Bureau of Business Research The Texas Economy: The Momentum Builds The Texas economy has started quickly off the blocks in 1987 and is likely to continue running rapidly toward a number of new records. By the end of 1987, we should see the Texas economy posting new all-time highs for the total number of people employed, total personal income, the number of residents of this great state, total revenues and expenditures, total miles of paved roads, and a large number of other indicators of economic progress. If anyone kept statistics on such matters, we would probably set a record for the number of hands wrung in despair that "things just aren't as good as they used to be." This complaint seems to be one that is endemic to the human condition throughout recorded history. A common interpretation is that the handwringer is just as well off as he or she ever was, but too many other people have now become as well off or are doing even bet­ter. An even more generally accepted interpreta­tion of this pervasive lament is that the only people who are generally happy with their lot in life are the truly saintly and the world's richest human, currently believed to be the Sultan of Brunei. The point is that the current condition of the Texas economy is far better than it is generally perceived to be, and, even more importantly, the • outlook is very favorable for economic growth in Texas in 1987 and beyond. It is a most in­teresting phenomenon that, as a general rule, analysts of regional growth prospects who live and work outside of Texas and compare our economic prospects with those of other states and regions have a much more robust forecast for the Texas economy than do many analysts residing here. Perhaps perceptions of reality really are enhanced by distance. . The year 1987 has started off well, with total employment in January estimated at 7 ,401,800 people. This is up 3,700 from January 1986 and is a new record for the month of January in the history of Texas. Total employment this January was up 1,120,500 jobs from January 1980. To put this growth in the 1980s in perspective, the increase in the number of people employed in Texas since 1980 is greater than the total number of people employed in January 1987 in each of 20 states around the United States. The widely heard refrain that the solution to most economic problems in Texas is ''jobs, jobs, and more jobs" is indisputably correct. The more jobs there are in Texas, the more in­come there is, and the more income there is, the more jobs are created. A corollary of this simple truism is that the more jobs there are in Texas, the more taxpayers we have and the greater are the revenues flowing to the state and the smaller are the expenditures for unemployment insurance and job training and related programs. Indeed, a reduction of one percentage point in the unemployment rate, sustained for two years, would eliminate most of the current fiscal pro­blems in the state. Most of the growth in employment in Texas and throughout the United States over the past decade has been in small businesses, firms with fewer than 100 employees. It has been estimated that 80 percent of the total growth in employ­ ment in the United States in the past decade, ltlllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllDr some 16 million of the 19 million total jobs created, has been in small business. For 1986, 21,913 new businesses started in Texas. This was second only to California, even though it was a 16 percent decline from the 26,073 new businesses started in Texas in 1985. A number of new programs are being put in place in Texas now to encourage the formation of pools of venture capital to help even more entrepreneurs start businesses in 1987 and subse­quent years. No one knows where the next Compaq Computer or EDS will come from, but it seems a safe bet that the more businesses created in Texas, the more likely it is that we will have more highly successful, world renown­ed firms based in Texas in the future. Anyone who forecast twenty years ago that a small regional carrier named Trans Texas Airways would grow into the largest airline in the free world would have been laughed at and probably thought of as mentally deficient. Today, of course, Texas Air is the biggest airline in the United States. One simple change we could make in Texas to encourage even more business starts would be for the legislature to enact a measure allowing the voters of Texas to decide whether or not to repeal the Homestead Act. Texas is the only state that does not allow homeowners to make use of second mortgages if they so desire. Research has shown that this is a significant source of start-up capital for entreprenuers in the other 49 states. The Washington Post ran a series of articles on "High Tex" last fall, explaining how the rest of the United States was going to have to work very hard to catch up with the commanding lead that Texas has in doing significant research and some production in nearly all of the areas that are likely to be major sources of employment growth well into the 21st century. Another theme of the articles was that we are forging an admirable coalition of academics, politicians, business leaders, and entrepreneurs to ensure a bright future for the people of Texas. Texas is on the cutting edge of new technological developments in aerospace, aquaculture, artificial intelligence, biotechnology, chemicals, enhanced recovery techniques for oil and gas, lasers, medical research, robotics, semiconductors, superconducting materials, telecommunications, and a host of other emerging growth areas. We are one of the leading contenders to receive the world's largest supercollider for conducting research into subatomic particles. Texas has already become such an important site for medical research that the Medical Center in Houston is now the leading employer in our largest metropolitan area. In an 1853 letter to Reverend Rufus C. Burleson, Sam Houston wrote: Texas must now decide ... to be a mere cow pen and sheep ranch or to become a great empire state. Well, we can't use that slogan since it is already held by the state we are about to pass to become the second most populous state in the United States, but we surely can follow the sen­timent. Texas is in the enviable position of being able to grow in the coming years in directions that will continue to make us a magnet to in­dividuals and investors from all over the United States and around the world. Nobody wants to be left out of the industries of the future, and the key is having a well educated and well trained labor force. More and more the success of the Texas economy will be based on knowledge rather than on natural resources. Our cattle and cotton, oil, gas, and timber will always be important parts of the Texas economic scene, but knowledge-based in­dustries will provide an ever greater share of our economic growth in the years ahead. The most productive workers in the. world are employed in the petroleum refining industry in Texas, which has one out of every five such workers in the United States. Each employee in that industry produces over $1. 5 million in out­ put every year, an outstanding performance. In order for Texas to enjoy good economic growth in 1987, the U.S. economy must con­ tinue to grow. Recent research by the staff of the Federal Reserve Bank of Dallas indicates that a little over 50 percent of the changes in employment and unemployment in Texas result from changes in the growth rate of real GNP for the U.S. economy. The consensus of forecasters for U.S. economic growth is the most consistent for any year since 1977. Nearly all analysts expect continued economic growth ltlllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllDr }J] IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUr Nonagricultural Employment in Five Largest Texas Metropolitan Areas (January 1984=1.00) ,/)............................................ ........ ..... ···=····•.•--... .. :=··· • ·• ·• ·•-•.•o.·O,. . -·• " ·~·~o , ·•·•:!=v-v·O··•=···· --~ ..." ·-:•··· .1.-&-.1r.l.-,1,-.A.-.I. ~ ..:: ,.:•.• .a.-.1.-.a,..l.­ A-....,· ..--.a.a.a .~1:!:~:~:~-u-a-a·a·a·a·a-a·a·a.a·a·a ' *i';:I=---a·a·a·a.a ·a. a-a-a.a.a-a -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 I I I I I I I I 1984 1985 1986 ·•-Austin ·•-Fort Worth ·O-Dallas -A-San Antonio ·a-Houston Nonagricultural Employment and Total Unemployment Rate by Metropolitan Area Nonagricultural employment Unemployment (thousands) rate Area Jan. 1987 Jan. 1986 Percentage change Jan. 1987 Abilene Amarillo Austin Beaumont-Port Arthur Brazoria Brownsville-Harlingen Bryan-College Station Corpus Christi Dallas El Paso Fort Worth-Arlington Galveston-Texas City Houston Killeen-Temple Laredo Longview-Marshall Lubbock McAllen-Edinburg-Mission Midland Odessa San Angelo San Antonio Sherman-Denison Texarkana Tyler Victoria Waco Wichita Falls Total Texas 49.7 77.8 361.2 126.5 55.4 65.6 46.l 128.7 1,319.7 183.3 509.9 69.2 1,370.1 67.7 35.1 65.l 89.9 89.0 44.3 43 .3 493 .1 36.7 38.l 45.2 60.8 28.1 77.6 49.9 6,471.8 54.1 79.5 362.1 131.7 58.6 65.4 48.7 131.7 1,336.6 182.0 507.8 70.l 1,451.0 66.7 34.8 67 .4 90.6 87.4 49.5 51.0 37.8 489.0 37.8 45 .3 61.7 29.2 78.1 51.3 6,648.3 -8.1 10.3 -2.1 7.1 -0.3 6.8 -4.0 14.6 -5.5 11.7 0.3 16.6 -5.3 6.9 -2.3 13.4 -1.3 6.7 0.7 11.7 0.4 7.8 -1.3 11.8 -5.6 11.0 1.5 8.5 0.9 19.2 -3.4 12.7 -0.8 6.9 1.8 21.4 -10.5 11.5 -15.1 16.0 -2.9 7.5 0.8 8.7 0.8 8.8 -0.2 9.4 -1.5 9.9 -3.8 11.0 -0.6 8.8 -2.7 9.2 -2.6 9.8 Note: These data reflect the Bureau of Labor Statistics' redefined metropolitan areas in Texas. Source: Texas Employment Commission. tlllllll:1llllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll1Ur JAi 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 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 I I I I I I I I I I I I I I I I I I I I I I I IJDr for the United States in 1987, and most expect the rate to be close to the 2.5 percent growth achieved in 1986. We anticipate a somewhat \ better U.S. growth rate of 3.5 percent for 1987, primarily because of an expected greater reduc­tion in the trade deficit and somewhat lower in­terest rates than in the consensus forecast. By September, the current economic expansion will become the second longest of the postwar period, trailing only the 1961-69 expansion in length. Whether we are in the middle of the longest sustained period of economic growth in U.S. history remains to be seen, but the fun­damentals are in place to ensure growth for at least two more years in any case. So keep following economic developments in Texas. They will only get better as 1987 progresses. -James F. Smith Chief Economist and Acting Director Components of the Texas Index of Leading Economic Indicators (October 1986 -December 1986) Measure Oct. Nov. Dec. Manufacturing weekly hours Retail sales (billions of 1967 dollars) New housing permits (thousands) U.S. wellhead price of oil ( 1967 dollars per barrel) Initial claims for unem­ployment insurance (claims per thousand employees) Leading indicators index (January 1984= 1) Note: All figures are seasonally adjusted. Sources: Texas Employment Commission, U.S. Bureau of the Census, and U.S. Department of Energy. 40.9 41.3 41.5 2.61 2.50 2.07 4.83 4.08 4.95 3.36 3.37 3.57 14.82 11.91 13.30 0.77 0.78 0.74 Texas Index of Leading Economic Indicators (January 1984 = 1.00) 1.10 Total Employment 1.05 1.00 0.95 0.90 0.85 0.80 0.75 Texas and U.S. Unemployment Rates 12 11 10 9 7 6 5 +t+t+H-+++t~ttt++++l-tt+Hffot+H~l-f++H+-l,+HH 1983 1984 1985 1986 1987 Source: U.S. Bureau of Labor Statistics. JAi1111 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 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 I I I I I I I I I I I I I I I I I I I IJDr tltl I I I I 1 l 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 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 I I I I I I I I I I I I I I I I I IJJr Austin's High-Tech Future Linked to Higher Education The fragile beauty of the Texas Hill Country and the mild climate were not lost on early Austin business boosters who a century ago sought to attract northern manufacturers by pointing out that "clothing is a superfluity, worn only in conformity to conventional usage, not at all for comfort." Promoters also prom­ised pure water, cheap hydroelectric power, and access to the resources of the University of Texas. Manufacturers never relocated to Austin in the numbers early boosters had hoped for. In­ stead, state government and the University of Texas became the economic mainstays of the local economy. The city, the state government, and the university grew at a steady though predictable pace from the tum of the century through the 1960s. So long as the oil money flowed in Texas, state government and the university prospered. Meanwhile, Austin busi­ nessmen and developers settled into a running battle with a ''no-growth'' faction in local elections. The issue was settled forever during the late 1970s and early 1980s; the "no­ growth" faction was finally overwhelmed by rapid population growth from 1975 through 1985, which strained the city's ability to pro­ vide the necessary infrastructure. In-migration from other Texas cities and the United States swelled Austin's population from L345,000 in 1980 to 468,000 in 1986. During that same period, the Austin Metropolitan Statistical Area (the city of Austin, Travis County, Williamson County, and Hays County) increased in population from 536,000 to 720,000. Old-timers in Austin are at a premium; Austin has evolved into a city of newcomers. Fifty-three percent of all Austinites have lived in the city less than eight years. One-third of the population has lived in Austin less than three years. Downtown Austin has grown as fast as the suburbs. Long-time Austin residents recall that twenty years ago, the Austin skyline consisted of the state capitol and the University of Texas tower. Today, both are lost among a forest of office and commercial buildings. The city council has struggled to maintain a few ''view corridors" where the capitol and the tower can be glimpsed from a distance. Austinites, as a whole, are young and well educated. Twenty-two percent of the population is between 18 and 24; 38 percent is between 25 and 34. Slightly more than 30 percent of Austinites have 16-plus years of education, ranking the city first in the United States com­pared to other cities with populations above 250,000. About 15 percent have completed some graduate work. Many Austinites with advanced education have found work in the research and develop­ment and high-technology industries that have located in Austin. The largest manufacturing and high-technology employers in the Austin area are IBM, Motorola, Texas Instruments, Lockheed, Tracor, and Advanced Micro Devices. Together, these six firms employ more than 23, 000 persons. In all, more than 60 percent of manufacturing employment in Austin is in high-technology activities. The 1983 recruitment of Microelectronics and Com­puter Technology Corp. (MCC) by the city of Austin helped establish the city's reputation as a national high-technology center. The Austin of the 1980s is economically an­chored by the stability of state government and the University of Texas; research and develop­ment and high-technology activities have pro­vided dynamic growth and introduced a greater degree of economic risk. Austin no longer is insulated from the national economy; if the world semiconductor market slumps, Austin feels the tremors. Austin's prosperity in coming decades depends in large measure on its continued ability to attract high-technology enterprises and on its ability to maintain the necessary in­ frastructure for a growing population. One fac­ tor crucial to Austin's future is beyond direct control of the city: strong support for the University of Texas at Austin by the state legislature. Education, an infinitely renewable resource, will have to replace oil-which is not. -Bruce Renfro Assistant Professor of Journalism Southwest Texas State University tltl 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 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 I I I I I I I I I I I I I I I I I I I I I I I IJJr •1Bureau of Business Research • P.O. Box 7459 Austin, TX 78713-7459 NONPROFIT ORG. U.S. Postage PAID Austin, Texas Permit No. 1630 • GENERAL LIBRARIES TX UNIV Of PCL 1 114 SERCALS RECORDS CAMPUS "All CAMPU Editor: Lois Glenn Shrout 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 visitors, 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. & tdtl 1111 i 11 1111111111 I I I I I I I I I I I I I I I IJDr Announcements The 1987 Directory of Texas Manufac­turers and the sixth edition of Texas Family Law were released in January and may be ordered by calling (512) 471-5179 or by writing to Dan Hardy at the Bureau. By press time for this issue of the Texas Business Review, the 1989 edition of Texas Trade and Professional Associations will have been released to the public and the Natural Fibers Information Center's Climates of Texas Coun­ • ') ties will be at the printing stage. For prices and other details, call the sales office number above or the main number for the Bureau (512) 471-1616.