|WACO, February 5 - Texas has been adding jobs at a pace of over 250,000 jobs per year (most recently during the 12 months ending in December).
Major economic trends continue to improve, with real estate markets, the employment situation, and other measures of business activity trending ahead of the national expansion pace. The Perryman Group’s most recent short-term forecast indicates that this relatively healthy growth is likely to continue.
As a point of comparison with the Texas economic forecast, U.S. real gross product is projected to expand by almost $2.6 trillion (a 3.28 percent compound annual rate of growth) during the 2013 to 2018 time period. (Note that unless otherwise specified, all growth percentages reported herein are compound annual rates of growth, meaning that they reflect changes in the size of the base from which growth is calculated.) The United States economy is projected to create more than 10.9 million net new jobs over the five years, a 1.56 percent annual growth pace. As discussed below, the performance for Texas is expected to be much more robust.
While a disruption in the national situation certainly has the potential to slow growth in the state, The Perryman Group’s most recent outlook for Texas indicates the likelihood of a healthy rate of expansion through the forecast horizon and beyond. The uptick in oil activity is a major factor contributing to these positive expectations and the current oil surge is likely to continue to lead to strong economic performance in several regions of the state.
Output (real gross product) in Texas is forecast to expand from $1.3 trillion to $1.6 trillion during the 2013 to 2018 time period. This 4.59 percent annual growth (a $323.6 billion gain) represents a significantly faster pace than for the nation as a whole. As a result, Texas’ share of overall U.S. economic output will rise slightly, from about 8.8 percent to 9.4 percent.
The Texas population is also expanding at a notable pace. Over the next five years, an increase of nearly 2.3 million persons is expected (a 1.65 percent annual rate of growth). In addition to a relatively high fertility rate in some regions of the state and the resulting gain in residents, the stronger economy and job opportunities are boosting migration to Texas. By 2018, the state population is projected to total some 28.9 million, with gains concentrated in the large metropolitan areas.
Employment growth is forecast to be 2.33 percent through 2018, pushing the total wage and salary employment to 13.1 million. This gain of more than 1.4 million jobs over the period compares favorably with most parts of the nation. In fact, Texas is likely to contribute nearly 13.1 percent of total jobs added in the United States over the next five years and has far exceeded the United States in employment gains since the depths of the recession.
The state’s large services sector will continue to drive growth, with the smaller (but faster growing) mining sector generating a substantial increment to the expansion. All industrial segments are forecast to experience gains over the next five years (though cycles are inevitable).
Of the total output (real gross product) gain of $323.6 billion over the next five years, services industries account for $85.0 billion (26.2 percent of the all-industry total). The next largest gain is projected for the mining sector, with an increase in output of $58.9 billion (18.2 percent of the total). Most other industry groups are forecast to expand at rates in the 3-5 percent range.
Services industries are likely to account for some 57.3 percent of the total jobs gained in Texas over the next five years, with an addition of nearly 817,500. The wholesale and retail trade segment is expected to see a gain of almost 221,200. The rate of growth in the mining sector is forecast to be the fastest of all segments at 3.35 percent (though given its smaller size, the industry’s share of the total employment gain is less than four percent).
In addition to the national fiscal situation, another challenge facing Texas is the sufficiency of water supplies. Steps are being taken toward a solution, but substantial work remains to be done. The recent decision by voters to utilize $2 billion from the state’s rainy day fund to enhance water supplies is indicative of Texans’ commitment to dealing with this issue. Even so, the resources required to ensure adequate supplies are far greater than what has thus far been allocated, and a single, one-time infusion is not sufficient. A more stable and sufficient source of transportation funding is also needed.
An ongoing problem Texas faces is education, with average levels attained here trailing patterns in other areas and demographics posing additional challenges. Tight budgets and finance controversies are one aspect of the issue. Changing standards (such as backing off of requirements for Algebra II as part of a high school education) may also backfire in terms of generating enough graduates ready for the workforce of the future.
Although there are factors which could dampen performance, Texas is well positioned to remain among the strongest economies in the nation. Particular strength in some industries is enhanced by stability in others, with the result a likelihood of continued growth. Business cycles are inevitable, but the underlying patterns in the Texas economy call for expansion through the next five years and beyond.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.