Houston feeling effects of energy slump

The impact of the energy industry's downturn is beginning to show in Houston's economy, and with more cutbacks in oil and gas spending on the way, the region's commercial diversity will be sorely tested.

Housing and sales tax receipts turned negative for a second month, according to my colleagues Nancy Sarnoff and Mike Smith. Single-family home sales fell by 10.2 percent, and sales tax revenues were down 3.3 percent due to reduced oil- and gas-related spending.

Energy companies began cutting expenses after oil prices began sinking in 2014. Crude prices touched seven-year lows this week, and there is little evidence they will rebound anytime soon.

That's why Chevron, the first of the super-major oil companies to announce budget plans for 2016, said it will cut spending another 24 percent next year. ConocoPhillips said Thursday it would reduce spending 25 percent in 2016. The rest of the industry is likely to follow suit in the coming weeks.

The top economist at the Greater Houston Partnership said on Monday that the energy industry will likely shed 19,500 jobs in the Houston area between 2015 and 2016, but the overall economy will add 21,900 next year. Most of those, though, will be in lower-paying service industries.

This is the test for Houston's economy, exactly how diverse is it. How much will swapping high-paying jobs for low-paying jobs hurt Houston businesses?

We know the health care sector employs the most people, and recent data suggests that Wal-Mart is the largest private employer. Yet Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston, has estimated that nearly half of the region's jobs are directly or indirectly tied to energy money.

Houston's boosters, including Mayor Anise Parker and Harris County Judge Ed Emmett, have assured residents that the economy is more diverse than ever, and that slowdowns in the oil business will have less of an impact. But the low oil prices are only now working their way into the larger economy.

None of us know how long the slowdown will last, and what its impact will be on Houston. Much of the economy is tied to the national economy, which is doing well for now. But there are signs of trouble as all commodity prices drop, and junk bonds show signs of distress.

The important thing for every business person to know is that the economy is slowing, and while we may not know how much, the order of the day should be conservative business plans focused on less spending and debt for the time being.