Maybe if everyone chants “This time is different than the 80s!” loudly enough it will have the talismanic effect we all hope it will.
For five years, a domestic oil boom has created a bounty of high-paying jobs and a general climate of prosperity here. But as the rest country starts to see signs of economic revitalization, many of Houston’s biggest companies are slowing down. Both phenomena are due at least in part to the precipitous slide in the price of crude.
Halliburton, Schlumberger, Weatherford and Baker Hughes have dominated headlines with news of their layoffs, but the vast array of nonenergy businesses that feasted on their good fortune also are coming to the realization that the boom may finally have run its course.
That was clear in a series of interviews last week, in which even the most sanguine business owners agreed things could change dramatically over the next several months.
A financial planner whose customers include oil and gas executives said he’s advising clients to start “hunkering down.” A prominent hotelier is warning managers to get ready for “some belt-tightening.” A high-end real estate broker predicted builders could soon be offering incentives – “closing costs, appliances, upgrades” – in a market that only recently had homebuyers writing plaintive letters to sellers and paying well over asking price to get their second- or third-choice house.
“Nobody should be afraid, but people should be concerned,” added Patrick Jankowski, senior vice president of research at the Greater Houston Partnership. “We will feel the impact, even outside of energy. We just haven’t felt it yet.”
By almost every metric, Houston’s economy flourished during the domestic energy renaissance. The biggest impact has been jobs: nearly 485,000 added to the region in the last five years, according to Jankowski. The impact of those workers, whose wages are about double the local average, extends far beyond the energy sector itself, as they buy homes, purchase cars and spend money around town.
Optimists look to the medical, shipping and logistics industries to offer a cushion. But it’s naive to believe that if Houston thrived during the energy boom, it won’t suffer as the sector struggles.
Bill Gilmer, director of the Institute for Regional Forecasting at University of Houston, noted that although Houston’s economy has diversified since the oil bust that rocked the region in the 1980s, about half the region’s economic activity is still affected by the oil industry.
“I don’t think we have seen any significant diversification,” he said.
If the price of crude oil settles at $50 a barrel, the city would narrowly avoid a recession. But at $40 it won’t, said Mark Zandi, chief economist at Moody’s Analytics, in an interview earlier this month.
Doesn’t that make you feel better? I don’t really have anything to add to this. For what it’s worth, I agree that this time around, it likely won’t be as bad as it was before. That’s not going to be much comfort to anyone who’s been or going to be laid off, or whose business will suffer, but it’s something. And if you’re one of those people who once sported a bumper sticker that said “Lord, please send us one more oil boom, we promise not to piss it away next time”, well, I hope you feel like you’ve lived up to that.