A Look Back at 2017
By: Dr. M. Ray Perryman
Published in syndication December 27, 2017
It's been a heck of a year. From an economic perspective, we saw both good things and bad. Here's a rundown of the events and emerging trends I think will have the most long-lasting effects on the economy.
In January, President Trump was inaugurated. One of his first official actions was to withdraw from the negotiations for the Trans-Pacific Partnership. It was largely a symbolic gesture since Congress wasn't going to support the agreement in any case, but it did send a contrary signal given that we have centuries of history and academic research formally establishing that trade is good. It was the first of several statements and actions toward a protectionist stance, including the contentious renegotiations around the North American Free Trade Agreement, and such a position (if maintained) not only cedes leadership in much of the world to China, but is also just plain bad for the economy.
Immigration was also in the headlines during 2017, with a various travel bans and a decision not to extend the Deferred Action for Childhood Arrivals (DACA) program, which allows individuals who entered the United States as children to remain here for school or work. Nearly 800,000 persons across the country are enrolled in the program, and approximately 124,300 of these individuals (often called "Dreamers") live in Texas. DACA was never intended to be a permanent solution, and it is time for Congress to step up and deal with the situation in a sustainable manner. Let's hope that action is taken in January for a real fix, because rational immigration reform on a much broader level is long overdue.
In better news, after almost a decade, the Federal Reserve was finally confident enough in the economy to begin actions to get back to normal after the "great recession." The Fed began to pare down its nearly $4.5 trillion balance sheet last fall, starting the process of reducing assets purchased during the global financial crisis and later quantitative easing (QE) to help the US economy recover. Getting the Fed's balance sheet back in order is essential to future economic performance.
The first major federal tax reform in a number of years has been signed into law. The benefits to corporations are substantial, and there are already signs that some of the savings will be used in positive ways ranging from modernization to increased compensation for employees. Much of it, however, will be used for buying back stock to boost perceived shareholder value. It will be some time before the implications are fully understood, but our initial analysis shows it to provide a modest stimulus to business activity, albeit with increases in the debt and deficits.
Turning to Texas, budget issues and differing opinions led to some near misses in Austin in 2017. The Texas Comptroller's estimate of the amount of money available to the Texas Legislature for the next budget cycle was not as bad as we have seen in the past, but it was also not overly encouraging. At a time when the population continues to grow and there are major issues that need to be dealt with, the fact that revenues are expected to be about $5 billion below the level needed to keep services where they had been presented quite a challenge, particularly since it left us far short of extra money needed for solving some big problems.
One budget proposal from the House eliminated all funding for the Texas Enterprise Fund, a key aspect of the state's economic development incentives. The Governor had asked that it be retained, a position I more than agree with. Scrapping this "deal closing" fund would have been a blow to the state's future competitiveness, with the potential for major fallout over time. Fortunately, the Fund was preserved.
The Fund is one reason that the Lone Star State once again prevailed in Site Selection Magazine's "Governor's Cup" competition, which goes to the state with the most major corporate location and expansion projects. It was the fifth year in a row that Texas topped the list, and what's really impressive is that the 2016 win (awarded in 2017) came as the energy sector struggled.
Another near miss in Austin involved restricting bathroom access based on the gender on an individual's birth certificate, which opponents view as discriminatory toward transgender persons. Regardless of their stated purpose, such controversial laws can reduce travel and tourism, discourage highly desirable corporate locations, and have other negative economic effects. There are still those who want to see such a bill pass; we have analyzed the numbers, and the economic fallout would be significant.
A positive development for Texas is that things began to definitely improve in the oil and gas business, with more rigs, more jobs, and more spending. The economic benefits of this activity are rippling through the economy. We turned the corner back toward expansion, though we will clearly face some challenges.
One devastating event that will define much of our memory of 2017 was Hurricane Harvey, which made landfall in Rockport in late August as the strongest storm to hit the United States since 2004. Torrential rains circled the Gulf Coast and caused devastating flooding and damage in Houston and the surrounding region. It will take years for a full recovery (though some of the fallout will be masked by improvement in other areas), and some smaller communities along the coast may struggle for an extended period of time. Nonetheless, the rebuilding efforts will offer a notable short-term stimulus, which is already showing up in the numbers.
As 2017 winds down, I hope that you and your family are enjoying a wonderful holiday season. This year has been quite a ride, but it looks like the economy is set to continue to expand and create new opportunities going forward. Best wishes from all of us at The Perryman Group.