The Short‑Term Outlook for the Texas Economy
By: Dr. M. Ray Perryman
Published in syndication June 03, 2020
Measures taken to slow the spread of COVID-19, while necessary, have had substantial negative effects on the Texas economy. In addition to shutting down large segments of the economy, the pandemic has also contributed to a downturn in oil and natural gas. However, the state is well positioned to return to growth once social distancing requirements can be more fully relaxed. The Perryman Group's latest outlook calls for a significant drop in business activity this year, but a return to growth next year (and even later this year).
For 2020, The Perryman Group estimates that the Texas economy will experience significant losses due to both COVID-19 and disruptions in the oil market (which accounts for about 14% of the state economy during normal times). Real gross product is expected to decline by $133.8 billion relative to 2019 levels (a 7.60% loss), while total employment on an annualized basis is likely to drop by almost 861,000 (down 6.48%). Job losses are expected to be concentrated in the spring and summer months with some improvement later in the year, so reported losses at some points in time will be even higher (more than two million Texans have filed initial claims for unemployment since the pandemic began).
While the unemployment rate has jumped sharply and millions of Texans are out of work, many jobs will return as social distancing requirements are relaxed. The industries likely to see the largest drops in the numbers of jobs include accommodation and food services, retail trade, manufacturing, and mining (primarily oil and natural gas in Texas).
In addition, expected economic growth for 2020 has been foregone. When compared to baseline projections before the pandemic, real gross product losses for the year reach $206.3 billion, with more than 1.1 million fewer annualized jobs in Texas relative the pre-COVID-19 expectations.
For 2021, a notable improvement is projected. Gains in real gross product are forecast to be $154.4 billion (a 9.50% increase), while the number of jobs rises by almost 685,000 (up 5.51%). It is expected to take two to five years to return to the level of business activity the state would otherwise have experienced in the absence of COVID-19 and the related measures to prevent a spike in infections.
The state economy is declining steeply at present but is expected to begin to expand later this year (although, as noted, the year-over-year numbers will likely be down considerably). Because the underlying economy was strong prior to this situation and Texas will retain many of its competitive advantages going forward, it is likely to be more of a pause than a fundamental change (assuming safe and effective measures to resume activity are successful with no additional outbreaks and shutdowns). Be safe!!