Houston is recovering from the oil bust. Didn’t consumers get the memo?
Auto sales in Houston, whose economy had been battered by the oil bust, should be turning around from their Financial-Crisis-type levels, but they just got worse: New vehicle sales plummeted 26% in June from a year ago, with car sales getting totally crushed and even trucks sales plunging.
For the 12-month period through June, auto dealers sold 284,085 new vehicles, down 16.8% from the same period last year, and down 25% from the levels in late 2015 and early 2016, before the oil bust began clobbering consumers and their desire to buy a new car or truck. Sales are now back to the same level as in January 2009 (chart by the Greater Houston Partnership, red marks added):
The thing is, on paper, Houston has been recovering from the oil bust that has, at least in Texas, once again turned into an oil-drilling boom, with billions of dollars once again flowing from Wall Street into shale oil plays, particularly into the Permian. The Texas rig count soared to 463 operating oil-and-gas drilling rigs in the week ending July 7, according to Baker Hughes, up 130% from a year ago!
In line with this renewed activity, the Houston Purchasing Managers Index, at 51.8 in June, has been in growth mode (above 50) for months, according to the Greater Houston Partnership. In June a year ago, at 43.7, it depicted a sharp contraction.
Building contracts, which had collapsed last year, are recovering, with total contracts up 47% year-over-year in May, and with non-residential building contracts skyrocketing 121% from the depressed levels a year ago.
Home sales are up 8% from a year ago, the median price is up 3%, but listings are up 16%, indicating that there might be supply pressures coming down the line.
Employment was up 1.5% year-over-year in May. Even the goods-producing sector (which includes oil and gas) eked out a gain of 0.3%. Service employment rose 1.8%. But the unemployment rate inched up to 5.1%.
So why are car and truck sales still crashing?
Houston-area auto dealers sold 19,830 new vehicles in June, down 25.9% from June a year ago, according to TexAuto Facts, published by InfoNation, and cited by the Greater Houston Partnership. The trend is accelerating: for the first six months, new vehicle sales had dropped “only” 10%.
Granted, the new-vehicle industry in the US has been in a recession. In the US overall, new vehicle sales declined 3% in June, the sixth month in a row of year-over-year declines. They’re down 2.1% year-to-date despite record incentives that desperate automakers threw at the market. But Houston sales are just getting crushed.
Car sales in Houston plunged 36% year-over-year, and even truck sales (pickups, SUVs of all sizes, and vans) plunged 19.8%. And this in “Truck Country”: In Greater Houston, 68% of new vehicles sold were pickups, SUVs, and vans. So the plunge in truck sales is a sign of major consumer stress.
Year-to-date, car sales in Houston are down 18.5% and truck sales are down 5.1%. Again, signs that the trend accelerated in June.
OK, car sales are crashing around the country as consumers are switching to trucks and SUVs, with a growing selection of smaller SUV replacing cars. Nationally, car sales in June dropped 13.2%, but truck and SUV sales rose 4.1%.
So what’s happening in Houston?
“The decline comes after dealers experienced the strongest sales month of the year in May,” the Greater Houston Partnership said in its note. May had been the month of hope. You can see it in the tiny uptick for May in the chart above. And it vanished.
This kind of collapse in auto sales in Houston leaves me somewhat baffled. I have no data on used vehicle sales for Houston. But given the drop in used wholesale prices, the surge in supply, and the record sales pace of used vehicles in the US this year, used vehicles in Houston likely did much better than the new side.
There are about 175 franchised new vehicle dealers – not counting the independent used car dealers – in the Houston area that employ about 30,000 people, according to the Houston Automobile Dealers Association. They’re all selling used vehicles that they purchase at auctions around the country. These are vehicles from rental car companies or leasing companies. It’s a profitable business and can keep these car dealers afloat. Otherwise, a 25%-plunge in new vehicle sales would crush them.
But it doesn’t explain the crash in new vehicle sales. Why would home sales jump and car sales collapse? Why would truck sales crash?
Here’s another tidbit on that conundrum. The data says that “asking rents” in multi-family buildings in Houston have been surging in the double-digits. That too contradicts the crash in new vehicle sales. But “Todd,” an astute observer in Houston, noted in a comment on WOLF STREET that this may not be the case with effective rents (which include incentives such as 2-month free):
I had to rent in 2015 when my house was destroyed in a flood. There were no deals in Houston at all. The price was the price. 12 months later (July 2016), my apartment complex (inside the Loop, high end) gave, without asking, a 20% reduction in rent.
This year, I went shopping. Again, inside the loop, high end. All of them, not some, not most, but all offered two months free and waived app fees.
More apartments are coming on line that were being planned in 2014-2016. I chose an apartment last month. I still get calls, emails every other day from some of these apartment complexes asking if I have made a decision….
So maybe the recovery in Houston looks good on paper, and it may be strong from catastrophically depressed levels in some sectors, but consumers in Greater Houston are not feeling flush, and they’re not in the mood to splurge on new vehicles, and maybe not on a slew of other things.
In the US, the next recession will be tougher for workers and rougher for the economy. Read… Why the Next Recession will be a Doozie for Consumers
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It’s simple. People have shifted their purchases to Amazon only: http://www.cnbc.com/2017/07/12/amazon-prime-day-breaks-record-event-grew-by-more-than-60-percent.html
Once Amazon starts selling cars, which is very soon I would think given they are in pretty much everything, Carmageddon is probably over.
Wrong.
People are just too indebted and salaries are stagnating. Not to mention rising hethcare costs and real estate sucking the blood of the economy.
It is not a cultural shift, that is an economic issue.
Adding up all of the things that I pay for and get no enjoyment or value from, like health insurance, life insurance, car insurance, income taxes, property taxes- is done right depressing. Probably about 40% of my pretax income
Many states have laws requiring dealerships be in the state. Service and lemon law protection, finance regs, etc. I doubt Amazon wants to take on what CarMax and AutoNation have already built. Car dealerships have major league clout, ask GM and the Obama administration about it.
That chart looks like a sine wave and what comes next does not look good. That is if you manufacture, sell, or finance new vehicles.
If people don’t have money for vehicles them they are cash or credit strapped
It means it’s gonna impact other sectors as well
I live in the greater Houston area. We are overbuilt in residential/commercial real estate. There are still old dealership buildings that have sat vacant for decades. When will they demolish these eye sores? People here are oblivious to what is going on and people simply do not care. Sad really as I want to help people.
A quote by the character ‘ Jesse ‘ from the movie ” A River Runs Through It ”
” Why is it the people who need the most help .. won’t take it ? ”
It took me a good part of 60+ years being on this planet to get my head around that one … but once you do … suffice it to say life becomes just a little less … confusing , frustrating .. and stressful
Would someone mind explaining to me ;
With oil and gas prices being so low even during major holiday/travel weekends
A major worldwide glut of oil reserves due both to ever increasing lack of demand along with massively increasing inventory
OPEC once again waffling on their promise to cut back oil production
etc – et al – ad nauseam
Why in the name of all things common sense does Wall Street continue to invest in even more drilling / production / refinement .. and dare I say it at the risk of drawing in some fire .. ludicrous pipelines that serve no purpose benefitting the US not one iota other than creating a few short term contract jobs ?
And why on earth is anyone assuming Texass and Houston in particular to be outta the weeds and on the road to …. recovery ?
Seems to me where Texass really is … is on the road to perdition .
You mentioned the key words: “common sense.”
Wall Street isn’t governed by common sense. It operates on a logic of its own. Which is OK, since it’s doing it with other people’s money.
:-]
LOL that’s funny I was about to scroll down and make a similar comment…great minds think alike or fools seldom differ?
We live in a [western] world wherein rational, sensible people have been largely sidelined it seems (‘losers’, ‘geeks’, ‘nerds’ etc. etc.) – not needed in a system which requires and celebrates reckless risk-taking and unlimited greed and consumption.
This is a feature of decadence.
I live in hope that people with ‘common sense’ (maybe a misnomer) may one day come to be valued again.
Reading suggestion(s)
John Lukacs’s ” At the End of an Age ” … ” Suffice it to say though our voices are currently being suppressed .. we are not alone … far from it
What? So tech people are not “loser”, “geeks”, “nerds”, etc, etc. As one of them, I feel insulted :)
It’s not just the western world. It’s all the world. Most if not all people aspire to living with no consequences for their actions.
At the end of the day, it’s not the Fed, Wall St, etc. It’s human beings. It will always be like this FOREVER.
Some of us haven’t been sidelined from the prevailing contemporary way of living.
Rather, we have deliberately built a way of life which maximizes independence from it.
Are humans smarter than yeast?
Kinda thought that would be the answer ,,, but in this upside downside up world we’re in … a little affirmation and confirmation is always a good thing .
e.g. A wordy way of saying Thanks … I needed that !
You said it, Brother!
Not just Wall Street where the new royalty resides, but every aspect of society that might be a benefit or threat to Wall Street is under their control, starting, of course, with every branch of the government, the FED, the U.S. Treasury, economic advisers, Ivy League Universities that produce the models that make financial engineering (borderline graft/fraud) legal, etc.
You name it, if it can help/hurt them, they’ve got their hooks into it, and logic & common sense have nothing to do with it. ;^D
Nothing new, though. Noni Prins follows the cronyism between the banks & the U.S. Presidents over the last 100 years (“All the Presidents’ Bankers”). With a few exceptions, the two were always as thick as thieves.
I ran onto an interesting site that looked at the ones that tried to stop/control the banking industry – funny thing, they all were assassinated or survived an assassination attempt:
http://thetruthnews.info/bankers_and_presidents.html
“Road to perdition”….seriously? Texas is not just about oil.
Just a few US rankings….
Exports: 1st in total exports.
Semiconductor: 1st
Cattle, cotton,goats and sheep: 1st (third in citrus)
Shipping:Port of Houston 1st for International tonnage, 2nd for total cargo tonnage. (from POH website)
Airports: 4th is DFW and George Bush Houston 10th.
MD Anderson: largest in the World and ranked 1st for cancer care in US.
Vacation: ranked 4th (this one surprised me)
Fortune 500 companies: seems to jocky with Cal., and NY.
Zzzz. Chamber of Commerce puff. Texas’s primary industry is exurban houses and sprawl. Full stop.
Why?
For one reason is that many leases have a drill it, work on it, or lose it clause.
If the company that bought the lease doesn’t conform to the work requirement or drilling requirement then they can end up losing the lease.
So they do an analysis and drill the ones that have to be drilled that make sense and let the others go.
If you are cash rich and have lots of assets you can manage those plays.
With all the projects being cancelled and a limited number of big finds coming though (Mexico just had a big find in the Gulf) look for a rebound in oil prices in three or four years from now.
The simplest answer is hedging. The smart drillers have hired Wall Street guys that hedge their production. When OPEC was able to pop prices in Nov-Dec they went and hedged at that price until 2019. So even though the drillers would loose money at the current price of oil the futures contract assures them of a price they can make money at. Let that be a lesson to anyone who decides to go long on commodity futures that you can get left holding the bag.
Have all you Wolfstreeters seen Tucker Carlson lay waste to the warmongering fools Peters and Boot? If not look it up on youtube He’s great
I was just trying to explain the conundrum to some shill commenting at the local paper. This person is apparently employed in the FIRE sector because he was cheering the “boom” in homes sales here in Houston. We just saw record prices and sales volume for June. Yippee! Meanwhile, if you are a median family of four looking to buy a home for $250,000 or less (something you might actually be able to afford), your options are pretty deplorable. You can get a crap shack somewhere inside Beltway 8, or you might find a cookie-cutter track home in the burbs with a tax rate north of 3 percent.
We (The Fed) has managed to muck up the housing markets yet again, and at the same time we have real estate pundits celebrating the inequality staring us in the face when it comes to housing markets. It’s enough to make you want to vomit.
The good thing is that we have added jobs in Houston this year. Unfortunately they are pretty lousy in terms of quality, certainly not supportive of sales increases of luxury homes priced at $750,000 and higher. That begs the question of who is really buying these sheetrock palaces?
http://aaronlayman.com/2017/07/houston-home-sales-june-2017/
I’ve got a friend who has been buying his personal vehicles in Houston for a few years.
He travels from Jackson, MS once he has the deal set. Claims it saves him $1500 on average
over the best deal he can get at home.
That makes sense. Houston dealers are desperate to move the iron.
Not sure how the tagging works – might have to tag twice, once in TX and pay sales tax in TX, and then tag again and pay more taxes in MS? If this is how it works, it ads up in a hurry.
I’m not sure either. I want to say the dealer handles getting the proper tax authorities paid and perhaps a temporary tag. Not uncommon for dealers to have out of state buyers.
Dealer handles it. Tax is paid where car is registered.
Due to all of the flooding that happens from time to time in Houston, I would not trust buying a used car there.
These are new cars, not used.
Sporkfed, yeah sorry I jumped the gun on that comment.
Speaking of the constant flooding in Houston (I was there on the “Tax Day” flood last year), I wonder if these blips have been factored into past new car purchase statistics.
I guess the Houston car industry needs another flash flood.
The US economy has been slowing in fits and starts. ZIRP provided a new buffer for the economy to refinance lower. That is used up. Cyclical industries like auto saw a boom from pent up demand and lower interest rates. That cycle is fading.
Interesting numbers for Houston. Probably too complex to know why they dropped so fast; but suffice to say that it’s not surprising. Other areas will follow.
Trump will be facing a serious recession by late fall. The Fed will act surprised because they’ve been jawboning about how great everything is and actually moved short term rates up a bit. This is all theatre. They know we’re heading into recession.
Mike R. Or something much worse probably all caused by Russia
Economy coming down from recent bump, going to take a dump in the upcoming Trump slump.
Got it.
The number of deportations in Texas was ~73K, in Houston 17K. Maybe this has something to do with it. Illegals buy cars, when they are here.
Part of it, I think, is that oil production got more efficient, which means during this recovery, there are fewer workers needed (everyone from engineers to field workers), and they’re paid less.
There’s a reason that shale oil that needed $100/bl to breakeven can now be profitable at 40/bl. Some of that is definitely labor efficiency. Which means less of a recovery to the rest of the local economy.
– I think people in Houston have the same problem as other US citizens. Think: e.g. rising property taxes, rising health carecosts, saturation of the car market(s).
– But I blame also something else. Thanks to innovation the shale oil industry has been able to lower it costs to produce one barrel of shale oil. But this increased productivity reduced the amount of people needed in the oil business. Hence the lower demand for cars.
My take.
(I have family in Houston. He is not in the oil sector. I also have family in the Dakotas – he IS in the oil business. Moved there from Texas a while back.)
Once burned – twice shy, Most of the people in the oil patch are pretty smart. Newcommers – – – well – – – they may not know about the boom and bust routine. Those that DO KNOW are a little gun-shy about loading up with debt. Those that DON’T KNOW will learn.. The ones that lost their Cowboy Cadillac in the last bust have learned a lesson. With all the used ones floating around why buy new ? The ones that managed to hang on – well – they don’t need one because the only thing a new one will give them is DEBT that they don’t want to worry about when the next bust comes along.
It will take another 100,000 miles – or more – to get those folks off of the fence nad considering buying another truck. If the new/used price diffeential is good for them their “new” piece might be used instead of new!!
So, there goes the new vehicle market. \/ \/ \/