Houston Economy Contracting at a Rapid Pace – Oil Surplus Intensifies Virus’s Impact

(Houston, Texas) – According to Houston area supply chain executives, both goods and services producing activities in Houston contracted further during April. Overall economic activity is now contracting at its fastest rate since the ISM-Houston Business Survey began in 1995.

The Houston Purchasing Managers Index fell almost 6 points to 34.6 during April. Two of the three underlying indicators that have a strong direct correlation with the economy, sales/new orders and employment, are now pointing to significant contraction. The third, lead times, is giving a contradictory signal of near term expansion, however, it is believed that higher lead times are currently being caused by supply chain disruptions rather than a supply shortages. The sales/new orders index fell 9 points to 21.2, its lowest level since our survey began. The employment index fell 11 points to 30.0, approaching the lows seen in the great recession. The underlying indicator that has the strongest inverse correlation with economic activity, finished goods inventory, rose almost 2 points to end above neutral.

The three-month forecast for the Houston PMI fell an additional 2.3 points to 41.9. This was primarily driven by degradation of the sales/new orders and prices paid indices, with a positive offset allowed by the increasing lead times index. These indices have a strong direct correlation with economic activity at the three-month forecast horizon. Note that this drop would have been greater if not for the unusual impact of supply chain restrictions on the lead times index.

On an industry specific basis, no sector reported expansion overall. Oil & gas, construction, manufacturing, mid-stream operations, professional services, and health care all reported significant weakness. From a three-month forecast standpoint, modest improvement is predicted if the effects of the COVID-19 virus moderate quickly.

Click here to see the online version and here to see the PDF version of the full report.

Posted in Houston Business Reports and tagged , , .

Leave a Reply

Your email address will not be published. Required fields are marked *