The resilience of the Texas economy with the end of the oil surge has surprised many, and prospects for continued expansion are encouraging. For the first 11 months of 2016, the state added 164,000 positions, exceeding the pace of 2015 (with 140,400 net new jobs over the first 11 months). In September, Texas experienced the strongest employment gain in more than two years (up by 38,300), with hiring continuing since that time and 20,900 net new jobs added according to the latest data release (November). Expansion has occurred in most industry segments.
During the height of the oil surge, people talked about the ‘Texas miracle,’ with economic growth at a rapid pace. However, it’s even more impressive to me that we’ve been able to create about 400,000 jobs over the past two years with our largest export industry firmly in the doldrums.
Targeted economic development efforts have been ongoing for decades and are a major reason for the state’s success even in the face of dropping oil prices. Technology and advanced industries, biosciences and research, and other emerging industries are part of the story. Stability and growth in cornerstone industries like higher education and health care are also contributing factors. The greater presence of Texas in the global economy has also played a role.
Looking ahead, the Texas economy is likely to continue to diversify away from dependence on oil, though clearly energy will remain an important driver of business activity. With OPEC and other nations moving away from their former strategy of pushing down prices to drive higher cost producers (such as US and Canadian shale) out of the market, things in the energy segment are looking up. Although I don’t see $100 oil any time soon, there’s a good chance we will stay in the mid-$50s per barrel and upward range. Activity in the Permian Basin has already been picking up (as well as, to a lesser extent, the Eagle Ford in southern Texas), and that price range is sufficient to keep things moving.
Expansion in Texas is projected to outpace the nation over the next five years. Real gross product is forecast to grow from a 2016 level of $1.5 trillion to about $1.8 trillion in 2021, representing a 4.11% annual rate of expansion. All major industry groups are projected to expand through 2021, with the services, mining, and wholesale and retail trade segments likely to experience the largest growth in annual real gross product.
An estimated 1.4 million net new jobs are projected for the Texas economy by 2021, representing a 2.16% annual rate of growth over the period. Services industries will drive job gains, with wholesale and retail trade businesses also likely to see notable hiring. The largest numbers of net new jobs in Texas through 2021 are projected to be added in the following industries: food services and drinking places (up 133,380 jobs); ambulatory health care services (up 128,577); administrative and support services (up 122,848); professional, scientific, and technical services (up 121,191); and local government (up 78,053).
The Texas population is forecast to grow by 2.3 million over the next five years, reaching about 29.9 million in 2021. I am projecting that housing permits will trend modestly upward over the period (though cycles may occur in intervening years). Real personal income is forecast to rise at a 4.63% annual pace, resulting in a gain of about $304.1 billion over the next five years.
These growth expectations assume certain things about the business environment such as that the necessary infrastructure and regulatory structure will be in place. The upcoming Texas legislative session will provide opportunities to enhance the pace of expansion (such as through greater investment in education and fixing social services, infrastructure improvements, and economic development commitments). There will also be the potential for negative fallout. I suspect that a lot of us will be keeping a close eye on Austin (and Washington) in the months to come.
I would like to take this opportunity to wish you and your family great happiness and prosperity in the coming year. I think the economy of Texas will provide an assist, with growth across all of the major industry groups, some recovery for the energy sector, and ongoing opportunities for innovation in a supportive environment.