Start Your Engines
The familiar “start your engines” summons that will be heard at the famed Indianapolis Brickyard and the Charlotte Motor Speedway in North Carolina this weekend not only signals the beginnings for two historic and lengthy automobile racing events, but it also marks myriad Memorial Day festivities and the launching of America’s summer driving season.
The special remembrance was originally known as Decoration Day when it began as a way to honor soldiers who had fallen in the Civil War. The current name of Memorial Day came into use after World War II when it became a national day of tribute. Since 1971, the holiday has been observed on the last Monday in May.
Although many communities still hold special parades and celebrations to salute the fallen, the Memorial Day weekend has essentially morphed into a time of family gatherings, picnics, and sporting events. In addition, because Memorial Day nearly coincides with the traditional closing of public schools and the scheduling of family vacations, the weekend has traditionally become the summer driving season’s starting point, even though the season technically extends from April through early September.
In recent years, the number of motorists on the highways during the summer has been impacted by economic conditions and fuel prices. The more troubling and less stable the economy and the higher the costs for gasoline, the less travelers venture away from their home surroundings. This year, as in the past, those same factors are expected to come into play, but this time, they will likely be positive influences in determining driving patterns.
The debt problems that are near the top of the agenda of many European nations have played a role in undermining confidence in the general global economic strength. As a result, expectations for worldwide energy demand have been lowered, albeit probably only temporarily, thus freeing up potential supplies.
US inventories of gasoline have been rising lately and, at the beginning of May, the nation’s oil storage levels were 5% more than at this time in 2009. Moreover, the output of refineries has been increasing faster than the demand during the domestic recovery phase.
Political unrest in oil producing countries always has the potential to unsteady supplies, but currently the problems in those areas have been significantly muted, and violence and tensions in the oil rich areas of the Middle East, Africa, and South America are less intense and more infrequent than at times in the recent past.
Even the major oil spill in the Gulf of Mexico, while certainly a critical environmental situation and a political nightmare, is not affecting fuel prices since it is having such a slight effect on petroleum production at this point (expectations about future policy directions could alter this market response down the road).
With most of the potential impediments to production and prices greatly lessened and with desires for traveling having been pent-up to a great degree over the past two years, the AAA Travel Club predicts more motorists will be on the road this weekend and the rest of the summer than seen in the recent past. The latest patterns in consumer confidence are also improving.
There still may be a pinch at the pumps in some areas of the country, but with refinery production in excess of demand, the average price for fuel is anticipated to remain well below the $3 per gallon level that was so rampant just a couple of years ago.
Thus, we have reached a time when, as Texas icon Willie Nelson would croon, America will be “on the road again.” Since summer travel dramatically affects so many sectors in a positive way, that’s good news for our economy.
So, “Ladies and gentlemen, start your engines!”
posted @ 08:15 AM CST [link]
Friday, May 21, 2010
Winds of Prosperity
Over the past decade, clean energy has taken on new importance as a social and economic priority. The industry cluster has already experienced considerable growth, and the US now leads the world in wind capacity. Texas has been the site of much of the new development and now surpasses all other states in terms of total wind capacity.
Development of wind power and the associated transmission and other infrastructure is good for the state economy, creating jobs now and in the future. It also leads to cost savings to customers. In a recent study, my firm (The Perryman Group) estimated these economic effects. (Check our website for a complete copy of the report at www.perrymangroup.com.)
Construction and development of wind capacity prior to the recent approval of a major power transmission initiative has provided an economic stimulus including an estimated $26.1 billion in total spending, $12.6 billion in output (gross product), and 157,728 person-years of employment (full-time equivalent jobs during the build-out period). Ongoing operations of these facilities lead to gains of $1.6 billion in annual total spending, $530.9 million in output each year, and 3,876 permanent jobs. When current manufacturing and related activity is included, the total effects rise to almost 10,000 jobs.
However, expansion of wind generation has outpaced the capacity of transmission lines within the state, and investment in infrastructure is now needed to assure ongoing development. To alleviate current constraints and accommodate future growth, ERCOT (Electric Reliability Council of Texas) is reviewing several proposed transmission projects spanning the next five years, including the recommended Competitive Renewable Energy Zones (CREZ) transmission investments with an estimated cost of around $5 billion. This initiative allows the transmission of power from wind-intensive regions of the state to population centers with growing needs for power.
The Perryman Group found sizable positive economic impacts of the CREZ transmission investment on business activity. These benefits are realized across the entire ERCOT region, both near the transmission route and elsewhere. In addition, as the mix of fuels used for power generation in Texas becomes more diverse, cost savings can be expected.
Because wind turbines never have to pay for fuel, their cost of operation does not increase the more they are used. So, as more wind power becomes available on the market, it has a greater influence on wholesale market prices. The net result is a lower overall cost of electricity. This results in reductions in rates for residential, commercial, and industrial customers that exceed the long-term cost of the CREZ investments. This effect already has been seen in the West Texas wholesale market for electricity.
The three major categories of ongoing effects stemming from the CREZ transmission investment (operations and maintenance of the transmission facilities and wind farms, royalty payments, and cost savings stemming from improved fuel diversity) can be summed to obtain the total benefits the program will generate. Two scenarios were formulated to illustrate the potential gains from fuel diversity with varying assumptions regarding input fuel prices.
Assuming generation fuel prices equal the average over the 2003-2009 period, the total ongoing impact of the CREZ transmission investment is some $12.5 billion in annual total spending, $5.3 billion in output, and 61,682 jobs (approximately the size of the air transportation industry in the state). This additional business activity, in turn, leads to increased tax revenue and other receipts to various taxing entities of an estimated $365.8 million per year to the State and $160.4 million per annum to local governments.
If generation fuel prices are higher (as they were in 2008), the cost savings and overall effects rise substantially. For the state as a whole, the ongoing effect of the CREZ investment rises to an estimated $23.6 billion in annual total spending, $10.5 billion in output (gross product) each year, and 125,915 permanent jobs (about the same as computer and electronics manufacturing). The increased economic activity leads to additional fiscal receipts to the State of an estimated $758.0 million per year, with $330.2 million to local governments.
To state this another way, once the CREZ build-out occurs, the typical residential customer will save between $160.93 and $354.94 per year (fully accounting for incremental transmission costs) resulting in a stimulus to the economy of $454.44 to $995.60 in total spending and $216.76 to $478.03 in gross product.
Increased transmission infrastructure connecting CREZ with the ERCOT grid allows for greater development and utilization of the state’s wind capacity, which helps conserve crucial resources (such as water) and reduce emissions. In fact, the CREZ-enabled wind development is predicted to conserve approximately 17 billion gallons of water annually and lead to reductions in emissions including up to 16% in CO2 and 13% in NOx. The CREZ transmission investment will also help solidify Texas’ position at the forefront of wind power, renewables, and associated industries. If Texas becomes the leader in associated research and manufacturing, it could, under reasonable assumptions, bring more than 40,000 additional permanent jobs to the state.
Clearly, this ambitious and enlightened investment stands to pay notable dividends to Texans and permit the state to enjoy the “winds of prosperity” for generations to come.
posted @ 08:23 AM CST [link]
Friday, May 14, 2010
Texas Tops the Lists
In almost any area of life, someone (or something) tends to stand out from the crowd. When comparing the economic performance of the nation’s metropolitan areas, particularly with regard to employment growth and technological advancements, the standout is Texas.
A recently-released study of both large and small US metros indicates quite a bit of difference in the degree of success in creating and sustaining jobs and economic expansion. In the 2009 Milken Institute/Greenstreet Real Estate Partners Best-Performing Cities listing, the 200 largest and 124 smaller metros across the country were ranked, with cities in the Lone Star State on top.
The 2009 report shows that of the 25 best-performing large metros, nine are in Texas. Louisiana and Washington follow with three each. The remaining are scattered among 10 other states. Perusing the 124 smaller metro areas, nine from Texas are again in the top 25. Among the other 14 states included, only New York and Washington have more than one metro designated as a leading performer.
In each of the large and small metro categories, four of the best five are located in Texas. The nation’s highest ranked large metropolitan statistical area (MSA) is Austin-Round Rock, which moved up from fourth in 2008. In second place is the Killeen-Temple-Fort Hood metro, followed by McAllen-Edinburg-Mission in fourth, three steps up from its 2008 ranking. In fifth place is the Houston-Sugar Land-Baytown metro. Both the Killeen-Temple-Fort Hood and Houston-Sugar Land-Baytown MSAs moved up 11 spots from the 2008 ranking. While this report is among the most cited report cards for America’s cities, several others have told a similar story.
Among the smaller metros, the Midland MSA took first, a repeat performance from 2008. Longview was second, up from seventh in 2008. The Tyler MSA made the biggest jump from 2008, moving from 26th place to fourth. The Odessa metro climbed from 10th to fifth.
Regional economies and resources played a major role in the 2009 ranking of the nation’s metros. Among the qualities Texas brought to the table in defining its economic strength was the state’s favorable business climate, its ongoing population growth and influx of skilled workers, and its success in attracting businesses to expand or relocate.
Another key factor is directly traceable to the general stability of the state economy, buoyed by the oil and gas sector, technology manufacturing, and alternative energy opportunities. The economy of the Austin-Round Rock MSA, in particular, was noted for the significant support it receives from its strong high-tech industries.
For the most part, all of the Texas metros listed among the top performers for 2009 avoided the brunt of the economic strains caused by housing market failures, manufacturing and trade declines, tight credit, and extensive job losses so prevalent across the nation over the past couple of years. Because they avoided the worst (though certainly not all) of the recent calamities, many Texas metros have been able to more easily adapt to the circumstances they faced and make positive strides, even if smaller than we might like in the early part of the recovery.
posted @ 08:07 AM CST [link]
Friday, May 7, 2010
Immigration
Seldom has affixing a signature to a document brewed such a firestorm as that which has followed Governor Jan Brewer’s signing of the new Arizona Immigration Law almost two weeks ago.
Reaction to the passage of SB1070 has been quick and varied. From Washington, DC to California and states in between, politicians, pundits, and ordinary citizens have been free with their comments, many of which have been based more on fears and possibilities than facts.
The bill (scheduled to go into effect in August) authorizes Arizona police to check the legal status of anyone suspected of being in the US illegally if the person is also considered to be a participant in an unlawful act. (This is a notable change from an earlier draft which allowed the checks for any reason.) Governor Brewer has specifically prohibited state law enforcement officers from engaging in racial profiling and has authorized special training to be instituted prior to the law’s implementation in order to assist police in proper procedures for enforcement. Even so, the immigration debate is raging and, such a limitation would likely be impossible to enforce.
No one denies that the Constitution explicitly puts the protection of our nation’s borders in the hands of the federal government. Through the years, various attempts have been made to secure the 1,969-mile boundary between the US and Mexico, of which nearly 20% forms the southern Arizona border. However, political leaders in Arizona claim that all such attempts have failed to thwart the thousands who continue to cross into their state illegally.
The last major federal government effort to curb illegal immigration was in 2007 when President George Bush attempted comprehensive immigration reform but was not successful. According to the National Conference of State Legislatures, since then, 48 states have considered measures to reform immigration laws. Last year, state legislatures enacted 222 laws and 131 resolutions on the subject. None of them, of course, were as strident or comprehensive as the one recently approved by the Grand Canyon State.
Arizona officials, claiming that the state had basically been receiving only empty promises from Washington, decided to take unilateral action in response to the all-too-common violence along the border. Although the state law amounts to little more than a call to enforce federal requirements, this past weekend, thousands of those who objected to the Arizona law staged protests and marches in many of the major cities across the country. Declarations of the law being both unfair and unconstitutional took center stage. Calls for boycotts rang out loud, and some parents even began to give consideration of removing their youth from the state university.
In a 2008 study, my firm, The Perryman Group, found clear evidence that undocumented workers are currently making contributions to the US economy and society, especially in certain industries and occupations. If all undocumented workers were removed from the workforce, a number of industries would face substantial shortages of workers, and Americans would have to be induced into the labor pool or provided incentives to take jobs far below their current education and skill levels. For the US as a whole, the short-term negative effect of eliminating the undocumented workforce would include an estimated $651.5 billion in annual lost output (gross product) and 8.1 million lost jobs.
Even after the economy had a chance to adjust, the economic cost of eliminating this important resource would include almost $245.0 billion in lost output each year and more than 2.8 million less jobs. In addition, the adjustment process would be difficult to achieve in a reasonable period of time. Evidence suggests that many agricultural enterprises are not sufficiently strong financially to survive even a single year in which crops could not be harvested and marketed. Thus, the underlying productive apparatus would be dismantled, resulting in lengthy delays and substantial obstacles to efforts to overcome the initial effects. Similarly, the inability to complete construction projects in a timely manner could lead to alternative and suboptimal land use that would have lasting adverse consequences. Many communities that are dependent on tourism would also have their fundamental structures undermined in a permanent fashion.
Additionally, the adjustment process would likely require substantial wage escalation, thus eroding competitiveness in global markets. While there are a number of native-born Americans who are unemployed, the skill and education levels are highly mismatched with the types of jobs that undocumented workers typically fill. Growth in the domestic workforce is quite modest, and the geographical distribution of available US workers relative to high concentrations of undocumented labor is also not conducive to extensive substitution, as the undocumented immigrants tend to locate in areas of high demand.
Clearly, the economic stakes are high, and any policy should be carefully implemented to avoid excessive fallout. Whatever may be the eventual changes in US immigration policies and practices, there is no doubt that the new Arizona law has been the catalyst that has once again pushed the subject to the front burner of the political spectrum at a most inopportune time for those seeking election or re-election. Solutions are being demanded, and the outcomes of numerous impending local, state, and national races, as well as our national culture, could be impacted by forthcoming decisions. There is no doubt that responsible reform is needed, but it must be structured in a manner that realistically recognizes the realties of the US economy.
posted @ 08:02 AM CST [link]