December 1985
College and Graduate School of Business, University of Texas at Austin 
The Texas 
Economic Climate 

The Texas economy continues to languish. Following a trend that began in early 1984, statewide employment growth slowed to al­most 1 percent in the third quarter of 1985 (see table 1). According to Bureau of Busi­ness Research gross product estimates, state economic output has been falling since late 1984, indicating that the state economy is in a mild recession. 
The prospects for an immediate upswing in state economic growth are not promising. Even though oil prices have firmed in recent weeks (as of late October, the spot price of West Texas intermediate was well above the posted price), most well-informed observers expect oil prices to fall to $25 per barrel or below by next spring as winter heating-oil demands decline. In fact, oil and gas drilling activity appears to be operating at a level based on the expectation of $25-per-barrel oil prices. As of October of 1985, the (sea­sonally adjusted) U.S. rig count stood at 1,819-its lowest point since 1976. In addi­tion to continued problems in the energy industry, the high-technology sector has ap­parently not yet bottomed out, and sale~ and employment in this industry probably will not rebound until at least the middle of 1986. Thus, two important sec~ors in the Texas econoroy---energy and high t:ch­nology-will remain ·~eak for a while. . . 
Despite these negative trends, two positive developments will counterbalance a further slowdown in state economic growth. First, consumer spending is rebounding nationally in large part because of strong automobile sales supported by low interest rates from the large manufacturers. Second, the national economy is showing some signs of renewed growth, with gross national product expected to average about 3 percent in the second half of 1985 (compared to 1 percent in the first half), as consumer spending increases, inven­tory liquidation is reduced, and the trade deficit improves (or at least stops worsening) as the value of the dollar falls. 
The trend of slowing growth has been per­vasive across major sectors of the Texas economy and areas of the state. State employment in goods actually declined in the second and third quarters of 1985 as jobs were lost in both mining (oil and gas) and manufacturing. Job growth in the service sector slowed to less than 2 percent in the third quarter of 1985 (table 1). The slow­down in job creation in the service sector is especially worrisome since 90 percent of the new jobs created in Texas since early 1983 have been in services. 
One sector of the state economy that has remained relatively healthy in recent months has been construction and associated finan­cial and real estate activity. Even though construction jobs are being lost in the over­built Houston market, strong construction activity in Dallas and Austin has allowed this sector to continue to expand statewide. Unfortunately, it appears that the growth of cons.truction in Dallas and Austin may be commg to an end as commercial and resi­dential markets become increasingly overbuilt and job growth and absorption slow. Thus, 

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state construction employment has probably peaked, and some loss of construction and real estate jobs appears likely. 
Job growth has clearly slowed in Dallas, Fort Worth-Arlington, San Antonio, and Austin. Of the five largest metropolitan areas in the state, only Houston has apparently bucked this trend-area employment growth reached almost 3 percent in the third quar­ter of 1985. Any uptick in the growth of Houston, however, is probably temporary, and Houston is likely to lose jobs in 1986 as oil prices resume a downward path. 
Over the past few months, Fort Worth­Arlington has emerged as one of the stronger major metropolitan economies in the state. From September of 1984 to September of 1985, area employment growth was 3.6 per­cent, second only to Austin's 4.7 percent job growth. The growth of the Fort Worth area has been largely supported by increased defense spending, which has benefited lo­cal defense contractors such as General Dynamics and Textron (Bell Helicopter). Nationally, however, the rate of increase in defense spending has been slowing and this development will eventually slow (further) the growth of Fort Worth. 
National problems in the high-technology sector have also contributed to the slowdown in growth of the Dallas and San Antonio areas-by the third quarter of 1985, employ­ment growth in both areas was down to 1 to 2 percent. In addition to the downturn in high technology, another factor contributing to the slowdown in the growth of the Dallas area has been a slowdown in job creation in construction and real estate as area office and apartment markets have clearly become overbuilt. 
Austin has exhibited the most spectacular slowdown in economic growth over the past year and a half. In the middle of 1984, area employment growth was running at close to a 15 percent annual rate-by the third quar­ter of 1985, however, job growth was down to 1 percent (according to some measures, Austin experienced no job growth in the third quarter). Three factors have con­tributed to the trend of slowing employment growth in the Austin area: a loss of manu­facturing jobs because of the national downturn in high technology, stable-to­declining employment in government because of state budget constraints, and the begin­ning of a possible downturn in construction and real estate employment because of an overbuilt office market. Depending on the size of the downturn in the construction market, Austin may join Houston in losing employment in 1986. 
The general slowdown in state economic growth over the past two years has been reflected in statewide in-migration and population growth and in the unemployment statistics. Net migration into Texas peaked in 1982 at over 400,000, but by 1984 this figure was down to 29,000. Statewide population growth is now averaging about 1.5 percent, which is above the national rate of around 1 percent, but the difference largely reflects the relatively high birthrate in Texas. 
Historically, Texas has experienced a lower unemployment rate than the nation because of its relatively healthy economy. Even through the worst period of the 1981-82 recession, the state's unemployment rate re­mained well below the national rate. Since late 1984, however, the unemployment rate has increased as overall economic growth slowed, and as of October 1985, the state unemployment rate of 8.1 percent was one percentage point above the national rate (see figure 2). 
Leading Indicators 
Despite the poor performance of the Texas economy, the Bureau of Business Research index of leading economic indicators has actually improved a bit. From July to September of 1985, the index increased from 
0.90 to 0.92 (1982 = 1.0). Most of the im­provement in the leading indicators index over the past three months results from significant increases in retail sales and new housing permits-increases fueled largely by falling interest rates. With the growth of the state economy expected t? remain_low, it is doubtful that the rate of mcrease m retail sales and new housing permits experienced in recent months can be sustained. Probably a 



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Figure 1 
Nonagricultural Employment in Five Largest Texas Metropolitan Areas 

(Index: January 1982 = 1.00)
1.351----------------------­
- - Austin  
uo 1.25  
1.20  
Dallas  

1.15 
-

1.10 
Fort Worth-Arlington (line) 
--.... --San Antonio (dash) 1.05 
_,,,,,. ----­
•--=--:. --------:.=. ... ,,....
1.00-t-allii.~-~=--=-:....:-::: 
0.95 Houston 


0.90-r--::::-----t--':...-:...-:::":::::::~-=-=--;--=--=-===-===========-_J

1985
1984
1982 1983 

Table 1 
Texas Employment Growth by Sector and Area (Percentage change at annual rates) 
Year: quarter 
1985:3
1985 :2 
1984:4 1985:1

1984:2 1984:3
Sector or area 
Total nonfarm 
Goods-producing Mining Construction 
M~nufacturing 
Service-producing T~ansportation and public utilities Fmance, insurance, and real estate Trade Services Government 
Houston 
Dallas Fort Worth-Arlington San Antonio Austin 
3.7 
3.3 
4.5 
4.1 
5.0 
3.9 
2.5 
2.4 
3.1 
4.5 
5.3 
1.5 
3.8 
5.5 
5.4 
15.1 2.0 0.8 4.1 -6.1 3.0 2.4 0.9 

3.4 
1.0 
4.1 
2.8 
1.8 
2.4 
4.4 
4.3 
10.4 3.7 
1.2 
1.9 
3.5 
0.1 
4.6 
0.9 
5.0 
1.5 
7.6 
7.0 
3.7 
4.6 
1.7 
3.7 
8.0 2.0 0.7 -2.5 5.9 -0.5 
2.5 
3.1 
3.5 
1.4 
1.3 
5.0 
0.9 
1.1 
6.3 
3.2 
7.8 
1.6 -1.6 -4.5 
1.4 
-2.0 
2.7 
-1.6 

0.0 
2.1 
4.4 
4.3 
1.7 
0.4 
3.0 
1.9 
3.4 
1.2 -0.4 -3.0 -0.4 
0.4 
1.7 
0.3 
2.1 
1.3 
2.6 
1.5 
2.8 
1.1 
3.1 
1.8 
1.4 
Source: Texas Employment Commission. 

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Figure 2 
Texas and U.S. Unemployment Rates 


11 
I'\ 
... 
I ,, 

10 
I \ 
r 
I \ 
/ 

9 
/ Texas 
8 
\ 

\ ,, ,. 

U.S.
7 
6 
1982 1983 1984 1985 
Source: U.S. Bureau of Labor Statistics. 

Figure 3 
Texas Index of Leading Economic Indicators (January 1982 = 1.00) 
1.02 
1.00 
••. 
0.98 
0.96 
0.94 
0.92 
0.90 
•. : 	Goods employment 
\,-...,/..­
0.88 
0.86 	.J.----+---+---t---""1 1982 1983 1984 1985 

Table 2 

Components of the Texas 
Index of Leading Economic Indicators 
(July-September 1985) 

Measure July Aug. . Sept. 
Manufacturing  
weekly hours  40.90  41.30  41.20  
Retail sales (billions  
of 1967 dollars)  2.55  2.61  2.68  
New housing per­ 
mits (thousands)  12.73  14.10  14.20  
U.S. wellhead price  
of oil (1967 dol­ 
lars per barrel)  7.40  7.40  7.40  
Initial claims for un­ 
employment insur­ 
ance (claims per  
thousand employees)  9.94  9.62  9.93  
Leading indicators  
index (January  
1982=1)  0.90  0.91  0.92  

Note: All figures are seasonally adjusted. 
Sources: Texas Employment Commission, U.S. 
Bureau of the Census, and U.S. Department 
of Energy. 
1 

more accurate indicator iof improved pros­pects for the Texas ecoriomy is the increase in manufacturing worki$g hours. From July to September of 1985, average working hours in manufacturing incre~ed from 40.9 to 41.2 hours per week. The retlound in manufactur­ing working hours, althcjmgh relatively small, indicates that the worst pf the job losses in the state's manufacturing sector are probably over and that some incr~ase in manufactur­ing jobs is possible as the high-technology sector bottoms out and the value of the dollar declines. 
The other two components of the leading indicators index-.-oil prices and new claims for unemployment insurance-were relatively unchanged from July to September. Overall, the leading indicators index appears to sug­gest that the worst of the slowdown in Texas economic growth may be over, but it is prob­ably too early to call for an immediate up­turn in economic performance. 
-Thomas R. Plaut Manager, Economic Forecasting 


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Employment Trends in the Dallas Area 

In terms of employment, the three largest sectors of the Dallas economy are trade, ser­vices, and manufacturing. Employment in the Dallas area is much less concentrated in government than it is in either Texas as a whole or the United States, while the fi­nance, insurance, and real estate sector is much more important to Dallas than to either the state or the nation. Trade and transportation also account for a larger-than­average proportion of employment in Dallas. 
Of the eight major economic sectors, trade by far employs the most people in the Dallas area-some 27 percent of total nonagricultural workers. Employment growth in the trade sector averaged almost 5 percent a year from 1975 to 1984. Nearly two-thirds of the sec­tor's 323,000 employees work in retail trade. Data are not available for the Dallas PMSA, but total retail sales in the Dallas-Fort Worth consolidated metropolitan area have risen from $12.7 billion in 1978 to $23.1 billion in 1984. Retail space has expanded significantly in the last few years, with an estimated 8.9 million square feet added in 1984 alone. The Galleria and Prestonwood are among the major shopping areas added in recent years, while Valley View and NorthPark have both undergone renovation. Growth in area pop­ulation and income has lured such venerable names as Bloomingdales's, Marshall Field's, and Saks into the Dallas market. 
Wholesale trade is a significant factor in the Dallas economy as well, largely because of the presence of the Dallas Market Center. Consisting of eight permanent buildings-the Decorative Center, Home Furnishings Mart, Trade Mart, Market Hall, Apparel Mart, World Trade Center, Menswear Mart, and InfoMart-and covering just under 10 million square feet, the Market Center is the largest wholesale merchandising complex in the world. The World Trade Mart was opened in 1974, the same year as the Dallas-Fort Worth International Airport, and attendance at the Market Center virtually doubled in one year. 
The World Trade Mart was expanded in 1979, and InfoMart, a permanent exposition center for the information processing indus­try, opened in January 1985. Half a million buyers from all fifty states and thirty foreign countries attend the center's thirty-four markets each year; last year buyers spent an estimated $6.5 billion in wholesale merchan­dise. In addition, the Dallas Market Center estimates that buyers added $300 million to the area economy through their spending on food, lodging, transportation, and other pur­chases. 
The secoµd-largest sector in terms of em­ployment is services, accounting for nearly 21 percent of total nonagricultural employ­ment in 1984, up from 17 percent in 1975. Services has been one of the fastest-growing sectors in the Dallas area, averaging a 7 .5 percent rate of growth from 1975 to 1984. The services sector is highly diverse and in­cludes such industries as hotels, restaurants, movies and amusements, health care, busi­ness and repair services, and ~ducational ser­vices. Dallas has followed th~ national trend toward an increasingly service-oriented eco­nomy, with goods-producing sectors (mining, construction, and manufacturing) accounting for a decreasing share of total employment. 
-Susan M. Tully Research Associate 



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•1 

• 	P.O. Box 7459 Austin, TX 78713-7459 Bureau of Business Research 
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U.S. Postage 
PAID 
Austin, Texas 
Permit No. 1630 


L /l8 ' · Bf, E ..t . ::_ 
Texas Business Review is published six times a year (February, April, June, August, October, and December) by the Bureau of Business Research, Graduate School of Business, University of Texas at Austin. Texas Business Review is distributed free upon request. 
The Bureau of Business Research serves as a primary source for data and information on Texas and on the dynamics of change. The Bureau's research program concentrates on the determinants of regional growth and development and investigates specific issues for clients. The information services division answers inquiries by telephone and mail, responds to walk-in visiters, and offers com­puterized data from the 1980 census of the population and on manufacturing firms in Texas. The publications division produces periodicals, directories, books, and mono­graphs on a variety of topics that shape the development of the Texas economy. 

tillI I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I IJUr 
Announcements 
The 1986 edition of the Directory ofTexas 

Manufacturers will be available in January. 
The two-volume set provides detailed infor­
mation on more than 15,000 Texas manufac­
turing plants. Every buyer of the Directory 
also receives Texas Industrial Expansion 
newsletter, a monthly supplement reporting 
on new and expanding manufacturing plants. 
The cost of the Directory is $110.00 (Texas 
residents add $6. 74 sales tax). For additional 
information about the Directory, write the 
Bureau of Business Research, P. 0. Box 7459, 
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1984). For a free copy, call 512/471-5180 or 
write to Information Services, P. 0. Box 
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