Houston's job growth is slowing down, but it's returning to a normal pace.

Yes, job growth is slowing in Houston. No, it’s not a reason to panic.

Houston has recovered exceptionally well from the jobs lost as a result of the Covid-19 pandemic in 2020, but post-pandemic gains are starting to slow. The Houston-The Woodlands-Sugar Land metro added 13,400 jobs in April, bringing total jobs to over 3.44 million, a 2.4% annual increase, according to the latest Texas Workforce Commission data.

While that rate is above the long-term annual growth rate, which is about 1.8%, it’s much slower than in recent years, according to the Greater Houston Partnership. For the years ending March 2023 and March 2022, Houston’s jobs increased at a 5% and 5.8% annual rate, respectively. Local economists had been expecting that slowdown since the beginning of the year.

“We can’t grow at the pace we’ve been growing at the last three years,” said GHP chief economist Patrick Jankowski. “We had to slow down at some point, and that’s what’s happening now.”

Additionally, while recession fears have loomed over the business community since the U.S. Federal Reserve began raising interest rates in March 2022, it has yet to stifle economic growth locally. Houston continues to add jobs and grow at an above-average rate, and the region is expected to continue to follow that trend at least through the end of the year, said Bill Gilmer, director of the University of Houston Bauer Institute for Regional Forecasting.

State of Houston’s job market

Despite the slowdown, Houston’s job market is still hot — at least hotter than what one recent study suggested, Jankowski said. 

Houston came in at No. 19 on The Wall Street Journal's annual ranking of America's hottest job markets. That ranked behind Texas neighbors Austin (No. 7) and Dallas (No. 10) and cities of much smaller sizes like Salt Lake City (No. 1), Oklahoma City (No. 5) and Grand Rapids, Michigan (No. 17). 

Jankowski said Houston was punished in the ranking for its unemployment rate without taking into account its population growth. Additionally, as of January, Houston has recovered 155% of its job losses from the Covid-19 pandemic, the fifth-best in the nation.

Meanwhile, Houston’s 2.4% 12-month growth rate in April tied Austin-Round Rock and led Dallas-Fort Worth-Arlington and San Antonio, according to TWC data. That’s significant given that Houston typically has the second-highest rate out of the four major Texas metros, said TWC Chairman Bryan Daniel.

While Houston’s job market is still positive, there’s no question it’s slowing down, Jankowksi said. However, he added that the growth rate is slowing down to a more normalized rate, rather than slowing down to a place of job losses. Following the release of the March TWC data — which at the time showed Houston gained 1,100 jobs before it was adjusted in the April numbers to show Houston lost 500 jobs — Jankowski said the slowed pace of growth is not concerning.

“It’s just one month. It’s too soon to panic or be concerned,” Jankowksi said. “None of this is unexpected. We knew this was going to happen.”

Houston's job market also looks different than it once did, Daniel said. The mining, logging and construction industry — which includes oil and gas — makes up a smaller percentage of Houston’s jobs. The industry represents 9% of employment in Houston as of April, compared to 20% for trade, transportation and utilities; 16.3% for professional and business services; and 13.6% for private education and health services, according to TWC data.

Other industries are also growing at a faster pace than mining, logging and construction. While that industry grew 1.8% year over year in April, it was outpaced by many others, including government (3.9%), leisure and hospitality (1.9%) and manufacturing (1.9%).

“Houston’s overall economy is much more diverse than it was 20 years ago, and that kind of diversity is really powering the Houston economy forward,” Daniel said.

Houston’s economy still strong

Jobs are just one piece of Houston’s economic picture, but other indicators point to continued strength and resilience in the overall local economy.

One measure of particular note for Jankowski is the Houston Purchasing Managers Index, which is prepared by the Institute for Supply Management-Houston. The index is based on monthly surveys of local purchasing managers regarding the direction of sales, production and employment. A measure above 50 on the scale signifies economic expansion, while below 50 indicates contraction.

The overall PMI was 50.3 in April, down 0.2 from March, meaning economic activity continues to expand but at a slower pace. The measure has been trending down from its peak for about 18 months, Jankowski said, but the local economy continues to expand, even if it is slower than the pace of growth in recent years.

However, there is a divide between non-manufacturing and manufacturing activity. The manufacturing PMI has been below 50 for 12 of the last 18 months, although it did increase to 49.2 in April. Meanwhile, non-manufacturing PMI has tracked above 50 for all but one month since August 2020.

Additionally, Houston’s inflation rate is below that of the national Consumer Price Index. The CPI rose 3.4% for the 12 months ending in April, while core inflation — which excluded the volatile food and energy categories — rose 3.6% over the same period. Local prices in the Houston region rose 2.9% for the 12 months ending in April, and core inflation was 2.7% over that period, according to the Bureau of Labor Statistics.

While overall inflation is less severe in Houston than nationwide, the region continues to face significant cost increases in certain categories. Prices for food away from home, shelter, electricity and apparel all rose more than 4% year over year. On the other hand, prices for furniture, new and used vehicles, gasoline and medical care all decreased from April 2023.

Expectations for the rest of the year 

While job growth is expected to be slower this year than in 2021, 2022 and 2023, it’s expected to still be above pre-pandemic levels, according to Gilmer.

Assuming oil prices average around $65 per barrel, Gilmer said he expects Houston to add about 75,000 jobs this year. If oil prices creep up to $75 or $80 per barrel, that could increase to 85,000 jobs. Trend growth is around 60,000 new jobs per year, Gilmer said, which he expects Houston to return to in 2025 and 2026.

Daniel added that the consistency of the growth rate has been encouraging, and nothing thus far indicates that will change.

“I haven’t seen anything dip negative, and, until I do, I would say that the consistency that we’ve seen, I would expect to see for the next two or three months and possibly into the fall,” Daniel said. 

In light of the slowed growth, Jankowski said businesses should exercise caution in how they plan for the future. He described the growth over the last three years as an “aberration” given the Covid-19 pandemic losses, subsequent gains and government stimulus that was approved in response to the pandemic.

“You shouldn’t be basing your future projections on what happened the last three years,” Jankowksi said. “You need to go back to look at what your business was doing in 2018, 2019 and the first month of 2020, because that’s more normal. That’s what growth should look like.”