Energy Leads the 2012 Houston EconomyThe Houston Economy 2012 is driven by the energy industry, according to Bill Gilmer, an economist from the Federal Reserve Bank of Dallas.  The following was excerpted from Energy Leads the Way as Houston Surges in 2012HoustonBusiness, A Perspective on the Houston Economy, Dallas, March 2012.

"Houston put the Great Recession behind it in 2012, growing strongly and returning to the prior peak levels of activity it enjoyed in 2008.  Local growth far outstripped the pace of the U.S expansion by taking advantage of torrid growth in emerging markets.  Exports to China, Brazil and India were important, but more important to Houston was the ability of these developing countries to drive the price of oil.  High crude oil prices and extraordinary changes taking place in drilling technology opened the door for Houston's energy sector to lead the city's growth in 2011...

"Looking forward, we find lower stimulus for Houston in the year ahead and higher risks, but the door remains open to another year of solid local expansion...

"Rapid expansion of emerging countries such as Brazil, China and India is essential to Houston's near-term prospects. First, these countries provide a market for oil services and machinery, petrochemicals, refined products and a variety of nonoil products shipped from the region.  Having surpassed California a decade ago, Texas is the leading export state, and the Gulf Coast is one of the most important exporting regions.  Second, growth in these countries has returned oil and other commodity prices to high levels...

"Drilling has gravitated to oil away from natural gas, technology to horizontal away from vertical, and as a result, revenues for service companies are much higher than the recovery of the rig count might indicate.  The key to sustaining the current level of activity and revenues is a high oil price...  The [downstream] petrochemical industry has been revitalized by low natural gas prices.

"Houston can count on only limited economic stimulus from the U.S. economy in 2012, as the nation continues to make significant repairs in the wake of the Great Recession.  Consensus forecasts such as the Blue Chip place 2012 U.S. GDP growth at less than 2.5 percent, slowly accelerating to 2.7 percent by early 2013.  Continued strong growth in Houston must come from rapid growth abroad or from energy.

"The four pillars of Houston's economy have traditionally been aerospace, medicine, and upstream and downstream oil.  For the present, aerospace has been sidelined by the end of the shuttle program, continued layoffs in the Clear Lake area and uncertainty about the future for manned space flight.  Construction at the Texas Medical Center has come to a halt as we wait for rules to clarify health care reform.  Hence, energy has been the key driver of economic activity for Houston in 2012 and will likely continue that role in 2012..."