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Texas Still Following a Positive Economic Trend

Harold Hunt, Ph.D.
Research Economist
Real Estate Center
Texas A&M University

Economic conditions have not changed too much in the past 12 months nationally, although Texas is still following a positive trend, according to a recent presentation by Harold Hunt, PhD, a senior research economist at the Real Estate Center at Texas A&M.

Comparing nationwide conditions from a year ago to today, his list contains many of the same issues:

• Profits are high, but cash is idle;
• Borrowing costs are low;
• Limited new hiring;
• Complaints about “over-regulation” and “uncertainty.”

Corporate hiring plans are also down yet small business appears to remain steady. Quoting from a Business Roundtable report, many corporations have lower expectations than a year ago when discussing hiring plans during the next six months. Today, 36% of the companies report more jobs vs. 51% a year ago, while 20% are predicting fewer jobs vs. 11% a year ago. However, a Small Business Outlook reported by the National Federation of Independent Business notes the same percentage, 3%, of small business respondents “plan to hire people in the next three months.” That outlook could help reverse the nationwide trend of 42 months of unemployment above 8%, according to statistics from the Bureau of Labor Statistics.

Hunt also noted consumer health as showing similar characteristics when compared to a year ago, noting these specific conditions:

1. Wage growth is minimal;
2. People are still working off personal debt;
3. Many are concerned about losing their job and their home value;
4. Many are re-thinking retirement plans: many baby boomers are seriously concerned about having to delay retirement. According to an AARP poll, 70% of the respondents are worried they will not have enough money to retire, while 51% worry they will never be able to retire;
5. Many are trying to save more, but the personal savings rate actually dropped from 4.7% last June to 4.4% this June.

As expected, the bright spot in the presentation was the discussion of Texas vs. the U.S. Hunt reported Texas job growth accounts for 14.5%, or 281,800 jobs, of the country’s private job growth from June 2011 to June 2012, while it represents only 8% of the total population. Of those jobs, mining and logging lead the way with an 11.8% jump. All Texas industries show positive growth except the Information and Government industries, which are actually losing jobs. The total new jobs gained during the 12-month time frame is 91,800, according to figures compiled by the Texas Workforce Commission and reported by Hunt.

Hunt provided the following predictions, with a footnote that anything can change when the “Big Unknowns” such as tax rates and health care costs are factored in.

• Interest rates are likely to stay low through 2014;
• Could be some enthusiasm by voters after the first presidential debate;
• A major inflection point is predicted by the end of the first quarter, 2013;
• Look for slow, positive job growth through 2012, with unemployment continuing its downward trend;
• Many business decisions could be postponed another year;
• Look for continued economic slowdown in Europe, China and India.

Hunt also cautioned Texans with the possibility of key factors in jeopardy, ranging from military spending to price of oil and natural gas liquids to housing market stability and affordability. He reminded us that Texas does have a lot going for it compared to the rest of the nation. Other advantages in Texas include cheaper labor due to being a “right-to-work” state, a younger population, a positive quality of life and a great business environment. He ended noting the popularity of Austin vs. California and that Texas has the “inertia for the ‘next big thing.’”

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