The Texas Economy
• The U.S. added 151,000 nonfarm jobs in February 2016 and the unemployment rate was 4.9 percent. Between February 2016 and February 2015, U.S. total nonfarm employment increased 1.9 percent.
• Texas total nonfarm employment increased by 2,100 jobs during February 2016. Between February 2015 and February 2016, Texas total nonfarm employment increased by 170,900 jobs or 1.4 percent.
• The Texas unemployment rate was 4.4 percent for February 2016, equal to the 4.4 percent rate in February 2015.
• The Texas unemployment rate has been at or below the national rate for 110 consecutive months.
Source: Texas Comptroller of Public Accounts
The New Texas
In spite of the end of the oil surge, Texas has again won Site Selection magazine’s Governors Cup, meaning that the Lone Star State had more major corporate location and expansion projects in 2015 than any other state. To be counted, a project has to either involve a capital commercial investment of at least $1 million, 20 or more new jobs, or 20,000 square feet of new construction. During 2015, Texas had 702 qualifying projects, up from 689 in 2014. Ohio came in second, with 517, followed by Illinois (413), North Carolina (300), and Kentucky (285).
Qualifying projects in Texas covered the spectrum of industries: petrochemicals, technology (including information services such as Facebook as well as data centers), distribution centers and other logistics, financial services, insurance, health care, food processing, automotive manufacturing, aerospace, steel, building materials, HVAC equipment, and more.
Texas also won in 2004, 2005, 2010, 2012, 2013, and 2014, and was a close second in several of the years between. This win is particularly notable given that it came in the midst of the adjustment to lower oil prices. Although there could be additional fallout from energy industry slowing in the years to come, the broad nature of recent growth is a sign of a dynamic economy.
Texas’ success is based on a number of factors. One is that the business climate here offers advantages in the form of lower taxes and a more predictable regulatory environment. Costs are lower for business as well as employees, with particular advantages in the prices of land and houses compared to many markets (such as California). Companies also point to the state’s abundant and quality workforce and other infrastructure when they decide to locate here.
State economic development incentive programs have also been used effectively, allowing us to “close the deal” for significant projects when a Texas site is competing with another viable out-of-state option. Texas has long targeted emerging industries, working to bring in facilities focusing on research, development, and commercialization of emerging technologies. Other efforts include special financing, workforce training, tax incentives, and grants. In addition to these state-level incentives, local tools include tax agreements to encourage capital investment and competitive packages to attract corporate locations and expansions funded through the sales tax for economic development, among others.
While no program can offer 100 percent success and there may be ways to continue to improve the Texas incentives, it is important to note that before Texas implemented its major economic development programs, the state ranked much lower. (Some people tend to forget that fact and assume that incentives are neither desirable nor necessary, but I disagree wholeheartedly.)
There is also a ranking on a per capita basis. Kentucky topped that list, followed by Nebraska, Ohio, and Illinois. Texas wasn’t in the top 10, indicating there is still room (and a need) for strong programs and continued progress.
Texas’ success in the face of the end of the oil surge is a clear signal that diversification and economic development efforts are working. While we are certainly feeling the effects of the decline in drilling and exploration activity, it hasn’t been the catastrophe for the economy that it might have been (or that it was in the 1980s). Our forecasts for economic growth are certainly slower than they were with $100 per barrel oil, but I’m expecting moderate expansion. One big reason is that the Texas economy is driven by a spectrum of industries, and our business climate is allowing those industries to flourish.
I have spent much of my career on efforts to enhance the state’s competitiveness and otherwise encourage desirable economic development. I have performed studies, testified before Texas legislative committees, and worked with potential locating companies and communities. I have seen firsthand what it takes to successfully recruit and retain quality businesses, and the fact that Texas continues to lead the way in major corporate locations is no accident. It has taken visionary leadership and countless hours by professionals in communities across the state to make this happen. While the work is never “done,” another Governor’s Cup win is a very tangible sign that efforts are paying dividends in the form of opportunities for Texans.
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Dr. M. Ray Perryman is president and CEO of The Perryman Group, www.perrymangroup.com. He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.