When Economist Patrick Jankowski spoke a year ago at Partnership Lake Houston’s annual economic outlook luncheon, it was a virtual lunch-in and Jankowski ended his prognostication about the upcoming economic year hoping, if he were invited back, that the partnership would see him in person.
Jankowski was invited back, and the partnership held their economic outlook luncheon in person almost a year to the day, Feb. 22, at the Humble Civic Center.
His forecast for the rest of the year was mostly optimistic.
“This year is our best job growth, 151,800 jobs added. You would have to go back 40 years for this kind of job growth. In fact, we’ve only had growth of more than 100,000 jobs over seven years in the last 40 years,” Jankowski said.
Jankowski is a regional economist and senior vice president of research at the Greater Houston Partnership. He joined Stephen A. Holbrooke, an associate managing director in the financial advisers division of MFS Investment Management, in charting the Houston region’s financial health over the next year.
And how is the Houston area doing?
“Of the 20 metro areas across the nation, we are right in the middle,” Jankowski said. “Dallas and Phoenix, for example, are doing better than us in the jobs market, but you will find Los Angeles, San Francisco and New York losing jobs. In New York, nobody wants to commute on the subway. In all three of those cities, you can’t afford to live there.”
“The Houston region is doing well,” he said. “There was a thought that, because we are an oil and gas town, energy would hold us back. That hasn’t happened, especially as oil prices continue to rise.”
“What is holding us back is three areas: construction, manufacturing, which is mostly oil, and wholesale trade,” Jankowski said. “Construction was put on hold during the pandemic, but we are starting to see it pick back up.”
Manufacturing was held back because, in Houston, most of it is connected to the oil and gas industry, Jankowski explained, but, as the industry picks up, they will need the equipment and pipelines needed to get and refine the oil, which will lead to manufacturing rebounding again.
Jankowski’s positive outlook, a strong economy, however, could be upended by six risks:
Workers — Half of America’s companies need workers. There are 11 million job openings.
Inflation — It is now the highest in 40 years and there is no letup. Businesses don’t know how much to charge because they don’t know what materials will cost. Housing costs can be a big threat when rent is up, and mortgage rates are up. That all adds to inflation.
Consumer sentiment — This is a big influencer. A strong economy depends on how Americans feel.
Geopolitical tension — We can see it playing out in Ukraine now.
As he concluded, Jankowski pointed to his favorite PowerPoint slide, the Purchasing Managers Index, an economic indicator based on surveying the purchasing managers of private sector companies.
“When you look at this chart,” Jankowski said as he pointed to a slide showing lines going up, “you can see that purchasing agents are buying and that means that the economy is expanding and that is good for the economy and consumers.”
Jankowski predicted that companies would add jobs throughout the year and the economy will return to its earlier level of employment by the end of this year.
“Even with inflation and higher interest rates, the economy looks good,” Jankowski said.
The luncheon began with Stephen Holbrooke pointing out the evolutionary change occurring to America’s economy.
“There is an evolutionary shift in how we can manage our economy,” said Holbrooke who holds a degree in economics from Texas A&M. “There is a concern about Russia going into Ukraine because of the impact on oil and gas and commodities. Russia supplies 20 percent of the world’s wheat and 40 percent of the natural gas that goes into Europe.”
“Inflation is a concern and so is the concern about the supply chain. There are 2100 Fords sitting on a ship waiting. Think about it. A gas-powered automobile requires hundreds of chips, but an electrical car requires thousands of chips,” he said.
Holbrooke believes the inflation rate will be reduced but it won’t go back to the two percent of the last 10 years but rather four or five percent.
One major trend that Holbrooke forecasts is an investment in research and development.
“Years ago, you remember, companies managed supplies ‘just in time.’ Now it is just in case,” he said.
Holbrooke pointed out that young Americans, ready to buy, are priced out of the housing market. Major growth companies such as Amazon and Google, are facing higher interest rates. And 2.4 million workers permanently left the workforce since 2020, most in the service industry.
“We saw the stock market make a 10 percent correction, but the market is still up,” he said.
“If you own your own business, you’ll have to pay your employees more,” Holbrooke said. “Inflationary pressures need to be worked out, but Corporate America is in good shape. The best can weather the storm and are recession-proof.”
The luncheon began with Trey Hill, financial adviser with Edward Jones, introducing Holbrooke by pointing out that the day was unique — 2-22-22 and pointing out that the day’s temperature was 71 which is 22 Celsius, “ … plus, 22 is the number of pounds I gained during the pandemic,” Hill said.