Texas Economic Forecast: Long-Term Growth By Dr. M. Ray Perryman

https://www.perrymangroup.com/2016/07/11/texas-economic-forecast-long-term-growth/?utm_source=The+Economist+Weekly+Column+7%2F12%2F16&utm_campaign=Weekly+Column&utm_medium=email

Our latest forecast for the Texas economy indicates relatively healthy growth over an extended time horizon. Business cycles are inevitable, but the stage is set for growth outpacing most parts of the United States. Texas compares well with most areas in terms of the business climate, size of workforce, and other parameters, contributing to economic growth potential.

A primary reason for the state’s continued success is the increasingly diverse nature of the economy. Texas regularly wins Site Selection magazine’s Governors Cup, for example, which is awarded to the state with more major corporate location and expansion projects than any other state. To be counted, a project has to either involve a capital commercial investment of at least $1 million, 20 or more new jobs, or 20,000 square feet of new construction. During 2015, Texas had 702 qualifying projects, up from 689 in 2014 (in spite of the lower oil-price environment) and significantly higher than second place Ohio (with 517).

Major 2015 projects in Texas covered the spectrum of industries: petrochemicals, technology (including information services such as Facebook as well as data centers), distribution centers and other logistics, financial services, insurance, health care, food processing, automotive manufacturing, aerospace, steel, building materials, HVAC equipment, and numerous others. Expansion across a number of industries sets the stage for long-term economic growth.

The state’s resilience in the face of dropping crude oil prices is another reason I’m feeling more positive about future prospects. The sharp decline in oil prices and resulting scaling back of drilling and exploration had a decidedly negative effect on the Texas economy, but the end of $100 oil was not catastrophic.

Oil prices have recently begun to move slightly upward due to a combination of global oil supply disruptions, rising oil demand, and falling domestic crude oil production. Although crude oil inventories remain high and prices may not rise significantly until later in the year, they are already trending high enough to spur some incremental drilling and completion activity. Looking to the future, once crude oil prices recover (which is inevitable due to expected global demand conditions), drilling activity in Texas will increase and be a catalyst for longer-term growth.

On a less positive note, we are going to have to deal with changes in the state population, which will not only expand by about 12.0 million through the forecast horizon, but also grow older and, most likely, sicker. Hispanics will be the majority, with the number of Asian Americans growing fairly rapidly, while the number of non-Hispanic whites begins to shrink. Public schools in the state will need to accommodate nearly twice as many students, many of whom will be more difficult and expensive to educate. The implications for infrastructure, education, health care systems, and social services are profound and in need of immediate recognition and attention.

Texas also needs to deal with unfunded pensions; restructure programs in crisis such as indigent health care, foster care, and child protective services; improve education at all levels, and make a dent in infrastructure shortcomings. Otherwise, the state will almost certainly face a future characterized by slower economic growth and the necessity of committing even more resources to public needs.

On balance, our most recent long-term forecast indicates the Texas economy is likely to continue to see moderate growth. Output (real gross product) is projected to more than double, expanding from about $1.5 trillion in 2015 to $3.5 trillion in 2040 (a 3.35% annual pace). Annual output in the services sector is expected to increase by about $564.9 billion between 2015 and 2040, with manufacturing up by some $338.0 billion.

Approximately 6.2 million net new jobs are expected to be added over the period, a 1.64% yearly pace which will put total wage and salary employment in 2040 at more than 18.5 million. Job gains will be concentrated in the services and trade sectors, and the numbers of jobs in all major industry groups are forecast to rise.

Despite the end (at least for now) of the oil surge, the Texas economy continues to expand at a modest pace, with employment gains in most months. While oil and natural gas exploration and production are down due to the current low price environment, the energy industry will be a source of economic growth over the long-term forecast horizon. All in all, I expect relatively healthy economic gains through 2040 and beyond. We have some business to take care of, and the better we deal with population changes and other challenges, the stronger the pattern of growth as well.

Dr. M. Ray Perryman

https://www.perrymangroup.com/

 

 

 

 

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