Call Us - (817)738-4220
Kasper & Associates Market Update
The following article from economist Ray Perryman recently appeared in the Fort Worth Business Press. While growth in the Texas economy isn’t new, the projections here match what we’re hearing from our clients. Companies manufacturing products for defense contractors are especially optimistic about increases in defense spending while those supporting the oil and gas industry have also seen increased activity.
Texas continues to be an area of high demand for acquisitions as investors and strategic buyers look for opportunities to share in the tremendous growth. For business owners considering their exit strategy, now is an excellent time to go to market.
THE ECONOMIST: The Texas economic forecast
Ray Perryman
The Texas economy has been growing at a relatively healthy pace and the Lone Star State is widely recognized as a good place to live and do business. Our most recent projections indicate that the state economy is set to continue its upward trend.
Recovery in the energy sector is improving conditions not only in producing areas but also in other parts of the state. According to data maintained by Baker Hughes, drilling rig counts in Texas have been averaging almost 500, about 100 more than a year ago and well above the March 2016 level of 217. This level of drilling activity supports not only strong hiring in the industry (up an estimated 28,300 jobs over the year that ended in February) but also jobs across the economy. The oil and gas sector in Texas has one of the highest regional jobs multipliers in the country.
Manufacturing and other industries are also expanding. Texas again won Site Selection Magazine’s 2017 Governor’s Cup competition as the state with the most large projects (capital investment of at least $1 million, 20 or more new jobs, or 20,000 square feet of new construction). The win continued a long string of top finishes, and the state was well above the second-place finisher, Ohio. Rankings of places to do business regularly place Texas and its metropolitan areas near the top, and the state’s favorable business climate, strong workforce, lower-cost environment, competitive incentive programs and other attributes are keeping the locations and expansions coming.
Looking ahead, growth in the Texas economy is projected to outpace the nation over the next five years. Our most recent short-term forecast for the U.S. economy indicates relatively healthy growth. Real gross product is projected to increase at a 2.89 percent annual pace through 2022, reaching a level of $19.3 trillion. About 11.7 million net new jobs are also expected to be gained over the period, a 1.55 percent annual rate of growth.
For the state, the expansion pace will be even faster. We are forecasting that the Texas population will grow by about 2.1 million between 2017 and 2022, reaching 30.5 million. Almost 1.4 million net new jobs are projected to be added, representing a 2.05 percent annual rate of growth over the five-year period. Services industries will drive job gains, with net new jobs concentrated in health care. Wholesale and retail trade businesses are also likely to see notable hiring.
Real gross product in all major industry groups is projected to expand through 2022, with the services, mining, trade and manufacturing segments likely to experience the largest growth. Real gross product is forecast to expand at a 4.01 percent rate over the period, with the mining sector (largely oil and natural gas in Texas) leading the way with 6.15 percent yearly growth expected over the next five years.
The strength of the Texas economy will help with short-term issues such as the recovery from Hurricane Harvey as well as with long-term challenges such as preparing for future needs. While much of the economy is back to normal after the hurricane, the recovery is far from complete in some communities. Over time, the short-term stimulus associated with construction to replace damaged structures will give way to some dampening of longer-term growth for some industries and geographic areas. Strength in other segments will mask these negative effects, but for some of the hardest-hit communities, such as Port Aransas, it will be a long road back.
The Texas economy has the raw materials needed for economic growth, including a large and growing population and workforce, natural resources, affordable land, and many more attributes that companies need for success. In addition, purposeful efforts to develop the economy in desirable ways have contributed to growth and will continue to do so. There are always challenges to be dealt with, such as current trade and immigration threats and the long-term need to improve infrastructure and educational outcomes. On balance, however, I think Texas will remain a top state for businesses and, therefore, individual opportunity and prosperity for decades.
Ray Perryman is president and CEO of The Perryman Group (www.perrymangroup.com). He also is Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.
