Economic Development in the Houston Bay Area
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Economist Dr. Bill Gilmer reports that times are good in Houston


    Dr. Robert W. (Bill) Gilmer delivered an “Annual State of the Economy Report” to members of the Bay Area Houston Economic Partnership during a lunchtime meeting held March 5, 2014, at Landry’s restaurant on the Kemah Boardwalk.
    Gilmer is director of the Institute for Regional Forecasting in the University of Houston’s Bauer College of Business and a noted national economist.
    In looking at the big picture, he stated, times have been good in Houston. Since 2003, Houston has added about 420,000 jobs.  “We did suffer from the financial crisis and lost about 100,000 jobs. Those jobs were back by the end of 2011. In 2012, we added another 100,000 and about 80,000 jobs in 2013 according to preliminary numbers,” Gilmer reported.
    He added that the price of oil is what always separates Houston’s economic performance from the rest of the country. An unprecedented boom in oil and gas exploration has shaped Houston’s economy for a decade. Energy has driven Houston’s growth in recent years, especially the upstream drilling cycle. Gilmer said, “It is no exaggeration to call this the biggest American oil boom ever.”
    Since 2007, drilling has shifted from 20 percent horizontal drilling to over 60 percent. Gilmer explained that this is important to Houston service companies, because the horizontal drilling and fracturing is far more resource intensive than a typical vertical well, creating greater revenues. Most forecasts, he noted, point to a pick up in exploration and production expenditures by about seven percent in 2014 compared to 20 percent per year increases from 2002-2012.
    Oil prices are critical to the health of both the U.S. and global drilling markets.  Price needs to remain above $65-$75 per barrel to make this work, Gilmer said. Since 2003, Houston’s ability to grow faster than the U.S. has been its ability to reach past a slow-growing U.S. economy and benefit from emerging markets. According to Gilmer, the growth of emerging markets has helped Houston in two ways. First, it provides a market for our exports, and second, it keeps oil prices high. Houston passed New York in 2012 to become the nation’s leading exporting metro area. Eighty percent of the exports are made up of crude oil, oil products, petrochemicals, and machinery.
    However, Gilmer stated, the price of oil depends on emerging country growth, and the emerging nations are looking a little tired. Growth slowed significantly in these countries over the last couple of years: China from 10 to 9 to 8 and to 7 percent; India from 9 to 8 to only 3 percent last year; Brazil from 6 percent in 2010 to less than one percent in 2012.  According to the International Monetary Fund, however, growth  is expected to reaccelerate. The latest IMF forecast for global growth sees a soft-landing for world economic growth, moving back to  above the long-term trend of 3.5 percent to about 4 percent in 2014 and beyond. For oil, in particular, the IMF sees price above $85 per barrel through 2018. This is definitely good news for Houston.

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