Optimism for the Future
Recent announcements indicate that Texas employers added nearly 125,000 wage and salary jobs during the past 12 months. December was the sixth consecutive month of job increases in the Lone Star State. These advancements should continue over the next few years, with all industrial sectors projected to see moderate gains in the number of workers. Compound annual growth rates (CAGR) from 2004 to 2009 for the various sectors range from 2.55% in Services to 0.66% in Mining.
During the short term, the Services sector is expected to continue to play a highly important role in the state’s economic health. Last year, Services generated 19.10% of the aggregate amount of Texas real gross product (RGP or output). This level of contribution is projected to remain stable through the next five years, with Services sector output growth forecast at 4.17% per year.
Over that timeframe, some 412,500 workers are projected to be added to the sector, raising the Services job total to approximately 3.49 million or about 31.57% of the overall employment across the state. The yearly increase from 2004 to 2009 is predicted to be 2.55%.
By 2009, the number of jobs in the Trade sector is anticipated to grow by nearly 243,600, which reflects a compound annual expansion rate of 2.05%. Of the total employment in the state in 2009, Trade should account for some 22.87% with about 2.53 million workers. Wholesale and retail trade will likely generate 18.95% of the aggregate Texas RGP that year.
The Government sector is forecast to also have a significant impact on jobs across the state over the next five years, with an addition of approximately 127,800 workers. The total number in this sector in 2009 will probably be about 1.93 million, accounting for 17.44% of overall employment in Texas. The 2004-2009 employment CAGR for this industry is anticipated to be 1.38%. During the five-year timeframe, the Government sector should produce 10.30% of the state’s total output.
From 2004 to 2009, the projected employment gains for the other industrial sectors are: Transportation, Communications, and Utilities, 59,610; Construction, 58,060; Finance, Insurance, and Real Estate, 45,210; Durable Manufacturing, 43,810; Nondurable Manufacturing, 19,960; Agriculture, 7,660; and Mining, 4,960.
Anticipated employment per annum growth rates for these sectors over the five years are: Transportation, Communications, and Utilities, 2.12%; Construction, 1.83%; Finance, Insurance, and Real Estate, 1.63%; Durable Manufacturing, 1.53%; Agriculture, 1.08%; Nondurable Manufacturing, 1.05%; and Mining, 0.66%.
The expected percentages of the total number of jobs in Texas to be represented by these sectors in 2009 are forecast to be: Construction, 5.75%; Durable Manufacturing, 5.44%; Transportation, Communications, and Utilities, 5.42%; Finance, Insurance, and Real Estate, 5.26%; Nondurable Manufacturing, 3.56%; Mining, 1.38%; and Agriculture, 1.33%.
Over the next five years, job growth in Texas is projected to be broad-based, with moderate increases in all industrial sectors. The future is challenging, but it is also fraught with opportunities.
posted @ 09:37 AM CST [link]
Friday, January 21, 2005
Dollar Weakness
During the course of an average year, I give hundreds of speeches to groups of all types. I always try to interject a little humor as not all of you share my fascination with the arcane world of economics and statistics. One joke always gets a laugh, a sure indication of the underlying kernel of truth. In essence, it goes like this: if you laid all of the economists in the world end to end, they’d still point in every direction. In other words, agreement is a rare thing indeed.
The current situation with regard to the weakening dollar is no different. However, the range of opinions is perhaps outstanding even for my chosen profession. On the one hand are those who spout forth gloom and doom over a coming crisis that will shake the foundations of the US economy, tank the stock market, and cause interest rates to soar. Others describe the same situation as one that will benefit the US economy by making our exports more affordable and moving the dollar closer to a value compared to other currencies that is sustainable in the long term. The majority of us, myself included, fall somewhere in the middle. First, a few facts.
The dollar has fallen against the currencies of our trading partners over the past few years, down some 15% since 2002. Why the drop? Currencies trade in markets, and prices are largely driven by the supply and demand for dollars. The supply rises when the US runs a large budget deficit, as has been the case since 2002 (largely due to the war on terror). Currently, deficit spending is causing the US to dump another $1.5 billion on the market every week in the form of dollar-denominated treasury securities sold on the open market. If, as a group, US consumers and companies are spending more than they are saving, foreign investors and central banks take up the slack, buying corporate bonds and other securities. In times of political unrest, dollar-denominated securities become more attractive because the US involves the least political risk of any country on the globe.
The delicate balance of supply and demand of dollars sets the exchange rate, which is the dollar’s value in terms of other currencies. Foreign trade is affected by (and, in turn, affects) exchange rates. As the dollar becomes weaker, US goods are more affordable to foreign consumers—it takes fewer yen, marks, or yuan to purchase the same US computer, television, or other good than when the dollar is stronger. At the same time, imported goods (and international travel) become more expensive for Americans. This is generally a good situation for the US, with rising exports generating economic activity.
However, problems arise if the dollar falls too far too fast. Weakening currencies hold little appeal for foreign investors; a position in a dollar-denominated treasury bond loses value as the dollar weakens. To compensate, interest rates would have to rise. Everything from the housing market to business investment to consumer goods companies to the rest of the economy would suffer. But the worst-case scenario assumes dollar demand falls precipitously, and, frankly, that’s unlikely. The US remains one of the safest places to invest, and confidence in the stability and security of the US economy is high.
Another, perhaps more ominous, aspect of currency markets is that they are not totally driven by economics. There is some buying of dollars that is politically motivated. For example, China now holds hundreds of billions of dollars and dollar-denominated securities. By threatening to stop buying or (even worse) begin selling, China could conceivably cause the dollar to slide further against world currencies. Given that Beijing is not too happy about the mega-deal for the US to sell weapons to Taiwan, the motivation to wreak havoc in our economy could be there. However, the sheer size of China’s holdings makes such a course of action unlikely in that the loss in value of those investments would take a toll on the Chinese economy. If they threaten the dollar, they also lose. This fact is also magnified by the large quantities of Chinese goods purchased by US consumers and businesses.
At the end of the day, that may be what keeps a major crisis from ever occurring. The world’s economies are so intertwined that a slowdown in the US is bad for virtually everyone. While it may take market intervention by some group of countries at some point in the future to stabilize the dollar and restore historical parity, the motivation to do so will be very strong.
All in all, it’s generally a good thing for the dollar to decline in times when we are sporting record trade deficits. It helps maintain a healthy balance and stimulates purchases of US goods and services. If it were just economic forces at work, I would be firmly in the camp of those economists who view the current situation as a positive development for the US. The political games that could be played, however, present something of a concern, but nothing to lose sleep over at this point.
posted @ 07:35 AM CST [link]
Friday, January 14, 2005
They’re B-a-a-a-a-a-ck! ! !
It’s an odd-numbered year. The Christmas decorations are packed away, and the bowl games are over. That can only mean one thing—the Texas Legislature is back in session!!
This year’s 140 days (at least) promises the usual unpredictability, but involves a somewhat different set of parameters than the last time around. Twenty-four months ago, the gavel came down with Texas facing a sluggish economy and a $10 billion budget deficit. This time around, business activity is more robust and, according to current estimates (which are sure to be revised), there is a scant $400 million surplus if current services are maintained (a lot of money to you or me, but close to “round off error” in the world of State government finance).
In essence, we start out even. (There is actually projected to be $6.4 billion more in general revenue over the next biennium, but with inflation and larger population, it takes $6 billion just to stay where we are.) It must be remembered, however, that the balancing act of the last session brought on significant cuts in indigent healthcare and led to substantial dislocations and hardships (and the loss of more than $1 billion in federal money). Higher education also felt the crunch of the state’s budget ax. In addition, the governor has designated public school finance and child and adult protective services as “emergency” items. None of these are cheap.
The primary focus of the Session is likely to be the funding of elementary and secondary schools. Property tax reduction is a high priority, and many are concerned with the “Robin Hood” concept which underlies our current approach. There are also court mandates regarding the adequacy and solvency of the system. While the final resolution of the litigation remains in the appellate process, there is no doubt that (1) Texas school spending per pupil lags that of most other states and (2) there is a disproportionate reliance on local revenues. I try to stay as close to economics and as far away from politics as possible, but this topic is infused with election intrigue and may very well be the litmus test for who runs for what against whom in 2006. To reduce property taxes and at the same time increase education funding is going to demand that a new source of revenue be found—and we all know how popular that is! This subject alone is more than sufficient to keep the fireworks exploding this session, I’m sure.
During the 2003 session, the governor and the Legislature did an excellent job of enhancing our economic competitiveness. Judicial reforms brought a more equitable and predictable legal climate, and the creation of the Texas Enterprise Fund and other development initiatives transformed the Lone Star State from an also-ran to the top location for new activity in the country. In 2005, there will be a concerted effort to continue the Enterprise Fund (which is funded through the “rainy day fund”) and to create a similar vehicle to support major initiatives aimed at commercializing new research and technology. All of us have a huge stake in these and other proposals that keep Texas expanding in the global marketplace. The challenge will be finding the money to accomplish these goals.
In the midst of all of this brouhaha, a budget must be fashioned which accommodates highways, public health and safety, the environment, the judicial system, and a host of other priorities. The challenges are notable indeed, and for all of the criticism they sometimes endure, I can assure you that many of our lawmakers from both parties work long and hard trying to do the right thing. They may disagree on the answers, but they step into the arena seeking to make Texas stronger for all of us. There will be some surprises, rest assured, and none of us (including me) will like everything that happens. I wholeheartedly encourage all of you to not only enjoy the show, but also participate in the process.
posted @ 07:34 AM CST [link]
Friday, January 7, 2005
Texas Regions to Experience Positive Growth Over Short Term
During the past five years, the economies of Texas’ 13 regions have been relatively healthy, with most areas seeing modest gains in key indicators such as population, employment, real gross product (RGP or output), retail sales, and real personal income. The next five years should see noteworthy improvement in all categories.
The 13 economic regions, realigned from 11 in 2002 by the State Comptroller’s Office, encompass all 254 Texas counties. Their geographic size and population density vary greatly. The Capital Region has the smallest land area, and ranks 3rd highest among the regions in terms of people per square mile. The West Texas Region is the largest geographically; the Metroplex Region has the greatest population density. The number of counties in the various regions ranges from 6 in the Upper Rio Grande Region to 41 in the High Plains Region.
From 1999 to 2004, the Capital Region had the fastest growth in population in the state with a 3.16% compound annual growth rate (CAGR). The per annum expansion rates for the other 12 regions ranged from 0.11% (West Texas) to 2.42% (South Texas). The region with the highest number of additional residents over the five-year period was the Metroplex, with approximately 672,800.
During the years from 2004 to 2009, the Metroplex Region is projected to again experience the largest increase in population, with an addition of more than 631,600 people. The Capital Region is forecast to achieve the highest CAGR in population over the five-year timeframe. The annual population hike among all regions is expected to range from 1.06% to 2.30%.
The regions’ yearly gains in wage and salary workers from 1999 to 2004 varied from -0.02% for Northwest Texas to 2.56% for South Texas. The greatest number of new jobs created during that timeframe was in the Gulf Coast Region, with some 92,600.
Over the next five years, while the Metroplex and Gulf Coast regions are predicted to experience the largest increases in the number of workers, the region with the highest per annum employment hike is expected to be the Capital Region. The 2004-2009 compound annual growth rates for the 13 regions in the state are forecast to range from 1.67% to 2.16%.
Leading industrial sectors in terms of percentage of aggregate Texas workers in 2009 are projected to be services, wholesale and retail trade, and government. These industries should account for about three-quarters of the total number of workers in most of the regions across the state.
During the period from 1999 to 2004, two regions experienced real gross product increases of more than 3.00%, and six others achieved RGP growth beyond 2.00%. Over the next five years, all regions are anticipated to see per annum expansion greater than 3.67%, with four having above 4.00% annual output gains. Both the Capital and Metroplex regions should exceed the state RGP annual growth rate of 4.15%. These regions will also likely top the state retail sales and real personal income by place of residence annual increases.
The services, wholesale and retail trade, and government industries are expected to be among the major economic generators in all regions over the five-year forecast horizon. The finance, insurance, and real estate and durable manufacturing sectors will also be key economic contributors in more than half of the regions.
Every region is poised to help boost the state economy over the next five years. Those encompassing the major metropolitan statistical areas will likely make the most substantial contributions.
posted @ 08:21 AM CST [link]