the nation’s 1.7 percent.
Most economists predict that Houston’s economy will remain strong, but that growth this year will slow.
The state of Texas economy is beginning to slow as well. A pair of reports released earlier this month by the Dallas Fed showed that growth in the service sector, which accounts for about 70 percent of the state economy, is beginning to stall and that Texas manufacturing production has slipped to its lowest since August 2016.