Oil price volatility and Houston's employment and housing markets

Houston's economy is heavily dependent on the oil industry. Thus, when oil prices decline, the fortunes of Houston's economy should be expected to decline. In economics, the concept of stickiness applies. This means that the price of goods will move differently in the short run vs. The long run. Things like jobs and housing are generally sticky, so it would not be expected that the economy of Houston would change much, based on a short-term change in the price of oil. People will still have their jobs, and thus would still keep their houses. But when the change in the price of oil persists over a longer period, companies will begin to adjust, bringing about what should be noticeable changes in both the job and housing market. The GDP will adjust a little bit faster, given the oil values are going to affect the GDP directly. At this point in spring 2015, the lower oil prices have persisted for several months, which means there should be changes to the Houston economy expected.

Unemployment

Persistent low prices will be reflected in the job market. Companies will seek to remain profitable even with lower revenues, and that will typically mean cuts to any sort of discretionary employment. Technical workers without jobs will move to seek them out, so job losses in the oil sector in Houston could result in permanent loss of workers, something that would not reflect in local unemployment figures. But anybody who stayed in the area would show as being looking for work, and thus in the unemployment figures. At this point, stories about layoffs are starting to appear in the press, lending some credence to the notion that oil companies are scaling back their operations (Schneider, 2015).

The Federal Reserve Bank of Dallas estimates that a 50% drop in oil prices will extrapolate to a 1.2% drop in Texas employment, and Houston will see a disproportionate amount of that decline, which amounts to 140,000 jobs. Those jobs will be spread out among sectors, even when they are concentrated in energy (Schneider, 2015). The current data shows that the unemployment rate in Houston-Sugar Land -- Baytown is 4.3%. One year ago, with much higher oil prices, the unemployment rate was 5.5% (St. Louis Fed, 2015). As oil prices fell through the autumn of 2014, so too did the unemployment rate in the area. This mirrored the unemployment rate trend nationally, rather than demonstrating any strong local effects. Models would not have predicted any differences in unemployment rate trends in the short run, and these would only start to show now. Again, however, there is the extenuating factor that many people, if they lose their job in Houston and cannot find a new one quickly, will simply leave Houston.

Conclusions

The Houston economy is to this point only starting to see some negative effects of falling oil prices, as was predicted. The data on unemployment is inconclusive at best, and the housing market impacts are not likely to be felt for another 6-12 months. The GDP data has not been recorded yet, but major purchases like homes and vehicles have declined, indicating that there may be some negative effects seen already on the Houston economy from the falling oil prices. Only when declining energy employment starts to affect other industries, however, are significant economic declines expected to take hold.