Houston falters, yet oil is not to blame

Its economy souring and Enron failing, the city is nonetheless poised to rebound.


The headlines in recent months have been as stinging as this bayou city's mosquito population. Compaq to cut 8,000 jobs in merger with Hewlett-Packard. Continental lays off 12,000 employees after terrorist attacks. Enron declares bankruptcy, leaves 4,000 people out of work.

It's enough to make most Houstonians - even given their legendary bravado - shudder, as reminiscent as it is of the "Great Downturn" of the mid-1980s. At the time, Houston - fully 86 percent dependent on oil - fell into the worst recession since the Great Depression.

After that debacle, the city diversified its economy. The only trouble is, it now acts much like the rest of the country - which means when the US goes into recession, as it is now, so does Houston.

"One of the hallmarks of this recession is that it is fairly uniform across the country, even in parts of the Southwest like Houston," says Steve Cochrane, senior economist at in West Chester, Pa.

He says Houston used to "always come out smelling like a rose" during national recessions, because it was able to ride them out on the high price of oil.

That was one of the main reasons Trupti Sheetal and Ganesh Hariharan came to Houston from India in the first place.

Both on H1 visas, they knew (or thought they knew) that energy was a safe industry during a recession, an industry that could weather a downturn while they worked on getting their green cards.

Enron's ripples

They were two of the fortunate few to get hired on at Enron right out of college. They now have 30 days to find another job or return home.

"We came for the stability," says Ms. Sheetal, hustling into an informational meeting for ex-Enron employees. "We thought Enron was one of the more stable companies out there."

While Enron and Compaq are cutting 12,000 employees out of a total workforce of 2 million here in Houston, their demise is being felt far beyond the newly unemployed.

"Both Compaq and Enron represented icons for the new diversified Houston," says Barton Smith, an economist at the University of Houston. "One of the impacts will be the psychological impact of losing these two icons."

Indeed, Enron symbolized the changing energy industry that has moved away from oil and gas production into refining, marketing, and distribution. But it was also emblematic of the Houston entrepreneurial spirit.

"The Enron story is the story of Houston bravado," says Stephen Klineberg, a sociology professor at Rice University here. "It's the story of a sashaying, risk-taking, entrepreneurial company that risked mightily and fell mightily. But at least they risk mightily."

Houston bravado

From its founding, Houston has been about wildcat business practices and speculative ventures, says Dr. Klineberg, who doesn't worry about Houston's

ability to pick itself back up.

Even with all the gloom and doom of the past few months, Houston is still coming out ahead of many US cities.

The country overall has shed some 750,000 jobs this year, and many cities are witnessing negative job growth.

Conversely, Houston will come out just slightly ahead at about 1 percent job growth. That is still the lowest number the city has seen in almost a decade.

Positive growth

"Many people are assuming that Houston is teetering on the edge of economic ruin," says Bruce Laboon, chairman of the Greater Houston Partnership, the area's largest chamber of commerce. "But nothing could be further from the truth."

While oil still makes up about 50 percent of the city's economy, Houston is home to NASA, the largest medical complex in the country, the second-busiest port in the nation, and a strong international business sector.

"Houston is well positioned to recover quickly and move on," says Mr. Laboon.

But Donna Newton is taking no chances. She is a marketing director at Compaq, which was in the process of merging with Hewlett-Packard.

That plan is now stalled, and the company is unsure what will happen to it.

Contingency planning

Ms. Newton does not expect to be one of the 8,000 employees let go, but she is already working on a contingency plan.

If she loses her job, she will put her house on the market and begin a job search across the country, even internationally.

She would even reconsider her car payment. Her caution is rooted in a bit of personal history. Her first job out of college was in Houston - right before the oil bust of the 1980s.

At that time, 1 in 7 jobs disappeared, home prices fell up to 70 percent, and dozens of banks closed their doors.

"I've been through a pretty grim economy and saw what could happen," she says. "People need to think ahead about what they can do."

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