Houston facing recessionary strains from low oil price

Federal Reserve Bank of Dallas shows city bouncing between growth and contraction.
By Daniel J. Graeber  |  June 17, 2016 at 6:27 AM
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DALLAS, June 17 (UPI) -- Lingering strains for a weak oil economy means the Texas city of Houston may be on the brink of recession, a report from a federal reserve bank said.

Houston hosts the headquarters of dozens of national and international energy companies. Early this year, when crude oil prices were trading below $40 per barrel, Danish energy company Maersk Oil shut down its office in the city, laying off about 60 people.

The Federal Reserve Bank of Dallas said in a regular review of the regional economy the pressure from low oil prices was spilling over to other parts of the economy, with banks in southern U.S. states facing increasing risk.

While outperforming its peers elsewhere in the country, the Federal Reserve Bank said profitability is on the decline. The city of Houston, meanwhile, is facing prolonged headwinds following fits and starts over the last several quarters.

"It's unclear whether Houston has entered a recession, although it's a close call, according to the Houston Business-Cycle Index, which reflects employment, unemployment, real retail sales and wages," business economist Jesse Thompson said in an emailed statement. "The index showed the economy contracted during second quarter 2015, then returned to growth briefly before retreating again."

Wages for hourly workers, already at a stand-still across the country, dropped below the national average for the first time in four years for Texas. High-wage jobs in the energy sector are vanishing, leaving new labor growth tied to lower-paying industries.

The latest report from the Federal Reserve Bank of Dallas is somewhat more pessimistic than a report from early June. While growth may be at least a year away, the bank said earlier there's little chance of a formal recession for Texas.

On the corporate front, the bank at the time said many consulting and legal firms were reporting "a lot" of restructuring in and around the Houston metropolitan area, with accounting firms reporting good momentum despite the decline in the region for energy industries.

Drilling contracts, meanwhile, continue to drop and many firms, notably the smaller ones, told the bank they are still facing significant market pressures even as crude oil prices hold above $45 per barrel.

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