Houston economy poised for growth despite recession fears

Business Journals

23-04-2025

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A growing workforce and affordability are positives for Houston, though the region could be particularly affected by changes in immigration policy. A national economist explains why Houston is well positioned despite increased recession fears.
Story Highlights Houston's economy is well positioned amid increased recession fears, economist Jeff Korzenik says.
Houston leads U.S. metros in GDP growth and consumer confidence.
Tariffs and immigration policies could put pressure on the local economy.
When it comes to the economy, location matters, one national economist says. That's good news for Houston.
The Houston region is well positioned for growth despite increased fears of a recession, Jeff Korzenik, chief economist for Cincinnati-based Fifth Third Bank, said at a Greater Houston Partnership luncheon on April 23. In-migration, affordability and workforce productivity point to positive signs for the local economy, he said.
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The Houston metropolitan area and multiple Houston-area counties are among the fastest-growing places in the U.S., according to recent data from the U.S. Census Bureau. Meanwhile, Houston has the third-lowest cost of living among the 18 largest U.S. metros, and the annual cost of living in Houston is about 25% less than the national average.
Additionally, the Houston region leads the top 20 U.S. metropolitan areas for two-year GDP growth, increasing 25.1% between 2021 and 2023 to $697 billion.
'Place matters because if you think about what drives an economy, it's two things: how fast you can grow your workforce and how fast you can grow the productivity of your workforce,' Korzenik said. 'Those geographies that can grow their workforce have a decided advantage because companies follow workers now, rather than workers following them.'
He also said: 'We think there is going to be greater geographic dispersion of (gross domestic product) in the years ahead. Houston is well positioned for that.'
Positive signs in the economy
Korzenik's confidence in Houston — as well as in Texas, more broadly — comes as recession risks have gone up 'substantially' in recent months.
Korzenik pegged the chance of a recession this year at about 35%, which he admitted is just an educated guess. Notably, a recession this year is not Korzenik's baseline assumption for the economy, though.
'We still believe that the base case for the U.S. should be a year of continued economic expansion, not a recession,' Korzenik said.
Additionally, Korzenik said the 'single most important recession indicator" he is looking at is initial unemployment claims. Weekly claims have been around the low 200,000s, far from the 400,000 to 500,000 weekly claims that would cause Korzenik to worry, he said.
As it relates to consumers, aggregate debt burdens — how high debt payments are relative to income — are low, giving consumers resiliency. However, lower-income consumers are worse off, and the top 10% of earners — those who earn $250,000 or more — account for just under 50% of spending.
'We have good news here, but we are on a somewhat precarious base,' Korzenik said. 'We're relying on a small subset of consumers.'
However, consumer confidence is slipping nationwide, exclusive data from global decision intelligence company Morning Consult shows. The Houston region leads the nation in consumer confidence, though, suggesting continued strength in the local economy.
Additionally, business confidence has risen as the Trump administration promised deregulation and lower taxes, Korzenik said. However, unlike what typically occurred in the past, that confidence has not resulted in an increase in capital expenditures yet. Tariffs have also caused a slight pullback in confidence recently, Korzenik added.
Economic implications of tariffs, immigration policy
Tariffs have the potential to have positive long-term outcomes if done right, Korzenik said, an opinion shared by JPMorgan Chase & Co. (NYSE: JPM) CEO Jamie Dimon.
President Donald Trump's new tariff policies will put pressure on inflation and likely limit the number of interest rate cuts from the U.S. Federal Reserve, Korzenik said. He expects inflation to close the year at about 4% to 5% and the Fed to cut short-term interest rates possibly one or two times. Any more cuts than that may signal that a recession is becoming more likely, Korzenik said.
Korzenik said the Trump administration's goal to bring back manufacturing jobs would be a boost for the economy, but current policies are the wrong strategy. Korzenik deferred to economist Peter Navarro's suggestion as the 'right' tariff policy, which would be to gradually implement a 10% universal tariff.
Bringing back manufacturing jobs would help alleviate the labor shortage issue that is beginning to fester again, Korzenik said. Unlike in the past, there are more job openings than there are job seekers, putting pressure on businesses and driving wage inflation — a trend Korzenik said is the 'new normal.'
That issue may worsen given the Trump administration's immigration stance, Korzenik said. The U.S. relies heavily on foreign-born labor. Since 2021, 5.9 million immigrants have joined the labor force, making up the majority of labor force gains over that time period. However, just 1.5 million of those workers are those who have gone through legal pathways to full U.S. citizenship, while the rest are asylum seekers, refugees and those in the country illegally.
The flow of foreign-born labor is coming to a halt, a trend that began during the 2024 election cycle, Korzenik said. More than that, he said it would be 'naive' to think that policies won't affect the current immigrant workforce, he said. There could be upcoming decisions that would take away many of these people from the overall labor market.
Immigration policy would put particular pressure on Texas, Korzenik said. Estimates show that 10.4% of the state's labor force comes from immigrants in the country illegally, second only to California, he said.
'We've relied too much on a labor force that, under current law, may evaporate,' Korzenik said. 'We think this means that labor shortages are going to come back, it's going to be visible, and it will put upward pressure on inflation.'
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