WACO, Texas – Texas led the way out of the national recession, and has been adding jobs month after month for more than four years. During the 12 months ended in November, about 441,200 net new jobs were added, a record for the Lone Star State.

The unemployment rate now stands well below the U.S. rate (and even farther below many states). All of the state’s metropolitan statistical areas reported unemployment of less than eight percent in November, a notable improvement in many areas.

The oil surge has been a notable source of expansion in the Texas economy. Production has been strong in both newer fields such as the Eagle Ford Shale and older regions such as the Permian Basin. Areas benefiting from the oil surge have experienced especially low rates of joblessness.

At the same time, Texas has long pursued a concerted economic development strategy which has been critical to the state’s success. Expansion over the past few years has not been solely oil and gas based, and strong growth has been occurring across a spectrum of industries. These include (among others) technology-oriented firms in the Metroplex, greater Austin, and other areas; health care facilities in many communities; consumer-oriented wholesale and retail operations; and business and professional services.

Our most recent forecast for the 2014 to 2019 period calls for continued growth. Real gross product is forecast to expand by 4.34 percent during the next five years, resulting in a gain of $352.3 billion. Employment growth is projected to be 2.13 percent through 2019, resulting in the addition of some 1.34 million jobs over the period. The services sector is expected to continue to be a major contributor to Texas’ RGP expansion, while services and trade are key sources of new jobs.

The state will be challenged to ensure infrastructure adequacy, workforce preparedness, and water supply sufficiency. The degree to which these issues are dealt with will affect future performance.

Also affecting the rate of future growth, of course, is the recent sharp decline in the price of oil, which will have a significant effect on the Texas economy in multiple respects. Projecting the effects is difficult and subject to a lot of uncertainty because of the large number of factors at play (many of which are more political than economic). We are already seeing some cutbacks in drilling, and the longer the prices stay low, the more retrenching there will be.

Direct drilling activity constitutes less than three percent of state employment, but the industry has very high “multiplier” effects. All of the necessary support services and goods are produced in Texas and have been for generations; thus, there is very little leakage. Moreover, because both the direct and indirect jobs are very well compensated, they have a disproportionate effect on consumer spending. There is also a “wealth effect” in that royalty payments are tied to prices. In addition, the industry pays all of the usual business taxes (most of which are tied to revenue in some fashion) as well as a severance tax. The bottom line is that oil is heavily integrated into the economic and fiscal well-being of the state.

With that said, even given the likely slowdown in oil exploration, I do not foresee a recession. We learned a harsh lesson in the 1980s, and worked to diversify the state economy. As a result, Texas is far less dependent on the oil industry than was the case decades ago. Moreover, the forces are not in place for a prolonged downturn of the magnitude of that observed then. Overall, based on the current situation the economy should continue to expand, but not the doubling and tripling of U.S. growth rates that we have seen in the recent past.

Looking ahead, the crucial questions include how low oil prices go and how long they stay there. We will be monitoring the oil situation very carefully and updating our outlook for the state economy accordingly.

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.