Gazing out over the next few decades, I see at least three major challenges confronting the US economy. First, we have to overcome the consequences of the lingering effects of the pandemic, including getting inflation under control, dealing with the inevitable fallout that effort will involve, and working through ongoing supply chain disruptions. Second, we must confront the chronic worker shortages. Third, we need to fashion a realistic energy policy which both meets climate goals and provides for future essential resources (more on that another time).
The rate on 30-year mortgages has topped 7% for the first time in more than 20 years. The sharp rise from about 3% just a year ago is causing fallout for homebuyers and the housing market. While the current situation is going to be costly from several perspectives, a market crash akin to the Great Recession of 2008 is NOT in our future. Let’s briefly explore.
Virtually all of Texas is now abnormally dry. Comparisons to the bone-dry days of 2011 have begun, and it's not looking good. In fact, given the scope of the drought and the higher costs of inputs, agricultural losses across the state are likely to top 2011's record $7.6 billion total.
A few years ago, I was asked to name the major events that shaped the Texas we know today. High on the list was the development of Allen's Landing and the Port of Houston during the early days of the Republic and the subsequent efforts at the dawn of the twentieth century to develop a deep-water channel in the area just as the oil industry was emerging. Without this critical infrastructure, Texas could not have become a vital hub of global commerce. I am tempted to say "and the rest is history" – but, in reality, it is also the future.
The US economy continues to recover from the pandemic. Even in the midst of challenges both domestically and internationally, our latest projections call for expansion over the next five years. Here's an overview of some key patterns influencing the outlook.
Housing prices are up. Way up! The robust market reflects a variety of factors, including population growth, job opportunities, and interest rates. During the pandemic, demand increased as people looked to upsize to allow more room for at-home work and/or school. Remote work also allowed many households to relocate, while stimulus funds helped many with down payments. At the same time, the pandemic slowed construction due to production shutdowns, logistics bottlenecks, and resulting shortages (and price increases) of some building materials – and a tight labor market didn't help. In other words, in our highly complex modern economy, the basics of supply and demand are alive and well.
The last two (May and June) Texas jobs reports were encouraging, reflecting the fact that, as businesses began to reopen, what was essentially a sound economy before the pandemic responded relatively quickly. However, even with these gains, Texas is nonetheless almost 700,000 jobs below a year ago and about 900,000 below the level just before the outbreak began.
Texas is struggling to strike the appropriate balance in the tragic choice between effective public health measures and restoring vitality to the economy. Moving ahead with reopening before recommended safety milestones were met has led to reversals and setbacks on the path to progress. Physical health and economic health are both essential. Nowhere is this tension more intensely evident than in the tourism industry.
The US Supreme Court recently ruled that employers cannot discriminate against gay or transgender persons under the Civil Rights Act of 1964. Discrimination in employment, housing, and access to public places such as restaurants, hotels, and shops leads not only a loss of dignity and opportunity for those on the receiving end of such treatment, but also involves significant economic costs stemming from both a diminished ability to attract knowledge workers and reduced opportunities for tourism, conventions, and related activity. As we emerge from the pandemic, these concerns will be magnified.