Houston Economic Indicators

October 02, 2024

Houston's labor market rebounded in August, but the unemployment rate ticked up to 4.5 percent. Inflation in the metro area increased slightly in August but is still much slower than at the beginning of the year. The food and shelter components of inflation increased, while energy prices continue to fall. Vacancy rates for industrial real estate continue to rise in the second quarter, while vacancy rates for office space declined slightly during the same period. Rents for commercial real estate space have leveled.

Labor market

Over the past three months, employment in Houston grew an annualized 1.3 percent or 11,174 jobs (Chart 1). After two weak months of payroll data in June and July, August growth was very strong. From July to August, employment grew 10.3 percent annualized. This is likely the result of a rebound in activity after Hurricane Beryl and deferred hiring.

Job gains in the last three months were concentrated in trade, transportation and utilities, construction, and financial activities. Trade, transportation and utilities - the largest sector of Houston's labor market - grew an annualized 2.8 percent (up 4,886 jobs) from May to August. Construction had the strongest growth, expanding 11.1 percent (6,286 jobs) on an annualized basis over the same time period. Growth in construction was broad based across subsectors but particularly strong among specialty trade contractors. Employment in financial activities grew an annualized 5.4 percent (2,440 jobs) from May to August. Leisure and hospitality was a drag on growth, contracting an annualized 2.5 percent (down 2,274 jobs).

Year over year, Houston's labor market is balanced and growing near trend. Employment grew 1.8 percent between August 2023 and August 2024. Mining and construction saw the strongest year-over-year growth. Anemic growth in professional and business services and a slight contraction in financial activities weighed on the metro area's overall performance.

Houston consumer prices

Local inflation returns to prepandemic levels

Inflation in August, measured by year-over-year percent change in the headline Houston consumer price index (CPI), came in at 1.7 percent (Chart 2). This is up slightly from July's 1.6 percent but much lower than the 4.2 percent rate of inflation in January. The nation's inflation rate in August was 2.5 percent.

Energy prices in Houston declined 7.1 percent annually in July. In the nation, energy prices are also falling, albeit at a slower pace, down 4.0 percent. Energy costs such as fuel and oil don't just hit consumers at the pump, but energy costs also feed into price changes across the entire supply chain.

Components of CPI show upticks in food, shelter

Food cost inflation in Houston has risen the past two months. In July, food prices rose 2.5 percent from a year ago (Chart 3). June's reading came in at 2.2 percent and May's reading was 1.9 percent. In addition, shelter inflation is still elevated. In July, shelter inflation from a year ago was 3.5 percent. The CPI's measure of shelter inflation tends to lag actual market rents by 12 to 18 months.

Commercial real estate

Asking rents increase in second quarter as vacancy rates decline

The vacancy rate for office space in Houston was 24.2 percent in the second quarter of 2024 (Chart 4). This is a slight decrease from the previous quarter's 24.3 percent, and vacancy rates are exactly flat compared to the second quarter of 2023. Net asking rent ticked up from $20.60 per square foot in the first quarter to $20.81 per square foot in the second quarter of 2024. Rents one year ago were $20.82 per square foot. After adjusting for local inflation, real net asking rents for office space have declined 2.5 percent over the past year.

Office vacancy rates have been rising in Houston since the 2014 oil bust, but nominal rents have remained largely flat as a result of a glut of supply and restrained demand.

Industrial vacancy rates continue to rise while rents remain largely flat

The vacancy rate for industrial real estate in Houston rose to 6.1 percent in the second quarter of 2024 from 6.0 percent in the first quarter (Chart 5). One year ago, the vacancy rate in the metro area was 5.1 percent. As vacancies rise, net asking rents have stabilized. Between the first and second quarters of 2024 nominal average rent decreased from $9.27 per square foot to $9.17. That's little changed from the second quarter of 2023, at $9.14 per square foot. Adjusting for local inflation, real net asking rents for industrial space have declined 2.1 percent over the past year.

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