The Texas economy continues to improve at a healthy pace, with good signs emerging all over the place. Employment growth has been steady across most industries (some 123,700 new workers over the past 12 months). Although high tech is still weaker than in years past, activity is increasing and orders are extremely robust. The housing market has been a solid contributor to our economic strength. Optimism is high in many sectors that the pace of hiring will pick up in the near future and that the current momentum will build into a lasting growth pattern.
My latest projections for the state economy call for expansion in output (real gross product) of 4.15% over the next five years. (These percentages are compound annual growth rates, meaning they reflect changes in the size of the base from which growth is calculated.) Population is expected to expand at a 1.80% yearly pace, while the number of jobs grows by 1.96%. Look for income to be up 3.65% per annum through 2009. A variety of factors are contributing to this projected growth, though there remain some causes for concern.
The energy segment is still an important component of business activity in the state. Diversification of the economy over more than 20 years, however, has enabled the state to become less dependent on oil and has, thus, greatly reduced the boost Texas receives from an upswing in oil prices. (In fact, Texas is now a net importer of oil.) Moreover, many key growth industries of the future suffer from high crude prices and the resulting drag on the national and global economies.
While energy price fluctuations do not have as great an overall impact as in the past, the energy sector is still a notable driver of the state’s economy. Some segments of the Texas economy (such as oil and gas extraction and related services) and specific geographic areas (such as the Permian Basin) clearly benefit from high crude oil prices. In addition, Texas is the nation’s leading producer of oil and gas with 20% of crude and 26% of natural gas production and realizes gains from the sale of these products to other states. Currently, the petrochemical and refining industries account for some 23% of Texas manufacturing output and about 3% of the state’s total output, while providing jobs for less than 1% of Texas workers.
Manufacturing continues to play an important role in the state’s economic growth, accounting for just under 10% of the total nonagricultural jobs. Approximately 95% of Texas’ merchandise exports are manufactured goods. Texas is the second largest state in the number of jobs in computer and electronic product manufacturing.
Almost all of the state’s manufacturing businesses employ less than 500 workers. The future success of these companies will depend in part upon their ability to adopt new technologies and techniques and the extent to which they institute effective business practices.
Foreign trade is another source of growth. Texas is the nation’s leader in the volume of exports with approximately $98.85 billion last year, some 14% of the US total. There are over 230 countries around the globe that import Texas products and services. Last year, business with Mexico accounted for nearly $41.6 billion and represented 42% of the total Texas trade.
The inter-related nature of the economies of Texas and Mexico is evident, and the flow of goods and people is vital to the ongoing economic health of families, corporations, cities, regions, and states. Interaction with our neighbor to the south is one of the primary drivers of economic growth in many areas of the state. Over the past 12 years, the volume of Texas exports to Mexico has almost tripled.
Key export goods include computers and electronic equipment, chemicals, nonelectrical machinery, transportation equipment, petroleum and coal products, electrical equipment, appliances and parts, fabricated metal products, processed foods, agricultural goods, and plastics and rubber products. Continual growth in exports bodes well for the state’s top exporting industries.
In conclusion, economic prosperity is expected for the Lone Star State through the forecast horizon, with key forces now in place designed to enable substantial expansion over the next several years.