Output by the Numbers
By: Dr. M. Ray Perryman
Published in syndication August 30, 2023
In a recent column, I described our outlook for Texas job growth by industry. This time around, let's focus on our projections for output (or gross product). Simply stated, gross product is the final value of all of the goods and services produced in an area. It's a widely used measure of the health of an economy, and the US gross product numbers are always worthy of headlines.
Although examining which industries are gaining or losing jobs provides a very good perspective on one aspect of performance, it's not the whole story. In some industries, only a few workers can generate large amounts of output. For example, a refinery can produce billions in value of fuels with relatively few employees. A sophisticated manufacturing facility might also use robotics, sensors, and artificial intelligence to generate products with fairly low levels of human intervention. Once an oil or gas well is drilled, its production creates substantial value compared to the comparatively small amounts of time required to monitor and maintain it.
Our firm has conducted thousands of economic impact studies, and when you consider the dynamic responses of the economy, the multiplier effects of a few jobs in a refinery, for example, are far larger than those in a restaurant. In many cases (such as manufacturing), capital-intensive industries characterized by high worker productivity and, hence, compensation may generate extensive business activity up and down the supply chain (as well as related consumer effects) even though they may employ relatively few people directly. Another consideration for some of these sectors is that they are "basic" industries, meaning that they draw money into an area from outside, enhancing overall prosperity.
Over the next five years, we are projecting that the mining sector (largely oil and gas in Texas) will generate about 20% of the overall gain in inflation-adjusted gross product. Professional and business services contribute nearly 17%, with manufacturing adding another 15%. Note that in terms of job gains, however, mining adds only 2% of the state's total increase, with less than 5% for manufacturing. The large professional and business services industry group is forecast to be the source of almost 20% of net new jobs.
Other industries contributing a notable share of output growth include real estate and rental/leasing (with almost 10%), health care and social assistance (7%), and retail (6%). Information, the public sector, and finance and insurance each come in around 5%.
One reason the Texas economy is so resilient is the combination of industries located here, including a broad spectrum of both labor-intensive and capital-intensive segments. The state is certainly not immune to external challenges but is much better equipped to deal with them than many areas. Stay safe!