I recently prepared my long-term forecast for the US and Texas economies. This is the twenty-fourth year I’ve analyzed the underlying conditions in the nation and state using my econometric models in order to form projections of future growth. After an extensive review of thousands of data series, I can tell you that (in a nutshell) we’re looking good. There are certainly situations that bear watching, but most of the signals I’m seeing today are clearly positive. Here are some highlights from our soon-to-be-released forecast; watch for further specifics in the weeks to come.
The US economy is poised for advancement, and its position in the global arena is encouraging. Demand for US goods and services is growing, and modest expansion in employment is continuing. Increases in productivity are being maintained. Long-term growth will be sparked by a number of factors. Key aspects of these favorable expectations include the following.
Business conditions are projected to improve across a spectrum of industries ranging from core manufacturing to services as worldwide demand rises. As a result, employment gains are likely to continue in most sectors, with increasing productivity allowing for growth in corporate earnings without undue inflationary pressures.
Inflation is expected to remain relatively low through the forecast horizon. Although energy costs will put upward pressure on prices throughout the economy, globalization and enhanced productivity will likely mitigate these conditions and contribute to price stability. Interest rates are anticipated to experience limited hikes as the Federal Reserve works to control inflation in the near term. However, no dramatic action is expected, and rates will likely edge up in the decades to come.
Technology will continue to be increasingly and extensively incorporated into business activities, improving efficiency, enhancing productivity, and allowing for the development and production of advanced goods and services.
On the downside, several factors could have a dampening effect on future expansion. First, given strong growth in worldwide demand for petroleum products and supply constraints, energy prices are expected to remain at relatively elevated levels over the forecast horizon. These high prices will eventually work their way through the economy. High prices and US dependence on events in turmoil-stricken areas of the world illustrate the need to enhance America’s capacity to produce fuel through such means as improving technology for extracting fossil fuels from domestic oil and gas fields and developing renewable energy sources.
Another issue involves funding for healthcare. Many Americans struggle to obtain and afford healthcare coverage. At the same time, many healthcare suppliers are strained to provide care to the growing numbers of persons without insurance. Quality healthcare is essential to long-term prosperity and quality of life. Proposals have surfaced which aim to solve this problem, but implementation will prove difficult and costly.
High budget deficits and trade imbalances are likely to be around for a while. Excessive budget deficits can crowd out investment in the private sector. High trade imbalances can leave the US vulnerable to currency fluctuations, inflation, and interest rate increases. These risks appear manageable at the moment.
Turning now to the outlook for Texas, the state was somewhat slow to come out of the recent recession. Nonetheless, the pace of expansion has improved, and the state now stands to be a growth leader. There have been significant changes in the Texas economic landscape over the past few years, as the Lone Star State has increased economic diversity. Proactive economic development efforts such as the Texas Enterprise Fund have contributed to rising interest and created myriad opportunities, and the state now leads the pace in new corporate locations and expansions.
The job market is experiencing widespread gains, and the near-term outlook for hiring is good. Higher education is significantly impacting the state’s economy, with increases being achieved in the number of skilled and trained workers. The large and growing pool of potential employees will serve as a competitive advantage for the state over the long term.
One source of growth is international trade. Texas is now the leading state in terms of export volumes; as economies around the world continue to develop, Texas will benefit from enhanced demand for its products. The housing market is also contributing to prosperity, and is expected to continue to do so over the long term, though real estate cycles are likely.
Technological advances and more efficient uses of resources have effectively increased business operations and overall productivity. In addition, high-tech activity continues to expand, with research and development in emerging fields escalating; new facilities and programs are aggressively being promoted and will serve as future sources of growth.
Rising energy demands and elevated prices of petroleum are proving advantageous for various segments and geographic areas. Renewable energy development is expected to provide much-needed stimulus to many areas of rural West Texas.
One sour note for several communities is the upcoming round of military base closures; these areas stand to lose thousands of jobs. Over time, these facilities will likely find productive uses, but short-term disruptions are inevitable. Moreover, growth in Texas business activity is inextricably linked to performance of the national economy, and any slowdowns in US expansion will affect the Lone Star State.
All in all, I remain very optimistic about the decades to come. The underlying structures of the state and national economies are sound. In addition, the right things are happening to help ensure long-term prosperity. Key corporate locations and expansions, for example, are helping solidify Texas’ position at the forefront of the next wave of technology. As I said at the outset, we’re looking good!