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The Economist: Long-Term Forecast for the Texas Economy




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The author of this entry is responsible for this content, which is not edited by the Wilson County News or wilsoncountynews.com.
Dr. M. Ray Perryman
August 14, 2013 | 3,610 views | 1 comment

The Perryman Group’s latest long-term forecast for Texas indicates that the state is likely to grow by almost $2 trillion (in real gross product) and add more than 6.4 million jobs by 2040. Continuing a long-time pattern, Texas is expected to outperform the nation. Texas is attracting more corporate relocations and expansions than other states, and these new businesses will contribute to ongoing diversification and growth of the economy.

In addition, the boom underway in the energy sector is expected to persist, with advances in recovery techniques enhancing the industry over time. Although the state is well positioned to continue to experience relatively healthy gains, there are several challenges which must be dealt with in order to ensure future prosperity.

Texas and its metropolitan areas are showing up regularly on lists of best places for jobs and economic growth. Some of the reasons for success are the state’s business-friendly attitude, relatively low tax burden, right-to-work status, predictable regulatory environment, and large base of natural resources. In addition, Texas’ economic development policies have been crucial in securing a number of these locations, with some of the largest receiving funds from the Texas Enterprise Fund or the Texas Emerging Technology Fund.

Development of the Eagle Ford and Cline shales and other formations in the Permian Basin are adding to activity in other plays across the state. If early estimates prove to be even close to true, the vast amounts of recoverable oil and natural gas will make the Cline Shale go down in history as the largest shale play ever. Communities across the Permian Basin have already been feeling the effects of surging exploration activity, and indications are that the pace may pick up rapidly.

The economic benefits of the boom accrue through many channels. Owners of the minerals receive royalty payments and oil companies generate profits. A spectrum of vendors to the industry (oilfield service companies, trucking firms, equipment makers--you name it) also win. Restaurants, hotels, gas stations, stores, and others see higher sales. Real estate prices trend up, making sellers happy. Property taxes increase due to rising tax base and production values. Taxes also bump up with retail sales volumes, hotel/motel occupancy, and property values all rising.

As noted, Texas is facing several challenges which have the potential to alter future economic performance. One of the major challenges facing the state is in the area of education. The state compares poorly by some measures (including performance on tests such as the ACT and SAT and educational attainment). Although progress is being made toward bringing Texas into line with other states with large populations in the areas of public and higher education, work remains to be done.

A second major issue is highway infrastructure, where Texas is failing to keep pace with population and economic growth. Hundreds of billions in investment will be required, and current sources of funding are insufficient for future needs. Texas legislators finally took action on the issue, and in November, voters will determine whether some portion of oil and natural gas taxes can be diverted from the Rainy Day Fund to use for highways. While this is a step in the right direction, even if approved, the funding (likely in the range of $1 billion per year) is insufficient to maintain existing infrastructure, much less solve this long-term problem.

Water supplies are the third major challenge facing the state. Greater demand for water is the inevitable result of expected population and industrial growth, and a substantial investment is needed for design, construction, and implementation of projects to enhance supplies. This fall, Texans will also vote on a proposal to draw $2 billion from the Rainy Day Fund to help with financing loans for supply projects. Given the length of time required to develop new supplies, it is important to allocate resources before a crisis situation is reached. If not, future growth in the state economy (as well as quality of life for all Texans) could be affected.

On balance, The Perryman Group’s most recent long-term forecast indicates continuing and sustained growth. Output (real gross product) is projected to expand at a 3.47% annual rate over the 2012 to 2040 timeframe, reaching $3.2 trillion (up from a current $1.2 trillion). The services; finance, insurance, and real estate; and mining industry groups are projected to see the largest increases in output (real gross product), with gains of $539.3 billion, $276.7 billion, and $230.8 billion, respectively. The information and manufacturing segments are likely to see particularly strong rates of output growth.

Employment is forecast to go from 11.3 million in 2012 to 17.7 million in 2040, an increase of 1.62% per year. Of the total gain of 6.4 million net new jobs, the large services industry group is likely to contribute almost 3.9 million. The fastest rates of growth are expected to occur within the services (2.23% compound annual rate of growth), information (1.63%), and mining (1.56%) segments.

In addition to the challenges previously mentioned, changes in the state’s population will also necessitate restructuring major “safety net” programs, including Medicaid. Longer lifespans, changing ethnic composition, and the aging of the large baby boom generation will put pressure on these systems beyond what can be effectively borne under the current construct. However, Texas benefits from a strong base of natural resources and a competitive position in attracting corporate locations and expansions. Business cycles are inevitable, but the long-term outlook for the Texas economy is decidedly positive.

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.
 
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Your Opinions and Comments

 
The Marcelina Muse  
Dry Tank, TX  
August 20, 2013 11:40am
 
Use the highway trust funds only for highways, not social programs or anything else.

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