Can the Boom Continue?

[plumber2]

Higher education in combination with biomedicine and other disciplines (engineering, material science, nanotech, etc.) would greatly benefit Houston. I imagine it would take awhile to get on Boston, NYC, or the Bay Area's level, but we could certainly become a second tier city in a decade or so if we invest in it. 

 

Most optimistically, the COH can reign in it's pension problem and translate that into more infrastructure spending and/or lower taxes. We pass a few bonds that focus on providing funds for academic buildings and dense multi-unversity student housing;

 

Or just pray Rice decides to double it's entire student and teacher population over 2 decades. 

 

How can you reign in pension obligations without cheating someone out of what they had earned and been promised?

[swtsig]

On a positive note WTI did go up a dollar yesterday. Now everyone go to their rooms and take a time out!

Probably just a one day bounce on China's surprise rate cut... Supply side will probably continue to push oil lower unless OPEC announces a decent cut in output. Even then some traders think the expected cut in output was already being priced into yesterday's bounce. Who knows for sure but one thing is certain and that is we will see some pull back on a local level.

[IronTiger]

This thread needs to be merged with the Can the Boom Continue? thread in the Houston Discussion forum.

Or it needs to be locked. 95% of this thread is trolling, misinformation, or insults.

Or deleted.

[bobruss]

I realize that. I was in the business in the 80's and lost my job because of it. I was just trying to change the subject and to lighten the tone.

Anyone that doesn't understand the dynamics of the oil industry and its ability to alter the overall economy are not going to make sound decisions. 

We saw just last week one of the first effects of this downturn in the job cutting merger of Haliburton and Baker Hughes.

This changes peoples plans and dries up money rapidly. It like a domino affect.

I have relatives in the business and they are hoping the middle east quits playing games with the pricing structure.

[UtterlyUrban]

How can you reign in pension obligations without cheating someone out of what they had earned and been promised?

Greatly reduce the pension promises to NEW hires.

[IronTiger]

Or it needs to be locked. 95% of this thread is trolling, misinformation, or insults.

Or deleted.

The thread is merged now, but still needs a lot of cleanup. 

[Houston19514]

Thanks to Transwestern, Delta Associates, the George Mason University Center for Regional Analysis, and the B.E.A., we can take a closer look.

 

== Hou-Galv core industries 2013  (last completed yr)  as percent of gross regional product ==

 

Energy/Tech/FIRE & Transport/Warehousing/Trade & Manufacturing:  77%

Education/Health/Gov't:  11%

Non-core Industries:  7%

Construction:  5%

 

 

== Hou-Galv core industries 2008   as percent of gross regional product ==

 

Energy/Tech/FIRE & Transport/Warehousing/Trade & Manufacturing:  50%

Non-core Industries:  29%

Education/Health/Gov't:  12%

Construction:  9%

 

 

 

That doesn't bark like diversification to me.  Granted, the dollar lost value between the 2008 dollars that recorded $269 billion in gross regional product and the 2013 dollars that chalked up $468 billion, but not many of us look under the hood of those pretty Gross Metropolitan Product statistics.  Our nominal growth rate is not going to continue, and when that becomes evident, we're not going to look like such a haven for slower, other city regions' investment capital, and the virtuous circle of optimism will unravel.

 

 

I dare not bring the chickenhawks fluttering out by comparing to sibling city regions, but here are links to  2013  and to  2008  from the same data sources, for the curious.

 

There is quite a bit of diversification contained within the definition of "core industries".  Houston's core industries include more than just energy.    Here are a few more details from your sources:

 

 

Energy/Financial/Professional/Technical   2008:  $108B (40%)     2013:  $277B (40%) 

Construction                                              2008:  $  23B (  9%)     2013:  $ 23B  (  5%)

Federal & State Government                     2008:  $  21B (  8%)     2013:  $ 28B  (  6%)

Manufacturing                                           2008:  $  17B  (  6%)    2013:  $  23B  ( 5%)

Medical/Educational                                 2008:  $  11B  (  4%)    2013:  $  23B  (  5%)

Trade/Transportation                                 2008:  $ 11B  (  4%)    2013:   $ 89B  (19%)

 

It seems odd and a little misleading that the source of these numbers combines Energy with Financial/Professional/Technical categories for the 2013 numbers.  In 2008, they were shown separately:   Energy was 27% and Financial/Professional/Technical was 13%.

[bachanon]

There is quite a bit of diversification contained within the definition of "core industries".  Houston's core industries include more than just energy.    Here are a few more details from your sources:

 

 

Energy/Financial/Professional/Technical   2008:  $108B (40%)     2013:  $277B (40%) 

Construction                                              2008:  $  23B (  9%)     2013:  $ 23B  (  5%)

Federal & State Government                     2008:  $  21B (  8%)     2013:  $ 28B  (  6%)

Manufacturing                                           2008:  $  17B  (  6%)    2013:  $  23B  ( 5%)

Medical/Educational                                 2008:  $  11B  (  4%)    2013:  $  23B  (  5%)

Trade/Transportation                                 2008:  $ 11B  (  4%)    2013:   $ 89B  (19%)

 

It seems odd and a little misleading that the source of these numbers combines Energy with Financial/Professional/Technical categories for the 2013 numbers.  In 2008, they were shown separately:   Energy was 27% and Financial/Professional/Technical was 13%.

 

 

thanks for that houston19514.  i noticed this as well but wasn't going to take the time to break it out.  albeit that energy and manufacturing are closely tied together; i wonder how much of trade/transport can be tied to energy.  also, if energy was separated in the past, perhaps it was because it had been significant enough to be separated. 

[strickn]

People with nothing better to do at 3a.m. Saturday morning than to analyze and compare economic data have very little reason to be optimistic about anything.

I acknowledge my lameness.   To give cloud713 his answer, all 3 posts (Austin, Galveston, and this one) seem to revolve around a common question:  is a boom an example of economic growth, economic development, or both, or neither?

 

We tend to use growth and development as synonyms, so the first step is one of clarifying what is distinct about them.  The two are no more interchangeable than gaining weight and building muscle, even though they look just the same to the scale.  A boom is definitely a bunch of calories, in this analogy, but should we even want it to continue, like a Thanksgiving dinner that lasts until New Year's?

[samagon]

A lot of the financial in Houston is energy trading.

 

Although, as I have said in this thread in the past, anyone comparing the potential of any crash being as bad as it was in the 80s is fooling themselves into a doom scenario. 

 

Massive layoffs, companies shuttering, etc. probably not.

 

Will companies stop hiring at the breakneck they've been hiring at? Probably.

 

The conspiracy theorist in my head is whispering that the dropped price stabilized to conveniently. Saudi increased production just enough to drop the price to make it lower than what it costs Russia to produce, but it's still high enough for US production to stay profitable. That's pretty convenient, in my mind. Here's an interesting article from back in March...

 

http://oilprice.com/Energy/Energy-General/US-Using-Oil-to-Fight-Russian-Gas-Politics-in-Ukraine.html

 

It may be complete conspiracy theory land, but it's way too convenient, in my mind at least. I will say I won't at all be surprised if prices go back up again should Russia back down regarding Ukraine.

[august948]

A lot of the financial in Houston is energy trading.

 

Although, as I have said in this thread in the past, anyone comparing the potential of any crash being as bad as it was in the 80s is fooling themselves into a doom scenario. 

 

Massive layoffs, companies shuttering, etc. probably not.

 

Will companies stop hiring at the breakneck they've been hiring at? Probably.

 

The conspiracy theorist in my head is whispering that the dropped price stabilized to conveniently. Saudi increased production just enough to drop the price to make it lower than what it costs Russia to produce, but it's still high enough for US production to stay profitable. That's pretty convenient, in my mind. Here's an interesting article from back in March...

 

http://oilprice.com/Energy/Energy-General/US-Using-Oil-to-Fight-Russian-Gas-Politics-in-Ukraine.html

 

It may be complete conspiracy theory land, but it's way too convenient, in my mind at least. I will say I won't at all be surprised if prices go back up again should Russia back down regarding Ukraine.

 

 

[Slick Vik]

Oil less than $75

[august948]

Oil less than $75

 

So much for "peak oil" and "The End of Suburbia", huh?

 

[cloud713]

Did oil really drop to $67..?

[Montrose1100]

Did oil really drop to $67..?

 

 

Investors are grappling with the fallout of yesterday's decision by OPEC to not cut its daily crude production despite a glut of oil around the globe. Oil prices, which were already under pressure due to weaker demand due to a sluggish global economy and ample new supply coming online in the U.S., are plunging anew today after the OPEC decision.

http://www.usatoday.com/story/money/markets/2014/11/28/stocks-friday/19608677/

[UtterlyUrban]

The needle is millimeters away from the balloon that is Houston.

[arche_757]

Just a hunch here... but I'll wager the big oil companies have studied how many/how often to hire.  I'm sure they have contingencies in place for just about all the scenarios that are playing out currently.  I don't think Exxon, Chevron, Anadarko and even the smaller mid-majors/small companies etc. just forgot about the 1980s!  Very unlikely.  No doubt some will lose jobs, and there will be retraction - but that was going to happen sooner than later.

 

I don't think the gloom and doom is going to wash over us like the 1980s.  People need to lighten up, be realistic, but lighten up.

[samagon]

Oil less than $75

 

I'm buying a house out in the suburb of El Campo as we speak, I've already put down for a hummer H2 as the commuter vehicle.

 

The big difference with the early 80s and today are a few things:

 

1. 1980s houston had 70% of work coming from oil. today it's closer to 40%. still dependent, but not nearly so much.

 

2. in the early 80s they were predicting the price of oil to continue to rise. so they just explored and produced all day long. Today is a different story, as was evidenced by the article I posted from back in March, people did expect that the price was going to go down.

 

3. through the early 80s the highest price of oil was about $30, in 85, it was at $26. so much for the expected price increase. at it's steady state over the past couple of years, the price has been about $100.

 

4. 1986 saw the price of oil drop to under $10. over 60% drop from the price the year before. today it's 25% less than the steady state, might it fall more? Possibly, but it's most likely going to hover near the current until Saudi Arabia decides to stop producing so much, or until they run out, they won't push it much lower as they are very aware of all the Arab springs that have happened and are still trying to happen in the region.

 

Let's recap:

 

Back in the 80s, 70% of Houston market was based on oil, 60% drop in oil prices when they were predicting the price to increase.

 

Today is a bit different, we're looking at 40% of Houston market is based on oil, less than 25% drop and they were predicting the price to decrease.

 

and ostriches don't stick their head in the sand, it is a very inaccurate colloquialism.

[bobruss]

I have no idea how old most of the optimistic Haifers on here are or if you were alive back in the eighties.

I think if you were you would have a better understanding of the dynamics of the oil industry. No matter what anyone tells you this city

Runs on oil.

When they lose 35% value and and their stock tumbles they tend to become very cautious and pull on the reins.

This creates a domino affect and everyone starts cutting back.

Less production, more mergers, layoffs, less jobs , less money.

There will be more projects put on hold or canceled. If they aren't already building they probably won't break ground.

I know this sounds cold and a real buzz killer but that is what happens.

How long and how deep depends on a lot of things that are out of anyone here's hands.

OPEC proved that last week when they failed to cut production. That's one of the reasons oil dropped so much.

Everyone will be affected by this in some way.

[Slick Vik]

Bp has announced forthcoming layoffs.

[jgriff]

I have no idea how old most of the optimistic Haifers on here are or if you were alive back in the eighties.

I think if you were you would have a better understanding of the dynamics of the oil industry. No matter what anyone tells you this city

Runs on oil.

When they lose 35% value and and their stock tumbles they tend to become very cautious and pull on the reins.

This creates a domino affect and everyone starts cutting back.

Less production, more mergers, layoffs, less jobs , less money.

There will be more projects put on hold or canceled. If they aren't already building they probably won't break ground.

I know this sounds cold and a real buzz killer but that is what happens.

How long and how deep depends on a lot of things that are out of anyone here's hands.

OPEC proved that last week when they failed to cut production. That's one of the reasons oil dropped so much.

Everyone will be affected by this in some way.

 

You are correct. I'm already seeing projects being canceled or shelved in my company. If you've lived in Houston very long you've been through this before. Why people think it will be any different this time is beyond my understanding. 

 

I think most people realize this probably won't be as bad as the 80s. Yes, Houston does have other industries but we had other industries during the last downturn too. We've been through downturns since the big crash of the 80s. This will just be another one if it happens. 

[jgriff]

I'm buying a house out in the suburb of El Campo as we speak, I've already put down for a hummer H2 as the commuter vehicle.

 

The big difference with the early 80s and today are a few things:

 

1. 1980s houston had 70% of work coming from oil. today it's closer to 40%. still dependent, but not nearly so much.

 

2. in the early 80s they were predicting the price of oil to continue to rise. so they just explored and produced all day long. Today is a different story, as was evidenced by the article I posted from back in March, people did expect that the price was going to go down.

 

3. through the early 80s the highest price of oil was about $30, in 85, it was at $26. so much for the expected price increase. at it's steady state over the past couple of years, the price has been about $100.

 

4. 1986 saw the price of oil drop to under $10. over 60% drop from the price the year before. today it's 25% less than the steady state, might it fall more? Possibly, but it's most likely going to hover near the current until Saudi Arabia decides to stop producing so much, or until they run out, they won't push it much lower as they are very aware of all the Arab springs that have happened and are still trying to happen in the region.

 

Let's recap:

 

Back in the 80s, 70% of Houston market was based on oil, 60% drop in oil prices when they were predicting the price to increase.

 

Today is a bit different, we're looking at 40% of Houston market is based on oil, less than 25% drop and they were predicting the price to decrease.

 

and ostriches don't stick their head in the sand, it is a very inaccurate colloquialism.

 

Yes, things are much different than they were in the 80s. We've had downturns since the 80s. We can have one again. 

[Fortune]

Bp has announced forthcoming layoffs.

 

BP has been planning to downsize for quite some time now, before the price of oil decreased. They are creating a new US on shore company and thats the cause of the downsizing. When restructing takes place there are always some job cuts. Nothing out of the ordinary. This was going to happen regardless.

 

Also they are cutting some jobs in Alaska. no job cuts have been announced in Houston. 

[august948]

Bp has announced forthcoming layoffs.

 

I googled BP layoffs and came up with this...

 

Cancellation of a maintenance contract with KBR in Decatur, Alabama, resulting in 131 KBR employees cut.

http://www.al.com/business/index.ssf/2014/11/post_205.html

 

Sale of some assets to another oil company in Alaska, 275 jobs cut.  Mind you this was announced in September and it'd be my guess negotiations on the sale had been going for some time.

http://www.alaskapublic.org/2014/09/15/bp-plans-alaska-layoffs/

 

and this...

 

"BP expects to downsize as it creates new U.S. onshore business"...but, it's from MARCH (well before the price drop) and mentions how BP was hurt by the Horizon disaster.

http://www.bizjournals.com/houston/morning_call/2014/03/bp-expects-to-downsize-as-it-creates-new-u-s.html?page=all

 

 

For a company with 84,000 employees worldwide, the above are just normal business fluctuations.

[jgriff]

Yes, falling oil prices are not good news for Houston but we've been through it before and we'll get through it again. It probably won't be near as bad as the last time either. 

[swtsig]

Bp has announced forthcoming layoffs.

 

you realize those have little to do with the price drop and have been discussed for quite some time, right? they're actually giving back most of their space at three eldridge however i've heard BP's new onshore group may be taking a large chunk of it.

 

or is this just you being a constructive critic again?

[Subdude]

Copying article sent to me:

 

The oil region including Texas shows signs of economic decline, index says

Dallas Morning News – December 1 – by Sheryl Jean

 

The economy of the oil and gas region encompassing Texas, Arkansas, Louisiana and Oklahoma weakened in October more than any other part of the country due to plummeting oil prices, according to the latest U.S. Economic Index released today by Decision Analyst Inc. in Arlington.

 

For four years, the four states together (the U.S. Census Bureau’s West South Central division) have seen the nation’s strongest economy.

 

In Texas, the oil and gas energy drives much of the economic and employment growth. Texas’ energy-related employment was up 11 percent for the 12 months as of October.

 

The four-state area’s index score was 106, three points lower than in June. An index above 110 tends to signal an expanding economy; a value of 90 to 110 suggests a slow-growth economy; and near or below 90 indicates a contracting economy.

 

Oil prices have nosedived in that same June-to-October period. West Texas Intermediate crude oil sold for an average of $106 a barrel in June, compared with $84.40 in October and $69 today, according to data from the U.S. Energy Information Administration.

 

“Individuals employed in the oil industry and related industries are seeing hiring freezes, reductions in capital budgets, more mergers and other signs of economic stress,” Jerry W. Thomas, chief executive of Decision Analyst, said in a statement. Such stress, in turn, is “driving the economic index lower in the oil states.”

 

Oil industry analysts expect the four states to have at least 100 fewer active oil rigs by the end of the year, according to Decision Analyst.

 

My colleague James Osborne last week wrote an article about emerging signs that the Texas oil boom could be slowing. The Texas Railroad Commission last week reported that it issued fewer oil drilling permits in October than in September in a state where oil production has more than doubled in the last three years.

 

Despite the decline, the West South Central region still tied for the highest economic score in Decision Analyst’s October index — along with the New England, Mountain and East North Central census divisions.

 

Each month, the Decision Analyst market research firm surveys survey of several thousand U.S. households online. Its index is calculated from nine economic measurements using a sophisticated econometric model.

 

[mollusk]

Copying article sent to me:

. . . . . . . . 

 

Despite the decline, the West South Central region still tied for the highest economic score in Decision Analyst’s October index — along with the New England, Mountain and East North Central census divisions.

. . . . . . . . 

 

tl;dr version:  we're no longer fabulous, just in the top tier. 

[toxtethogrady]

That doesn't bark like diversification to me.  

 

That also doesn't bark reality to me. Though paired with the increase in dollar volumes between 2008 and 2013, it's very possible the oil sector expanded to almost double while the rest of the economy stayed static (because of you-know-what in late 2008).

 

This next year should be interesting. If oil stabilizes at $70 a barrel, I suspect most of the producers will be able to stay in the game, though they'll be taking home less profit for a barrel and won't have as much of a ripple effect on the local economy. But petrochemicals, already riding a cheap and plentiful supply of natural gas, will prosper. The collapse of gas prices in 2008 was supposed to have been a threat to gas producers (no jokes here!), but it turns out they're surviving and the petrochemical industry is building all kinds of capacity in the next few years. Within the overall hydrocarbon industry, there will be shifts as one sector becomes less prominent and others sectors gain. Maybe the demand will adjust such that the supply can catch up with it.

 

Meanwhile the need for 300,000 welders and engineers in the next few years does not appear to have changed.

[toxtethogrady]

Bp has announced forthcoming layoffs.

 

Does that reckon with BP spinning off certain of its North American assets into a Houston-based stand-alone company?