The Impact of Houston's Economy on its Politics: An Expert's Perspective

The impact Houston's economy has on its politics is undeniable; it affects everything from employment levels to consumer spending habits to inflation rates. This article looks at how these two forces interact with each other.

The Impact of Houston's Economy on its Politics: An Expert's Perspective

The late 1820s and 1830s were characterized by increasing political tension, despite the growing economic development of the territory, and perhaps because of it. Houston's economic outlook remains unchanged: inflation continues at high rates, the Federal Reserve maintains a restrictive monetary policy and both the U. S. economy and the one in Houston show numerous fissures in the boundaries.

Nevertheless, a strong core of consumer revenues and spending remains robust. The forecast of a next economic slowdown or recession is still in force, but the date of the slowdown has been postponed several times due to the sustained strength of consumers. The right side of Figure 1 illustrates how the May forecast basically postponed the November slowdown for a couple of quarters, allowing it to start from a higher level and develop into a longer recession and, later, a recovery. In both cases, it assumes a return to the growth trend of 125,000 jobs per month.


According to the US outlook, Houston will soon experience a period of slow growth that will continue for much of next year. Interest rate-sensitive sectors and the manufacturing industry in Houston show negative results similar to those in the U.

S. UU. However, unlike the U. S., employment in April in Houston fell by a few thousand jobs and local payroll growth slowed dramatically during the first four months of this year. However, other measures of spending and unemployment remain strong.

How do spending and allocations stay high now that stimulus payments have ended? A key part of the story for consumers is that not all the stimuli of the pandemic were spent, but that a lot was saved. If 8.9 percent of after-tax income is used as an average of decades of consumer savings rates in the past, Figure 3 shows that real savings rates were much higher than normal during much of the pandemic. The savings rate finally fell below 8.9 percent over the past year and has since fallen to low levels close to three percent. However, you should be careful about the definition of savings. It includes any part of after-tax income that isn't spent on goods and services, and the simple identity between savings and investments suggests the myriad ways in which “savings” are spent on assets rather than goods.

New homes, existing homes, or consumer durable goods would fall under this definition of savings converted into investments, along with financial assets such as stocks and bonds. Stocks and bonds may be relatively liquid, or they may have ended up in a 401 (k) plan, where they are subject to penalty withdrawals, or perhaps they were simply lost due to the current financial recession or to memes about stocks, cryptocurrencies, or other regrettable investments. Although much of this savings goes to illiquid assets, the liquid component that households have is still quite high, and this amount is important because it is dry dust that drives consumer spending. However, for political purposes, the Federal Reserve uses another measure of price change and inflation: it uses the personal consumption expenditure (PCE) deflator in national income accounts with a more reliable methodology than the CPI. Alan Greenspan and many others have described the CPI as a “deeply flawed measure of price change”.In addition, the Federal Reserve excludes the volatility of oil and food prices from its price calculations because oil markets and crop failures are far beyond its reach.

Figure 8 shows the central PCE in operation. Like the CPI, for 15 years it did not meet the Fed's two percent target, and its breakdown and peak inflation were programmed much like those of CPI. However, Fed's core PCE registered an increase in maximum prices to just 5.2 percent or three percent below CPI's peak. Although these lower prices do not comfort consumers who live with reality's recent food and gasoline inflation, this is what measure Federal Reserve is closely following to guide monetary policy. The most worrying fact about basic PCE right now is that Federal Reserve has made very limited progress in reducing inflation.

Based on 12-month changes on left side Figure 8 prices fell from maximum 5.2 percent to 4.6 percent and if 3-month changes are used (right side) April data shows fall to 4.2 percent annualized. Even after 10 consecutive rate increases that raised federal fund rate above 5 percent consumer spending remains relatively strong and inflation is well above target range. However markets apparently don't believe Federal Reserve scenario based on their previous weak behavior while they accept economy could weaken soon they also think at first sign weakness Federal Reserve will quickly start reducing rates. Graph Figure 9 shows Atlanta Fed forecast interest rate federal funds based COMEX futures market international swaps first all keep mind expectations point series rate cuts starting middle this year which completely contradicts public statements second keep mind even by 2025 rates still high close 3.0 percent we hope marks end zero rates restoration positive official rate reflects inflation two percent plus one percent real however must be careful when interpreting these improvements employment. Houston's growth has been line with post-pandemic recovery seen across country Figure 10 shows recent history job losses recoveries Houston payroll reduction lockdown 363 400 jobs 11.5 percent compares loss 21 1 million. The impact Houston's economy has on its politics is undeniable; it affects everything from employment levels to consumer spending habits to inflation rates. As we can see from recent history, Houston's job losses during lockdown were significant compared to other parts of America; however its recovery has been relatively strong due to consumer spending habits that have remained robust despite stimulus payments ending. Inflation rates remain well above target range due to Federal Reserve policies that have kept interest rates high despite 10 consecutive rate increases. The Federal Reserve uses personal consumption expenditure (PCE) deflator as its main measure for price change and inflation; however this measure does not take into account volatility from oil or food prices which can have an impact on consumer spending habits as well as political decisions made by local governments in Houston. It is clear that Houston's economy has an undeniable impact on its politics; however it is important to remember that there are many factors at play when it comes to understanding how these two forces interact with each other.

From employment levels to consumer spending habits to inflation rates; all these elements must be taken into consideration when looking at how Houston's economy affects its politics.

Madelyn Lenze
Madelyn Lenze

Total music evangelist. Total problem solver. General travel advocate. Incurable bacon junkie. Wannabe social mediaholic. Pizza enthusiast.

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