The Economist: Where the Growth is ...
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Dr. M. Ray Perryman
The EconomistJanuary 5, 2011 | 1,817 views | Post a comment
Texas is set to remain one of the top-performing areas of the US, continuing a decades-old pattern. Growth in output (real gross product) is projected to be more than a percentage point faster in the state than the nation, with 4.36% compound annual growth over the 2010-2015 period (compared to 3.33% for the US). Job growth rates are also forecast to be higher in the state according to my firm’s most recent projections.
A number of characteristics of the Texas business climate kept the worst of the national downturn at bay; among the most important are the Lone Star State’s traditional friendly attitude toward business, favorable tax structure, lower cost structure, relatively strong incentive programs, and economic and regulatory policies. These factors enhance opportunities for relocating businesses, expanding operations, and creating jobs--particularly in the growth industries of the future. Although the state economy certainly suffered in the global quagmire, strength in key industrial sectors also kept it from falling as far and as fast as many locales. Texas and its urban centers have also been recognized as leaders in the recovery by multiple sources.
In the years to come, several industrial sectors will provide the lion’s share of growth. Others will contribute a healthy dose of opportunity or underlying stability. Here is a quick glance at the outlook for major industrial sectors.
The Lone Star State’s real gross product (RGP or output) is forecast to expand by $256.53 billion from 2010 to 2015. Three sectors will likely account for about 54% of this increase: services (29%); finance, insurance, and real estate--FIRE (13%); and wholesale and retail trade (12%). These are the state’s largest industrial groups; the services segment currently comprises more than 24% of all output in the economy, while FIRE is second with almost 15% and trade is third with just under 13%.
Other important sources of growth are durable manufacturing (with 9% of the state’s overall output gain for the 2010-2015 timeframe) and mining (with more than 7%). All industrial sectors are projected to expand over the forecast horizon.
Projected sectoral RGP annual growth rates during the next five years are: agriculture--2.28%; government--2.81%; FIRE--3.81%; construction--3.96%; trade--4.13%; mining--4.27%; nondurable manufacturing--4.48%; transportation, warehousing, and utilities (TWU)--4.48%; information--4.84%; services 5.17%; and durable manufacturing--5.34%.
Turning to employment, the Lone Star State also compares well. Through most of 2010, job creation in Texas has been strong and broad based, with most metropolitan areas experiencing gains. The state’s unemployment rate continues to trend below that of the nation; in fact, since 2008, approximately 70% of all net new jobs in the US have been created in Texas. For the 2010-2015 period, wage and salary employment is anticipated to experience a compound annual growth rate of 2.29%, reflecting an increase of 1.3 million workers (from 10.8 million to 12.1 million).
Currently, about four of every 10 Texans work in services industries. Over the next five years, more than half of net new jobs will form in that sector, with trade and government together adding about one in four of the rest. Jobs are projected to be added in every other major industrial cluster as well.
Yearly employment expansion rates anticipated during the 2010-2015 period will likely range from well under 1% per year in agriculture to over 3% in services. Less than 1% growth is also expected for nondurable manufacturing. Durable manufacturing, government, information, mining, and FIRE are forecast to fall into the 1%-2% range. Trade, TWU, and construction top 2%.
Texas benefits from good fortune (natural resources which contribute to the existence of a vibrant oil and gas segment) and good management (growth in emerging industries such as technology-oriented manufacturing). The large industrial segments such as services are expected to continue to be the source of the majority of new jobs. At the same time, basic and export-oriented industries such as manufacturing generate a sizable increment to economic activity.
As we look to the next five years, Texas appears poised to remain a center for economic growth and prosperity, with the state’s diverse economy providing both stability and sources of strong growth potential.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.