The Outlook for the Texas Economy
By: Dr. M. Ray Perryman
Published in syndication April 12, 2023
It goes without saying that there's a lot going on in the economy these days. The United States (and most of the rest of the world) is dealing with high (though moderating) inflation, rising interest rates, struggling industries and markets, geopolitical tensions, and a host of other uncertainties. Nonetheless, I remain optimistic regarding the potential for growth, although the path will probably not be as smooth as we would hope.
For Texas, recent performance has been strong. Over the past year (ending in February, which is the latest data available), the state gained 604,800 net new jobs. That is an annual employment growth rate of 4.59%, significantly higher than the corresponding US rate of 2.91%. The professional and business services segment is leading the way in terms of the numbers of new jobs, and all major industry groups saw job gains in Texas over the period.
In addition to this momentum, the state continues to attract more corporate locations, expansions, and investments than any other by a huge margin. The ongoing capital commitments and future opportunities are substantial. We are also seeing an influx of people, including many highly skilled professionals. Things are beginning to slow to some extent, but positive expansion is anticipated.
Though the state's industrial base is far more diverse than in decades past, it helps that oil and natural gas development and production has been on an upswing of record proportions. Uncertainty regarding global economic performance and, thus, demand for fuels is a dampening factor for price levels, but China's reopening and OPEC's surprise production cuts are a useful counterweight. It appears as if trading will continue in a profitable range going forward.
Over the next five years, we are projecting that Texas economic output (real gross product) will expand at a 3.49% annual pace, with mining (oil and gas) playing a dominant role. We are also forecasting a gain of about 1.3 million net new jobs through 2027, an increase of 1.83% per year. The largest sources of employment growth are projected to be the professional and business services industry group, as well as health care and social assistance.
Texas obviously cannot fully escape the current challenges. With the state providing $1 of every $6 in US exports, the performance of the international economy can't help but notably affect overall performance. Similarly, Texas firms and consumers must also face essentially the same inflationary pressures and higher borrowing rates as those in other areas. Despite these risks, Texas is well positioned to deal with what comes and emerge with momentum. The state's multi-faceted industrial mix and enormous natural resource endowments will help to diffuse the worst of any downturn that may come our way. Stay safe!