Which of the following best describes the principal industry of your company?

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1 WEST HOUSTON ECONOMIC PULSE Survey of West Houston businesses on their outlook for the West Houston and HoustonEconomies for 2016

2 SENTIMENT SURVEY: WEST SIDE BUSINESSES WEIGH IN The Houston West Chamber of Commerce recently conducted an economic sentiment survey consisting of 284 respondents primarily representing West Houston businesses. The purpose of the survey was to get a pulse on how these businesses are feeling about the economic climate going into 2016, and offer valuable insight for all west side businesses as they contemplate their own economic decisions for the year. Although the survey was open from mid-november 2015 through early January 2016, most responses were received in November. The survey was pushed out to potential respondents through , newsletters and invitations from management districts and the Houston West Chamber of Commerce membership. The survey included several categories encompassing 21 different industries. The majority of responses came from 10 key industries with the bulk of the responses from professional and business services. There was also good representation from other key industries including energy, healthcare, banking, education and others. Industries that made up the all other category included, but were not limited to industries such as hotel, retail, technology, commercial real estate and government. Which of the following best describes the principal industry of your company? All Other 22% Food & Beverages Finance and Financial Services Real Estate - Residential Non-profit 5% 5% 5% 5% Education Banking, Finance and Insurance Advertising & Marketing Healthcare & Pharmaceuticals 7% 7% 7% 8% Energy (Oil & Gas) 12% Professional and Business Services 17% Regarding sentiment around the U.S. and West Houston economies, most respondents felt at the time of the survey that both would continue improving. However, there was a noticeable percentage of respondents who felt that West Houston s economy is on the decline possibly an indication that some are already feeling the impact of the oil industry downturn on the west side. Which direction do you expect the US economy to trend over the next 12 months? Which direction do you expect the West Houston economy to trend next year?

3 Looking at their outlook for employment in 2016, most respondents don t anticipate changes in staffing levels and even some are planning to add to their payrolls this year. Similarly for their 2016 investment plans, businesses won t be decreasing their spending for the year. Overall, the majority of respondents will hold the line on current investment spending or beef up capital expenditures. The sentiment is the same for sales and revenue forecasts, as most business plans call for increases in either sales or revenue. Thinking about the market conditions you will face in 2016, which best characterizes your plans for employment next year? Thinking about the market conditions you anticipate in 2016, which best characterizes your company s investment plans for next year? Does your business plan for next year assume that your sales or revenue will be... Respondents also disclosed if they would be using more credit in 2016 through loans or lines of credit to support their operations. We took it a step further and asked if the change in usage would be due to expanding their business, keeping the business afloat or neither. The majority of responses fell in the not applicable category. It appears that most respondents don t currently use credit to manage their operations. Excluding those responses, the remaining answers indicated that any increase in the use of credit would be for growing their business not for keeping their doors open. Does your company expect a change in the use of credit facilities during 2016? Will these changes be related to growing the business or surviving the economy?

4 Survey responses also reflected where opportunities and challenges exist when looking at a number of business factors such as sales, regulation, technology, staffing and cash management. In the chart below, opportunities are shown in green and challenges in teal for each of the different categories. If you were to add up all the responses in the green/opportunity range, it shows that almost 60% of the respondents have an optimistic view across the combined categories. The most significant opportunity was a close tie between technology and sales and business development, and the most significant challenge was regulation and government. Which of the following business factors do you view as opportunities or challenges for the coming year? WEST HOUSTON ECONOMIC PULSE SURVEY INDEX Dr. Gilmer took a closer look at all the survey data, analyzed the results, and created an index that gives a quick read on respondent sentiment in aggregate across different West Houston industries. The index helps summarize higher/lower kinds of questions and in this case, 50 is the dividing point between mostly positive responses or negative responses. An index less than 50 suggests contraction, or a more negative outlook while greater than 50 suggests expansion, or a more positive outlook. Incorporating five categories including employment, investment plans, revenue, the U.S. economy and the West Houston economy, the following chart reflects an overall positive outlook from respondents in all categories. West Houston Economic Pulse - All Respondents Employment Investment Plans Revenue US Economy West Houston Strong outlook for revenue

5 As we look at the following index snapshots, these are the findings identified for each of the included West Houston industries: Energy There are no surprises here as respondents have undoubtedly been affected by the downturn in the oil industry. Energy Respondents Employment Investment Plans Revenue US Economy West Houston Weaker outlook for all categories Contrasted with a slightly positive outlook for West Houston Hotel Respondents Hotel While responses from this sector are more positive, the outlook for West Houston is neutral. One factor to consider is that hotel revenues peaked in late 2014 and are falling faster in West Houston than in Houston overall. Employment Investment Plans Revenue US Economy West Houston Strong outlook for US Economy West Houston outlook neutral Banking and Finance Respondents Finance and Banking The economic sentiment for finance and banking is relatively optimistic, and respondents feel positive about both the U.S. and West Houston economies. Employment Investment Plans Revenue US Economy West Houston Strong outlook for revenue Outlook for both US Economy and West Houston identical Healthcare Respondents Healthcare Responses reflect an overall positive outlook, coming off a big boost from Obamacare and plans for expansive growth for healthcare in West Houston. Employment Investment Plans Revenue US Economy West Houston Very strong outlook for revenue Outlook for West Houston stronger than the US Economy

6 Professional and Business Respondents Professional and Business This is a very diverse group that includes architects, lawyers, engineers, personnel services, accountants and others. Most respondents expressed an overall positive outlook. Employment Investment Plans Revenue US Economy West Houston Strong outlook for revenue Residential Real Estate Respondents remain optimistic but do think the West Houston economy is weaker than the overall U.S. economy. Sentiment reflects that the residential real estate frenzy of the past few years is over, and we are beginning to experience a more normal market in West Houston. Residential Real Estate Respondents Employment Investment Plans Revenue US Economy West Houston West Houston outlook weaker than US Economy Commercial Real Estate As this is the hardest hit non-energy sector by far since the oil downturn, responses were still mostly positive across categories, with a noticeable difference about West Houston s economy. The negative number seen in this category is likely due to West Houston s abundant office vacancies and the slowing demand for future developments. Commercial Real Estate Respondents Employment Investment Plans Revenue US Economy West Houston West Houston outlook much weaker than US Economy

7 SURVEY SUMMARY Some key takeaways from the sentiment survey for 2016 are: Most west side businesses have a positive view of the U.S. and the West Houston economies, with the exception of the energy and commercial real estate sectors. Regarding their employment outlook, the great news is that 49% of west side busi nesses are planning to keep their staffing levels the same this year, while 39% are even planning to increase hiring. Businesses are also optimistic about investing and anticipating increases in revenue and sales for the year. Regarding investing, 41% anticipate no changes in their spending, while 49% are planning to increase spending; for revenue and sales, 65% expect higher numbers this year and 19% expect no changes. Overall, businesses don t anticipate needing to use credit as a business lifeline, and the biggest challenges they will face this year involve regulation and government fol lowed by competition. When broken down by industry, responses were positive across most categories, even for the commercial real estate industry, which has already been hit hard by the oil slump. Based on survey results, it s evident that although Houston is in the midst of the current oil downturn, west side respondents from most industries had a positive take on the U.S. and West Houston economies and the direction of their own businesses for The big exception was the energy sector, mired in pessimism due to the downturn in the oil industry.

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