March 10, 2016
The most timely and comprehensive data on the Houston economy is the payroll employment report. This monthly release tracks overall job growth, but also provides significant industrial detail on the local economy. Always an essential tool for monitoring local economic trends, it takes on added importance in times of economic stress such as Houston is currently experiencing.
On March 4, the Texas Workforce Commission issued revised payroll employment figures for the Houston metropolitan area. This is a significant reworking of past estimates, extending back to early 2014 for most industries. Table 1 shows that total 2014 growth was revised up from 104,700 new jobs measured December to December, to 117,800 jobs. These impressive numbers almost certainly mark the last hurrah of the shale boom in Houston, a period of strong, oil-driven job growth that began in 2004.
Table 1. Revised Data Show Very Slow Growth in Houston Despite the Turmoil in Oil Markets
The overall revision to 2015 total employment was small, pushing job growth down to 15,200 jobs from the prior estimate of 23,200. These headline changes are in line with expectations that a combination of strong U.S. expansion and an eastside petrochemical construction would be just enough to keep Houston growing – even in the face of low oil prices. That fundamental story remains intact.
Why revisions?
The payroll employment data reported for Houston are part of the Current Employment Statistics Survey carried out by the Bureau of Labor Statistics (BLS) in conjunction with state agencies such as the Texas Workforce Commission. The initial report is an estimate of the number of business and government employees on payrolls that are covered by unemployment insurance, and as such it does not count farm workers, the self-employed, household workers such as housekeepers or nannies, or unpaid family members.
The monthly report is based on a survey of 146,000 businesses and over 600,000 worksites across the nation, and it is designed to provide geographic and industrial detail on employment, hours, and earnings. The sample begins to look much smaller, however, once we realize that it is meant to cover 50 states and 450 metropolitan areas, and smaller again if industrial detail is considered. In Houston, for example, employment detail is provided for 77 individual sectors.
The revisions to the data stem from the fact that we begin with an estimate of the number of workers eligible for unemployment insurance that is based strictly on a sample of employers. But over the following 6 or 7 quarters, administrative records slowly accumulate that will give us a very accurate count of the number of payroll employees, so the initial estimates are ultimately replaced by a definitive number. The first post-sample count is typically available about 12-14 weeks after the initial published estimate. In early March of each year, BLS and the Texas Workforce Commission stop the sampling, look back at the new administrative records that have accumulated over the prior 12 months, revise the prior sample-based estimates, and restart the sampling from a newly revised employment level. These revisions are often referred to as the annual benchmarking of the payroll employment data. Revisions can be substantial, with times of economic change often bringing the largest revisions, but revisions should move data toward a more accurate count of payroll jobs.
Industry Detail
The fact that Houston is growing slowly might leave the impression that there is simply little economic stimulus at work. Nothing could be further from the truth. Three major events are shaping Houston’s economy right now — two positive and one negative — and growth becomes a question of their relative power, and where the net differences among them finally settles. First, we certainly have the worst drilling downturn since the 1980’s, and by some measures it is the worst oil bust ever. Second, unlike the typical drilling collapse of recent years, this one is not accompanied by U.S. or global recession. Perhaps two-thirds of Houston’s job growth since 1990 has come from broad national economic trends, and the U.S. business cycle continues to work in our favor. Finally, in east Houston, the downstream refining and petrochemical industries are experiencing the greatest construction boom in the history of the Texas and Louisiana Gulf Coast with more than $50 billion in projects underway in Houston alone. Another 10,000 Houston-based construction workers are expected to be hired in 2016.