Presented by Beacon Economics
Welcome to The Regional Outlook Texas, an analysis and forecast for two of the state’s largest regional economies. Each quarter, find updated data that goes beyond the state and national level to deliver a current snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
There was hope that the economic effects of the first pandemic shutdown in March 2020 would be fleeting. This was especially true for a thriving metropolis like Houston, whose sprawling urban character was initially seen as a boon in the fight against the coronavirus. However, almost a year later, the data shows that virtually no metro region was spared the human and economic devastation brought on by COVID-19. Even though the region wrapped up the tumultuous year with gloomy looking numbers, there is light at the end of the tunnel. New cases of the virus have continued to fall while vaccinations continue to rise, and this has led to the easing of virtually all restrictions placed on businesses by the government. This means that economic activity will pick up speed as the year advances, with momentum accelerating throughout the summer and into the fall. Nonetheless, small business across the metro continue to feel the pain of economic fallout.
Houston’s Labor Market Recovery Continues
The greater Houston area sustained significant damage in March and April of 2020 when the outbreak of the pandemic, and the government response to it, caused employers to shed roughly 330,000 jobs across the region. This amounted to 10% of jobs in the Houston-The Woodlands-Sugar Land region. Though many expected a quick recovery, by the end of 2020 only about 163,000 jobs had come back, representing only 49% of all jobs lost at the outset of the pandemic. This means there are still roughly 5.2% fewer jobs across the greater Houston region than there were prior to the pandemic. The region’s labor market fared a little worse than the state, where payroll employment is only 3.9% lower than pre-pandemic levels. In terms of unemployment, the Houston region still suffers from 8.3% unemployment – a drop from a 14.7% peak in April 2020, but still higher than its 3.8% pre-pandemic level. The greater Houston area’s unemployment rate is higher than Austin-Round Rock (5.4%), Dallas-Plano-Irving (6.6%), Fort Worth-Arlington (6.8%), and the state (7.2%).
At the industry level, the largest gains in December took place in the Professional/Business sector, which added 3,200 jobs. This was followed by Education/Health, which added over 1,500 jobs. In terms of employment numbers relative to February, the best-recovered industry in the greater Houston region was Transport, Warehousing, and Utilities, which reported jobs at 104% of February 2020 levels. Meanwhile, the Arts and Entertainment sector remains the least-recovered industry, with jobs standing at 64% of February 2020 levels. Accommodation and Food was the second worst, with payroll employment at 88.6% of February 2020 levels. The losses in Accommodation and Food account for 20.7% of all job losses in the greater Houston area since the onset of the pandemic, an indication of just how essential the recovery of this industry is to the recovery of the region as a whole.
Small Businesses In Hospitality Continue To Struggle In Houston Metro
Midway through the first quarter of 2021, the Houston region is faring about the same as the rest of the state in terms of small business reopenings. The latest data provided by Opportunity Insights’ Economic Tracker suggests that the current level of open small businesses is 34% below pre-pandemic levels. (Note: ‘small business’ is defined as those with annual revenues and/or employees below thresholds set by the Small Business Administration. These vary across industries.) Although this might seem like a sharp blow, it is actually a positive number relative to many of the state’s major metros, including San Antonio and Austin, each of which reported levels in February 2021 38% lower than January 2020 levels. Additionally, the greater Houston area has performed about the same as the state where the number of open small businesses hovers around 33% less than pre-pandemic levels.
Of course, the surge of coronavirus cases in late 2020 impacted different industries at different rates. Across the broader Houston region, the Leisure and Hospitality sector continues to struggle the most and has seen a roughly 56% drop in open small businesses compared to January 2020 levels. This is slightly worse than Texas as a whole, which has seen a 54.1% drop in Leisure and Hospitality small businesses relative to a year ago. On the other hand, the Transportation sector continues to be the best-performing sector in Houston, with the latest data suggesting only a 26% drop in open small businesses compared to a year ago. Meanwhile, open small businesses in Professional/Business report a 28% drop relative to a year ago, while those in Education and Health Services report a 32% drop.
In terms of revenue, small businesses in the Leisure and Hospitality industry have seen the most substantial fallout. At its best, revenue for Leisure and Hospitality hovered around 42% less than pre-pandemic levels, a figure reported at the beginning of June. By mid-December 2020, however, revenues had plummeted to 84% less than pre-pandemic levels. Since then, the picture has improved slightly, with the latest data suggesting revenues in Houston’s Leisure and Hospitality sector at 71% less than pre-pandemic levels. As of February 2021, no other industry comes close to this level of decline. Revenues in Transportation are roughly 38% lower than pre-pandemic levels, while those in Professional Services and Education/Health are 24% and 34% lower than their pre-pandemic levels respectively.