The Outlook for Texas' Major Metro Areas The overall economic development of Texas is significantly influenced by the major Texas metro areas. Together, they represent approximately 72% of the state’s total employment. This week, I highlight key findings from my recent long-term forecast.
Over the next 30 years, the Austin-San Marcos Metropolitan Statistical Area (MSA) is projected to see continued positive economic progress, even though the pace will be slightly less than that experienced during the past several years. The metro area’s expansion in output of 4.57% per annum places it well ahead of the Texas pace of 3.89%. (All growth rates are compound annual growth rates, meaning they reflect changes in the size of the base from which growth is calculated.) The area’s economic strength is expected to be sustained by diverse business activities, especially within the realm of high-tech. Although the recent slowdown in national and global performance has dampened the demand for microelectronic components and computers, leading indicators suggest that these sectors are in the early stages of recovery. Government and higher education sectors, as well as the trade generated along the I-35 Corridor, will provide stability and continue to play highly important roles in future economic expansion.
The Dallas Primary Metropolitan Statistical Area (PMSA) is predicted to experience significant economic expansion over the long term at a 4.24% per year clip, but the annual rates will be not be as high as during the past decade. The synergy of domestic high-tech manufacturing, the area’s position as a financial center for much of the southwest, and the region’s notable presence of high-tech manufacturing firms should greatly enhance the area’s long-term economic growth. The global weakness in electronics and telecommunications equipment demand is dampening near-term performance, but both industries contribute to expansion over the next three decades.
The El Paso MSA is forecast to see considerable economic growth over the long term, expanding by an estimated 3.30% per year. However, the rates will be less than that which Texas and the other major metropolitan statistical areas will experience. NAFTA-related business activity will strengthen as Mexico’s economy resumes its upward swing.
During the years from 2001 to 2030, the Fort Worth-Arlington PMSA is forecast to see positive growth in output (4.04% per annum), though the overall economy will likely climb at a pace somewhat under the growth rate of recent years. The area’s proximity to the I-35 Corridor, a major thoroughfare for NAFTA export-import activity and distribution throughout the US, as well as a continuing trend toward diversification, improve the area’s prospects for prosperity. The ongoing success of Alliance Airport and surrounding developments also bodes well for the area.
The economic environment of the Houston PMSA has continued to experience expansion beyond oil and gas and related industries through the years, but still has strong ties to the energy sector. This metro area will continue to serve as a major trading port, and the expected expansion of the manufacturing, tourism, healthcare, and biotechnology industrial sectors will contribute significantly to its positive long-term outlook. Growth is projected to occur at a 3.85% annual clip.
The economy of the San Antonio MSA has been greatly enriched by the various activities associated with NAFTA, as well as developing trade with other markets to the south. These associations are expected to be strengthened over the long term and be important contributors to the area’s output, leading to a growth pace of 3.67% per year. The military presence, complemented by the growing diversity in business operations and a continued inflow of tourism dollars, will also prove highly beneficial to the area’s overall economy (although anticipated future rounds of base closures generate a degree of uncertainty). The aging of the population of Texas and the US will increase the need for healthcare, providing further stimulus to the area’s substantial healthcare-related industries. Though the growth rates for the region will be healthy, they are expected to be less than those of the previous decade.
In conclusion, overall advancement will maintain a healthy pace, though not as rapid as in the past few years. Particularly strong growth is projected in high-tech manufacturing, computer-related activities, healthcare industries, and tourism. In addition, demands for energy are projected to increase and positively affect the traditional oil-based economies of some regions in Texas. International trade and the growing diversification of business operations will continue to strengthen and expand the state’s economic prosperity over the long-term forecast horizon.
Looking Ahead for Texas For the past several years, the economy of Texas has expanded at a faster rate than the United States as a whole. While still in the process of rebounding from the traumatic events of September 2001, the Lone Star State is experiencing significant progress, and the positive momentum now underway is projected to sustain economic expansion through the long-term forecast horizon (2001-2030). Although a few key sectors are lagging in the aggregate economy at present, the pattern of growth is again well established. Here are some key findings from our recent forecasting effort.
A key factor in Texas’ future economic path is demographics. Currently the second most populous state, the number of Texans is predicted to reach about 32.75 million in 2030, an expansion of some 11.53 million. Hispanics will account for much of this growth, and by 2020 Hispanics will outnumber non-Hispanic whites. The population is forecast to become increasingly more diverse, with minorities anticipated to represent some 63% of the state’s total population by 2030. No ethnic/racial group will be a majority.
A predominantly urban state, approximately 85% of Texans reside in metropolitan areas. During the last ten years (1991-2001), the state’s 24 MSAs accounted for some 91% of the population growth. By 2030, Houston is expected to comprise 20.42% of the total number of Texans. Dallas will be the second largest city, with 18.11% of the aggregate population. In general, most population growth in the future will occur in areas along the I-35 Corridor.
In terms of the employment picture, Texas will continue to shift toward a services orientation, despite solid growth in myriad other segments of the economy. Over the 30-year forecast horizon, the number of workers in Texas will likely climb to 17.50 million (using the wage and salary measure of employment), a 1.88% CAGR and an increase of about 7.30 million over the current 10.19 million. By 2030, approximately 33.84% of all jobs (5.9 million workers) are expected to be in the services industry, reflecting a 2.40% CAGR in that sector.
Texas is predicted to have about 24.22% of the total number of wage and salary workers in the wholesale and retail trade sector in 2030. This percentage represents some 4.2 million jobs and an annual expansion rate of 2.06%. The third largest sectoral employer over the long-term is projected to be government with 14.55% of the total workers, reflecting a 1.34% yearly rise.
Export-related activity will be an important generator of business activity. As the nation’s second largest exporting state behind California and the leading trading partner with Mexico, as well as the sixth ranked state in exports to Canada, global trends are expected to contribute substantially to state economic growth. Key trading partners (in addition to Mexico and Canada) over the next 30 years are predicted to be the United Kingdom, Japan, Taiwan, and various South American countries.
With the fastest growing job categories in the Texas economy forecast to be concentrated among electronic and computer specialists, as well as the medical and teaching fields, the need to expand educational opportunities and enhance skilled worker training will remain highly important. Technological advancements are expected to continue at a rapid pace in most business arenas resulting in an increase in productivity and more efficient use of resources.
Looking to specific growth rates, healthy expansion for the state is forecast over the long-term horizon. All growth rates are compound annual growth rates—CAGR—meaning that they reflect changes in the base from which growth is calculated.
Real gross product (RGP or output, as measured in 1996 dollars) is forecast to advance about 3.89% per year over the long-term horizon (2001-2030) and reach $2.21 trillion by 2030. The state’s population will likely grow at a CAGR of 1.51% over the 30-year span, expanding to approximately 32.75 million in 2030.
Employment in the Lone Star State is expected to see a 1.88% rise per annum with the number of jobs increasing to 17.50 million by the end of the forecast horizon. Texas retail sales totals are anticipated to exceed $1.64 trillion (in nominal terms) by 2030, reflecting a compound annual growth rate of 6.02%. Real personal income is predicted to climb at a yearly clip of 3.59% over the long term. By 2030, it should reach $1.54 trillion.
These growth rates are indicative of the positive outlook forecast for most industrial sectors throughout the state. The continuing implementation of aggressive economic development strategies across the various sectors and regions will likely enhance the current environment and provide the foundation for future expansion.
The Long-Term Outlook for the United States These are strange days. Even as the war on terror continues, we are facing the threat of all out war between nuclear powers Pakistan and India. Tensions remain high in the Middle East. The stock market continues to stall and the specter of overdependence on foreign manufactured goods has been raised. Even so, there are signs that the recent US economic downturn is behind us. Just nine months after one of the most horrifying events in American history, things are definitely looking up.
I must admit that the current situation makes for some very challenging forecasting. The near-term possibilities range from rather dire to very good. In the long term, I think we’ll see healthy growth. The foundation of our economy is strong, and that’s what will see us through. And on that note, let me tell you what my most recent look at the long-term prospects for the US economy turned up.
The United States’ economy is inexorably linked to the global marketplace and therefore respondent to economic fluctuations experienced by other nations around the world. Unprecedented growth and expansion during the 1990s was a product of those relationships as the US forged ahead with alacrity and determination to maintain its traditional leadership role.
In early 2001, however, evidence pointed to a slight economic downturn as numerous nations began facing a variety of difficulties. Officially noted as starting in March of that year, the slowdown was tragically exacerbated by terrorists’ actions on September 11. A sequence of events subsequently followed that led to a drop in consumer confidence and short-term financial difficulties across many industries.
Even so, the resiliency of the American spirit and the coalition garnered to fight terrorism produced a determination to overcome these trying circumstances and move positively toward the future. As a result, the US economy rebounded fairly quickly and momentum is such that this recovery is expected to continue to build, with notable growth projected over the long-term horizon (2001-2030).
The Perryman Long-Term Economic Forecast provides a synopsis of key economic projections for the US, Texas, and the state’s major metropolitan statistical areas (MSAs); I’ll hit some highlights for Texas and the major metros in future columns. Feel free to give us a call if you need more information, or visit our website at www.perrymangroup.com.
Here are some specifics pulled from the forecast. Real Gross Domestic Product (GDP in 1996 dollars) is predicted to grow by approximately 3.09% per annum over the long-term forecast horizon (2001-2030) expanding to $22.53 trillion at the end of 2030. Meanwhile, the Industrial Production Index is expected to climb at a CAGR of 3.17% during this 30-year period.
The US population is projected to top 360.80 million people by 2030, reflecting an annual growth rate of 0.82%. Employment will likely expand by 1.28% yearly, reaching 191.19 million by the end of the long-term horizon. Real personal income (RPI) is forecast to grow 3.12% per annum, attaining a total of $19.36 trillion (in 1996 dollars) by 2030. And the Consumer Price Index (CPI) is anticipated to increase by 2.24% per year, while the Producer Price Index (PPI) is expected to rise at an annual rate of 1.93% over the forecast horizon.
Without a doubt, the US economy stands poised for another sustained period of growth. However, the outlook is somewhat less favorable over the near-term horizon than in the late 1990s. Specifically, the war on terrorism and corresponding government deficit, the threat of war in other parts of the world, the slowdown in technology purchases, fear of inflation (and, hence, rising interest rates), and other changes in the US economy are negatively affecting growth prospects at this time. We do expect these conditions to abate over time, paving the way for enhanced expansionary trends for an extended period.
Texas Needs Employer-Driven Workforce Training Despite a recent slump in job creation and weaknesses in several key sectors, the Texas economy continues to outperform the nation as a whole. Nevertheless, myriad steps must be taken to ensure future successes in the increasingly complex and sophisticated global marketplace. One such issue is workforce development and job training programs. We cannot hope to be a part of the high tech, high-growth world of the future—which will encompass not only electronics and communications, but also biotechnology, alternative energy, advanced metals, and other areas not yet invented—if we cannot offer employers the capabilities of a skilled workforce.
A look at the relative demographics of Texas and other areas demonstrates that we are younger, on average, than most regions of the United States. Simply stated, we have the bodies. However, Texas currently lags other states in the percentage of persons age 25 years and over who have completed high school or college. The relatively less educated workforce increases the importance of training resources.
Traditional workforce development typically involves addressing two broad challenges: (1) meeting widespread skill shortages to avoid any future economic decline while encouraging growth, and at the same time, (2) providing the skills many workers lack so they are able to get and hold jobs that are good enough to make them self sufficient. In recent times, training availability and related grants have surfaced as important economic development criteria. With demographics leading to a tightening labor pool and skill requirements increasing, the availability of skilled workers and effective training are often the most critical factors in choosing a location. In the race for new capital investments, job growth, and new and expanding facilities, Texas was a leader in the early to mid-90s; more recently the state’s position has dropped significantly.
The demise of the Smart Jobs program has left us without a critical tool that virtually all other states have and are using in competitions for corporate locations: employer-based training. Without a quality program, Texas stands at a significant, perhaps insurmountable, disadvantage in the arena of competition for quality corporate locations. Quality corporate locations can generate substantial spillover activity throughout the economy; this activity, in turn, leads to additional job opportunities for all Texans. While other goals are laudable and should be met by other means, this program must remain focused on its core objectives.
In a nutshell, it is my belief that (1) Texas needs a focused, employer-driven plan specifically tailored to encourage location, retention, and expansion in high-skill, high growth sectors; (2) the program needs to make efficient use of the State’s resources, but be evaluated by economic development criteria; and (3) the program should be implemented using market-based incentives. The economic benefits of training are clear. They accrue to the individuals receiving the training, the companies employing them, and the economy as a whole.
Recent demographic studies suggest that if current trends continue, our population will face a declining overall standard of living. This issue has to be addressed on many fronts, some of which are much more complicated and expensive than direct worker training. An exemplary, employer-driven workforce training initiative is but one piece in a very large puzzle. It is, however, an essential piece. Human capital is the cornerstone of the modern technological business landscape. If properly developed, our growing working-age population will fuel the Texas economy for years to come, much the same way that our fertile soil and mineral deposits did in earlier times.