One of the most striking characteristics that the economy has recently demonstrated is resilience. About a year ago, everywhere you looked there was another prediction of a recession (possibly a major one). Although I always thought (and said and wrote) that the fears were overblown, the environment was characterized by rampant inflation and the Federal Reserve was taking aggressive actions to increase interest rates and slow down price increases.
The path toward a “soft landing,” where inflation is tamed without fostering a recession, is always difficult. Last January, it appeared to many as if the chances of avoiding a downturn were next to nil. However, there has been month after month of expansion despite ongoing challenges, and avoiding a notable recession is increasingly likely. In fact, there is an argument to be made that a soft landing has already been achieved, and that any future downturn that might occur would be a separate thing.
It is within this framework that the Texas economy has been setting a blazing growth pace, although the rate of expansion has been slowing more recently. The national economy is a key aspect of the condition of the state’s business complex, and the fact that a major downturn appears unlikely is a positive factor in future state performance.
One source of uncertainty is geopolitical tensions, with the Russia-Ukraine war continuing and the more recent conflict in Israel-Gaza which began with the Hamas invasion. Additional regions are showing increasing stress, including Venezuela-Guyana and Red Sea shipping lanes. A major escalation in any of these situations or others which may emerge would negatively affect the global economy. Struggles in the Chinese economy could also ripple through world markets. Texas is certainly not immune to such global problems, though the fact that some of them could foster increased energy prices could partially offset the downside, as oil and natural gas are key industries and export products.
A definitive positive signal is the Lone Star State’s continued population growth. Maintaining a dynamic economy requires a constant flow of talented and skilled workers, and long-term population patterns and the retirement of the baby boom generation have left many areas with inadequate labor forces.
The most recent population estimates indicate that Texas is gaining far more residents than any other state. The U.S. population increased by just over 1.6 million people during the 12 months ending in July 2023, and Texas gained almost 473,500 (about 1,300 people per day). By contrast, eight states saw their population fall in 2023 including large states such as California and New York. A recent study indicated that Texas is also attracting far more young “Gen Z” movers who have reached working age ranges than any other state.
Both long-time core industries and rapidly emerging sectors are expanding. Energy has been an important part of the Texas economy for more than a century. In addition to vast deposits of oil and natural gas, the state has more recently become a leader in renewable energy (primarily wind and solar) and emerging areas such as hydrogen and carbon capture and sequestration. Texas has recently won the Site Selection Governor’s Cup for the 12th consecutive year, more than doubling the number of relocations, expansions and significant investments achieved by any other state.
Texas is also seeing a surge in technology investments as firms engage in “onshoring” to provide more supply chain resiliency. Several major projects involving semiconductor facilities are underway, involving tens of billions in capital investments. Moreover, the state is the site of major campuses for a variety of technology companies. Emerging as a hub for chip fabrication and other technology-oriented industries will spur activity in supplier networks, research labs and many supporting industries.
Hotel Emma is a popular spot for locals and visitors alike in downtown San Antonio.
Photo courtesy of Travel Texas
Another industry group where Texas is increasing its prominence is biosciences, and several recent initiatives have the potential to greatly enhance the state’s presence in segments ranging from research to pharmaceuticals to related manufacturing. The selection of the state as a site for the new ARPA-H initiative puts an exclamation point on the state’s recent success.
The Perryman Group’s latest projections indicate that real gross product is forecast to expand at a 3.31% annual pace, resulting in a gain of more than $346.9 billion over the next five years. Wage and salary employment is projected to grow by more than 1.6 million net new positions, an increase of 2.17% per year through 2028, which is significantly faster than anticipated for the nation as a whole. Growth will likely be broad-based, with most major industry groups contributing to expansion.
Clearly, there are a number of challenges and opportunities facing the state economy. On balance, however, the near-term outlook is decidedly positive.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.