The severe business disruptions caused by the novel coronavirus pandemic coupled with the plunge in oil prices could lead to the greatest job losses in Houston since the depths of the last recession more than a decade ago, according to new forecast.
The employment forecast by Bill Gilmer, economist and director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business, estimates that Houston could lose as many as a net 44,000 jobs by the end of 2020, a dramatic swing from Gilmer’s forecast late last year that Houston would add nearly 60,000 jobs this year.
In comparison, Houston shed a net 3,200 jobs in 2015, the worst year of the last oil bust, and 109,000 jobs in 2009.
The 44,000 figure, which Gilmer described as his worst-case scenario, assumes a severe outbreak of COVID-19, the disease caused by the new strain of coronavirus, and the oil price war between Russia and Saudi Arabia keeping crude supplies plentiful and around $40 per barrel for several quarters.
Gilmer’s more optimistic forecasts, which assume a moderate outbreak of the virus in which 25 percent of the local population is infected, estimate jobs losses between 8,500 jobs and 11,600 jobs by the end of 2020, depending how far oil prices fall and how long they stay there. The worst-case scenario assumes a 30 percent infection rate and high mortality rate.
While social distancing restrictions in Texas have thus far been less stringent than in other states, local schools, bars and gyms are closed, and restaurants are restricted. Corporations have sent employees home to work, and gatherings are limited to 10 people or fewer.
“A good part of Houston’s payrolls are at risk,” Gilmer wrote.
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Difficulties shipping and receiving components, raw materials and other supplies will force temporary layoffs, Gilmer projects. The likely national recession won’t spare Houston either, since many local companies sell goods and services nationwide.
The sectors most affected by the pandemic will be hotels and air transportation due to travel restrictions; arts and entertainment, retail and food services due to social distancing; and goods sectors, including manufacturing and trade, due to labor shortages and supply chain problems.
Gilmer projects that 1.5 million workers, or nearly half of Houston’s workforce, are at risk of job losses in the their sectors, but added that “we have no way to know what changes will occur in the next few months.”
Oil price war
Earlier this month, Saudi Arabia and Russia decided to flood the global market for crude oil even as global demand tanked due to the pandemic. Oil prices have plunged 48 percent in March. The price of oil settled at $23.36 a barrel on Monday.
The oil price war couldn’t come at a worse time for Houston. In the most optimistic case of an end to the oil price war, Gilmer’s forecast assumes a brief period of very low oil prices and then quick resolution to the dispute at the June OPEC meeting that results in oil prices returning to $55 per barrel.
A worse scenario assumes that the oil price war rages on, and the result is eight quarters of oil at $40 per barrel. In that case, combined with a medium outbreak of COVID-19, job losses would be at least 11,600 this year, Gilmer said.
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U.S. oil and gas producers tend to do well when the price of oil is above $55 per barrel. While low oil prices mean cheaper gasoline prices for consumers, prolonged prices below $50 per barrel are likely to result in hordes of energy sector layoffs in Texas and bankruptcies of small- and mid-size U.S. oil and gas companies.
Houston lost 74,300 oil-related jobs during the bust years of 2015 and 2016. The industry could experience fewer job losses this time, but largely because there are fewer jobs. The sector recovered only about one-third of the jobs it lost during the two-year energy downturn.
“This sharp drop in the oil prices is a gift to the U.S. economy and a boon to the pocketbook of American drivers,” Gilmer said in his forecast. “But for Houston it simply adds to the economic damages already inflicted by COVID-19.”
When will it end?
The fourth quarter will likely mark the trough of the recession, Gilmer projected, and the economy will begin to improve in 2021, with moderate job growth expected by the end of the year.