Ringing Out, Ringing In
A popular late-night television host frequently features a list of top ten things that pertain to a specific subject. At times they are reminders of reasons for particular happenings. On some occasions, the items fall into the forecast category. In other words, the lists can either look backward or forward.
It reminds me of Janus, the Roman god of gates and doors and beginnings and endings. His double-faced head could look in opposite directions at the same time, seeing the past while also being able to discern the future. He was worshipped at the beginnings of special times, and his depiction appears on many Roman coins around 2200 years ago.
In some respects, the Roman world was much like the one in which we live today—fraught with challenges and opportunities, some of which are conquered and some of which are missed. As we approach the beginning of a new year, perhaps it might be a good time to refresh our memories about what happened in 2005 and to briefly note expectations of what we might experience in 2006. Since I’m not a television host, I’ll not present a “top ten” list. I’ll just include a listing of a few of the more pertinent matters that have impacted our lives this year.
My list must contain the sister hurricanes, Katrina and Rita. The havoc wrought by these natural disasters (particularly the death, destruction, and disruptions of normal life) was unprecedented.
While the initial response to these events wasn’t stellar and many challenges remain, for the most part, safety, and shelter and other means of assistance has been provided. Those who faced these immense personal tragedies continue to be encouraged by helping hands from national and state governments, businesses and industries, and compassionate individuals.
High oil prices as manifested at the gasoline pumps are next on my list. While there has certainly been fallout for many industries, Texas has also experienced continued expansion in productivity and made great advances in job growth.
During the year, newspapers and airwaves have captured our attention with information about events in the Middle East. Of particular interest was the Syrian pullout from Lebanon and Israel’s voluntary withdrawal from the Gaza. But a substantial amount of news has always related to Iraq—not just because we have troops there in harm’s way, but because of the giant strides being made toward democracy by the citizens of that country. In January, the purple-fingered populace approved a constitution, and this month, the brave folks cast their ballots for new leaders of the country. These bookend events of the year are definitely worthy of inclusion near the top of any list of major events in 2005, and their consequences for our oil-hungry domestic economy are profound.
When considering names in the news to be put on my list, two individuals come to the forefront, since their actions have the potential to significantly impact our lives. They are, of course, John Roberts, the new Chief Justice of the Supreme Court, and Ben Bernanke, the successor of economy icon Alan Greenspan as Fed Chairman. Both will have considerable impact on our economic future in the years ahead.
Though assuredly not of equal importance, two other names that drew significant attention this year were Batman and King Kong. To see these fictitious characters in action in movie theaters and, thereby, contribute to the economy, Americans had to dig deep into their pockets.
Also of particular interest to many Texans this year was the remarkable turnaround season of the Houston Astros, who made it into the World Series for the first time in franchise history. And the eyes of Texas will be drawn to the Rose Bowl in a few days to see the Longhorns in action. Sports is big business these days, not to mention a lot of fun.
If I were to make a list of top subjects on which our attention was focused in 2005, it would assuredly be much longer than just 10, for things affect each of us differently. Suffice it to say that during the year, I have been impressed with the reactions of the American people to the varying circumstances we have faced. Generally speaking, they have been responses of boldness fortified by our unbounded capabilities and traditional spirit of generosity and optimism. As a result, we have seen an increased workforce, moderate economic gains, and expanded productivity.
While Texas and the US will undoubtedly encounter myriad challenges and opportunities in 2006, I am confident in our resolve and ability to solve any situation and to continue enhancing our economies and strengthening our society. Happy New Year!
posted @ 08:36 AM CST [link]
Friday, December 23, 2005
A Lesson in Sharing
Las Vegas has a slogan that says “What happens in Vegas, stays in Vegas.” Such an approach might be a way to encourage some people to do things they might not ordinarily do at home, and it might make good economic sense for the Las Vegas community. However, it tends to ignore the basic principle that once something is put into motion, its impact can be very far reaching and expand way beyond the region where the initial activity occurred.
I’m not referring to any of the various kinds of activities that may take place in the city that never sleeps. Rather, I’m talking “economic-ese,” if there is such a word. After all, I’m an economist, and I look at practically everything through the lens of dollars and sense (pun intended).
Sometimes, that which happens in one portion of Texas can have a significant impact on the lives of those living hundreds of miles away. As an example, let’s look at the cheese manufacturing facility that is planned for the northwestern corner of the Texas Panhandle in Dalhart.
The Panhandle is a national center for agricultural activity. Additional development in this area will play an important role in the future economic growth for the region. The new cheese manufacturing operation will certainly be a major catalyst in reshaping the economic future of a substantial segment of the Panhandle and helping create a viable industrial cluster to promote sustainable prosperity. It will also aid in securing the area’s position as a center for food processing and other activities that can build on the existing agricultural base. In particular, it is likely to spawn a massive infusion of dairy operations.
These various entities will generate hundreds of millions of dollars in economic activity each year, much of which will occur in Amarillo because it is the economic “hub” of the area. In addition, the cheese making facility and related operations will significantly enhance the overall economy of the state.
The new cheese plant involves a total investment of some $280 million for development and construction, along with acquisition of equipment during the next seven years. At maturity, operations are anticipated to add 300 net new direct jobs with an annual payroll of some $10 million. Over time, dairy operations that would probably locate in the region could contribute an additional 2,400 jobs. Moreover, the multiplier effect for this region will be quite impressive as the area has the resources necessary to support future agricultural and food processing endeavors.
Looking at the first year of operations at the cheese manufacturing facility and associated dairies, local fiscal revenues are forecast to amount to $3.46 million. Total state fiscal revenues will likely be some $11.32 million as a result. The total effect of operations at maturity is anticipated to be $13.66 million for the Panhandle Region and approximately $44.77 million across the state.
After full operations get underway, the total number of permanent workers in the other businesses associated with the Panhandle cheese manufacturing facilities are forecast to number around 11,050. Across the state, projections call for another 1,640 permanent jobs to be created.
The thing that makes this location unique is the fact that the Amarillo Economic Development Corporation provided significant incentives to secure this location, despite the fact that the direct activity occurs elsewhere in the region. This decision was a wise one indeed, recognizing that, as the center of much of the activity in the Panhandle, Amarillo would enjoy substantial benefits. You don’t see this type of cooperation and recognition of the “big picture” very often, and it is refreshing when you do.
Because Texas is such an expansive state, we sometimes tend to forget the economic impact that major businesses can have outside the area where they are physically located. Although the cheese manufacturing facility is in Dalhart, the economic benefits will be felt in Amarillo and far beyond.
The motto of the Three Musketeers was “One for all, and all for one.” It could well be a fitting motto for Texans, as predictions relating to the cheese manufacturing operations in Dalhart show, what happens in one area can have a far-reaching impact. The truth of this statement is evident as the new cheese making facilities will undoubtedly be a catalyst for the further strengthening of the economy of not only the Panhandle, but also that of the Lone Star State. Amarillo will be a major beneficiary, and local officials are to be commended for their foresight and leadership. As we face intense competition for new activity throughout Texas, the lesson from this experience could prove to be vital.
posted @ 08:11 AM CST [link]
Friday, December 16, 2005
The Tunes of Holiday Shopping
The melodies we hear during this season of the year often bring back fond memories of special times with families and friends. Some of the tunes are quite familiar and we can sing along with them. Others, however, are fairly new and have not yet worked their way to the top of our holiday hit parade.
The various tunes, of course, have special meanings whether religious or secular, hip hop or classic. Different groups respond to the tunes in their own way. The tunes that many people, especially retailers, really seem to be enjoying right now are those being played on cash registers.
The holiday season, which now starts early in November and goes through mid-January, is normally the busiest time of the year for retail establishments, producing from 25% to 40% of annual sales for many of them. Perhaps that’s the major reason the industry places so much emphasis and devotes even more energy to their work during the last few weeks of the year.
In 2004, shoppers across America spent about $414.6 billion during the traditional holiday season. Many in the industry expect the amount to be much larger this year, perhaps even exceeding $438.5 billion.
Shoppers were clearly attracted by steep discounts that began “Black Friday,” traditionally the biggest shopping day of the year. Many who participated in the frenzied wave of early bargain hunting on that day have come to realize that shopping during the holiday season is not a sprint, but a marathon, because they are continuing their gift-buying. (By the way, Black Friday got its name because it represented the day when many retailers were able to move out of the red, representing losses, into the black, which symbolizes profit.)
The Commerce Department recently noted that sales for November were up just 0.3%, about the same as for the previous month. When you exclude automobiles, gasoline, and building materials, retail sales climbed 0.5%, which was just about half the October gain.
While many people might not see that as a large increase, it’s about 7.4% more than retailers garnered during November last year and is in line with the 6.0% growth in sales that the National Retail Federation is forecasting for the holiday season this year.
Not only is retail shopping expected to experience growth during this season, but online shopping is also projected to see a significant expansion. Non-travel sales, as online activity is often called, is likely to rise about 24% this year and reach some $19 billion.
Another option to save shoe leather and the wear and tear fighting crowds searching for that perfect present is gift cards. They are being offered by most retailers today. In fact, some estimates indicate that branded cards will likely account for $1 out of every $5 spent on holiday gifts. These kinds of cards are fast becoming a favorite way to shop, and are perfect for those unsure of what to purchase for someone. About 67% of us will engage in this practice this year, up from the 64% in 2004. On average, each of us will purchase five of these cards to give to friends and family.
The recent boost by the Federal Reserve in the short-term interest rate to 4.25% (the 13th consecutive hike), may cause many people to adjust their approach to saving. Still, the economy continues to improve, gasoline prices have settled to levels we can live with, and consumer confidence is growing. In spite of higher heating costs anticipated in the weeks ahead, cash registers across the country are playing new and improved tunes and bringing lots of cheer to the holiday season.
posted @ 08:00 AM CST [link]
Friday, December 9, 2005
Economic Outlook for 2006 is Favorable
December has always been my favorite month. The holiday hubbub is always a treat (even if I do mark my birthday in the process—at least this year there isn’t a zero at the end). As we look forward to the dawning of another year, it’s a highly appropriate time to review the economic health of our economy and to forecast its progress.
That’s something I’ve been doing for more than 25 years, and although it involves a lot of time and intricate analysis of mountains of data, it’s always enjoyable, especially when my predictions about our economy are favorable. And they are, for in spite of the numerous challenges our nation and our state have faced this year (and there certainly have been a handful), productivity continues to rise and job growth is widespread across most industries.
Even the combination of costly military activities in the Middle East, the devastation wrought by the sister hurricanes Katrina and Rita, and the ensuing run up in energy prices have not halted economic expansion. Growth was recorded at 4.3% for the third quarter, a very nice pace.
My firm, The Perryman Group, forecasts that the real gross product (RGP or output) growth rate for the nation will be about 4.0% next year. Over the five-year timeframe (2005-2010), the compound annual growth rate (CAGR) is projected to be 3.77%.
During the same period, the Lone Star State, which has emerged as a growth leader in the past couple of years, is projected to achieve a per annum output expansion rate of 4.24%, nearly a half percent in excess of the US rate. As a matter of fact, Texas is forecast to exceed the nation’s growth rate in all the major key indicators from 2005 to 2010.
Over this timeframe, the US population CAGR will likely be 1.02%, while the increase in the number of residents in Texas should be around 1.85%. The gain of some 3.2 million people will keep Texas the second most populous state.
The yearly rate of growth for wage and salary workers in the Lone Star State is predicted to be 1.70% from 2005 to 2010, a little above the US rate of 1.49%. Real personal income (by place of residence) in Texas is expected to experience an annual expansion rate of 3.81% over the forecast horizon, while that of the US is projected to be approximately 3.76%.
About two-thirds of Texans own their homes, a rate of homeownership slightly below the national average. To meet the growing demand over the past few years, new home construction has seen an upward swing. During the next few years, however, the number of new housing permits is forecast to drop modestly. Even so, this situation is not extreme, either by the state’s historical standards or by current conditions in other parts of the country.
The energy sector has long been a driver of the Texas economy. The past several years has seen the diversification in the economy diminish the dominance of the energy segment. Still, oil and gas exploration and related industries will continue to be a mainstay in the years ahead. In fact, with the coming decades, research and development will escalate as worldwide oil production peaks and begins to decline.
Emerging technologies in many areas stand to be particularly important to future prosperity. Through continuing efforts to cement a position as a center for nanotechnology-oriented firms, for example, our state stands a great chance to enhance its prosperity over the long term.
Although the federal budget deficit continues to expand and has the potential to lead to a reduction in the amount of capital available in the economy and inflationary pressure, I do not expect a notable constraint in future economic performance stemming from current deficits. The longer these conditions persist, however, the greater the risk of impact on the economy.
With regard to inflation expectations, The Perryman Group anticipates growth in the Consumer Price Index to remain in the 2.5%-3.5% range over the next five years, as gains in productivity and the pressures of the global economy limit the impact of higher energy prices.
The business climate of the state and the underlying strength of its overall business complex provide the foundation for a favorable outlook for the Texas economy through the next several years. The prospects for ongoing economic vitality nationwide are, in fact, quite good. Although there is always the potential for an unforeseen event which sends shockwaves through the economy, the depth and breadth of the current momentum is impressive.
posted @ 07:54 AM CST [link]
Friday, December 2, 2005
Ducks
The Texas Supreme Court has finally weighed in on the issue of school finance. The bottom line is that the method of financing schools in Texas has been declared unconstitutional, and lawmakers have been given until June of 2006 to fix it. The Court did not, however, require more money be devoted to public education, although a strong case can be made for that as well. I’m no legal scholar (and proud of it), but I can shed a little light on the situation from the perspectives of economics and ducks.
Basically, the Texas Constitution prohibits a statewide property tax. We have school, county, city, and all kinds of special district property taxes, but cannot have one at the state level. The problem is that we have a ceiling on school taxes for maintenance and operation of $1.50 per $100 valuation and, the way funding formulas work, virtually all areas are compelled to be at or near that level. Thus, while the tax is collected locally, for all practical purposes, it acts like a statewide levy. Thus, the Supreme Court applied that time-honored principle—if it waddles like a duck, looks like a duck, and quacks like a duck, it’s a duck!!!
The end result of this ruling is that, after many fits and starts, the Texas Legislature will likely have to change our tax system in a Special Session in the spring. Property taxes will be lowered and replaced by something else. This mandate could plant the seeds for bringing the Texas tax system into the current millennium, making our state more competitive for the industries of the future and more responsive to modern challenges. Governor Perry has appointed a Tax Reform Commission, headed by his extremely capable former political foe, John Sharp, to craft a plan. While the task is daunting, this reaching across party lines offers an excellent opportunity to get something done. Hopefully, a bipartisan recommendation can provide our esteemed elected officials with a mechanism to do what needs to be done despite every sort of pressure from all sides.
The key is to have a fair, broad-based system which doesn’t unduly burden one sector over another. There are many ways to accomplish this aim. Some are slightly more efficient than others, but any of them would be a great improvement over where we are now. Tweaking the current system to narrowly meet the Court mandate is not enough; as hard as it is, we should start on a path to a better fiscal structure. In other words, a band-aid fix is insufficient; we need to get our ducks in a row.
I would be remiss if I also didn’t say that we ought to take a serious look at how much additional money, if any, is required to have a truly excellent educational system. I have no doubt there are many efficiencies that could be achieved in the present system, and I am equally certain that technological advances can take us even further. We should aggressively explore what is working around the world and what we can do to produce a well-educated citizenry and workforce that can function amidst the rigors of the global business environment. If we fail at this mission, all we will be accomplishing is rearranging who pays for the existing structure.
Outcomes have improved of late, and that is most encouraging. Given the demographic realities of the next few decades, however, there is obviously much more to be done. If we don’t invest the needed resources into public education, we are handing the potential competitive advantage afforded by our growing pool of young people to other regions of the nation and the world. They will be able to pick us off like—well—ducks on a pond.
After years of trying to reform our tax system, the Supreme Court has provided both a requirement and a hard deadline. The decision opens the way for visionary leadership. The Sharp Commission is composed of capable and informed individuals who can make meaningful recommendations. The members of the legislature can enact substantive measures, and, despite the morass of recent sessions, I have no doubt that the leadership and drive to make Texas a better place is there in more than ample quantities. If we make notable progress toward modernizing our tax system, much will have been accomplished. On the other hand, even if all of this effort proves successful, it will not be a complete victory if we do not simultaneously take tangible steps to elevate academic achievement. We must not declare “open season” on our students and our future prosperity.
posted @ 06:59 AM CST [link]