Texas metropolitan statistical areas. population centers and rural areas

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1 VOL. 33, NO. 8 IN THIS ISSUE The Long-Term Economic Forecast for Texas Metropolitan Areas The Texas economy is principally driven by the state s largest metropolitan areas, with smaller cities also playing an important role. In this issue, we highlight results from The Perryman Group s recent long-term forecast for these population centers. The West Texas Region The West Texas Region includes thirty counties and the metropolitan statistical areas (s) of Midland, Odessa, and San Angelo. Representing 2.29% of the state s population and 2.60% of the state s wage and salary jobs, the area continues to move forward despite uncertainties in the energy sector. Economic Development News Around the State Take a look at some of the Lone Star State s most notable economic developments in recent months. Announcements from eleven cities are covered in this issue. Perryman s Perspective: The Recent Presidential Election (aka Brexit On Steroids) This response to the recent Presidential election examines how the Trump presidency could affect our economy moving forward. The Long-Term Economic Forecast for Texas Metropolitan Areas Texas metropolitan statistical areas (s) are key players in the state s economy. While smaller population centers and rural areas are significant contributors, the biggest urban centers are the primary leaders in business, job opportunities, and trade for individuals and companies across the state. This month s issue of The Perryman Report & Texas Letter highlights results from our long-term forecast for Texas metropolitan areas. The state s most populous metropolitan areas (in descending order of population size) are the Houston-The Woodlands-Sugar Land, Dallas-Plano-Irving Metropolitan Division (MD), Fort Worth-Arlington MD, San Antonio-New Braunfels, Austin-Round Rock, McAllen-Edinburg-Mission, and El Paso. About 71.8% percent of Texans live in these population centers, a proportion which has been rising over time. (Note that the McAllen-Edinburg-Mission recently passed El Paso in terms of population size and will be counted among the state s largest in our forecasts.) As a group, the state s largest metropolitan areas account for 74.4% of employment in the state and 79.3% of output. Through Contribution to Texas Wage and Salary Employment Gains: Area Increase as a Percent of the Texas Total Smaller s 14.31% San Antonio- New Braunfels 8.29% McAllen-Edinburg- Mission 2.34% Rural Texas 6.38% Houston-The Woodlands- Sugar Land 26.33% Austin-Round Rock 8.00% Dallas-Plano- Irving MD* 21.59% Fort Worth-Arlington MD* 8.16% El Paso 2.38% *MD Metropolitan Division Source: The Perryman Group THE PERRYMAN GROUP Page 1

2 2040, close to eight of every ten new jobs are expected to be in one of the seven largest s in Texas. In fact, the Houston area and the Metroplex alone will likely account for well over half of the positions added. Moreover, these areas comprise around 81.7% of growth in the economy (as measured by expansion in real gross product). Smaller s are also projected to experience notable economic gains over time. ECONOMIC FORECAST FOR THE LARGEST S The Austin-Round Rock continues to be a top performing economy and to receive national attention. The was recently ranked atop a Forbes list of the nation s 53 largest cities ( America s Next Boom Towns ) as the city with the best chance to prosper in the coming decades. The area added 28,600 jobs over the 12-month period ending in September 2016, led by increases in wholesale and retail trade as well as professional and business services. In fact, all industrial categories added jobs over the past year with the exception of manufacturing. The currently has a 3.5% unemployment rate as of September, well below the rates of Texas and the US and tied for the lowest rate among all of the large s in the country. The Perryman Group s latest forecast indicates that healthy expansion will continue through the long-term horizon, led by growth in the information and services sectors. The Austin area is projected to see a $171.2 billion increase in real gross product (RGP) by 2040, growing 3.76% yearly. Over 630,000 new jobs are likely to be added, a 2.02% annual growth rate. The services sector is expected to experience the largest number of net new jobs during the period (over 435,000), while the information, services, and manufacturing sectors will see RGP gains of more than 4% per annum. T h e D a l l a s - P l a n o - I r v i n g Metropolitan Division has been flourishing given its diverse economy and relative insulation from the energy sector, adding 101,300 jobs over the 12 months ending in September, the largest gain in the state and the highest growth rate (4.2%). The largest gains were seen the wholesale and retail trade sectors which combined have added over 29,000 new jobs over the past year (a 7.4% growth rate). Professional and business services have also been a major source of jobs due to the stable demand created by numerous corporate headquarters located in the region. Growth in Dallas-Plano-Irving will continue to be steady, as employment is expected to increase by 1.33 million through 2040, a 1.75% annual growth rate. The most significant employment expansion is projected in the services and trade sectors, with 2.31% and 1.68% annual growth rates, respectively. Through 2040, a 3.49% annual growth rate is forecast for the area s real gross product, an increase of more than $473.1 billion over the period. The durable manufacturing and information sectors are projected to see the most growth in relative output, both with annual growth rates of over 4%. The Fort Worth-Arlington Metropolitan Division has recently experienced slower growth because of a larger exposure to the energy industry. The area added over 21,000 net jobs for a 2.1% annual growth rate over the past year, which is still slightly above the rate of growth for the state but low in contrast to the stronger performance in Dallas. The largest growth has been in the professional and business services sector, which added 7,200 jobs over the past year (a 6.4% growth rate). Despite the recently spotty job gains, the area has a 4.2% unemployment rate, well below the state and national rates. The Perryman Group s most recent long-term forecast for Fort Worth- Arlington indicates growth at rates above the nation as a whole and slightly above the state, with the area s output (real gross product) reaching $280.3 billion by 2040, a growth rate of 3.43% per year. Employment is expected to increase by nearly 505,000 jobs, a 1.61% yearly expansion. The largest output gains will be in the manufacturing, services, and information sectors. Economic conditions in the El Paso continue to improve, setting the stage for future growth. Over the past year ending in September, the added 7,800 net new jobs, for a 2.6% annual growth rate. The largest gains have been seen in the leisure and hospitality and the education and health services sectors, which added 2,400 and 1,900 net jobs over the past year, respectively. Although hiring has slowed in manufacturing firms across the border in Juárez, maquiladoras are expected to continue to be an important source of economic activity. Many have added jobs, though at a slower pace than last year; manufacturing employment in Juárez increased by 4.7% over the past year ending in July (the latest data available). Increased sales in the US auto industry are a positive indicator, since around half of the maquiladoras are auto related. The El Paso area will likely continue to see modest growth over the long-term forecast horizon, though at rates somewhat slower than other parts of the state. An increase of $29.4 billion in real gross product by 2040 is projected (a growth rate of 2.99% per annum), with employment growth at a rate of 1.47% yearly (for an Page 2 THE PERRYMAN GROUP

3 2.5% Projected Growth Rates in Wage and Salary Employment for Texas and Major s Compound Annual Growth Rate 2.0% 1.5% 1.0% 0.5% 1.64% 2.02% 1.75% 1.61% 1.47% 1.70% 1.75% 1.62% 0.0% Texas *MD Metropolitan Division Source: The Perryman Group Austin- Round Rock Dallas- Plano- Irving MD* Fort Worth- Arlington MD* El Paso Houston- The Woodlands- Sugar Land McAllen- Edinburg- Mission San Antonio- New Braunfels Projected Growth Rates in Real Gross Product for Texas and Major s % 3.76% Compound Annual Growth Rate 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 3.35% 3.49% 3.43% 2.99% 3.35% 3.25% 3.27% 0.5% 0.0% Texas *MD Metropolitan Division Source: The Perryman Group Austin- Round Rock increase of over 147,400 jobs). The durable manufacturing and information sectors are expected Dallas- Plano- Irving MD* Fort Worth- Arlington MD* El Paso to see the largest percentage growth in real gross product. Houston- The Woodlands- Sugar Land McAllen- Edinburg- Mission San Antonio- New Braunfels The Houston-The Woodlands- Sugar Land has stabilized after adjusting to job losses associcontinued on page 6 THE PERRYMAN GROUP Page 3

4 An Economic Overview Page 4 THE PERRYMAN GROUP The West Texas Region This issue s featured West Texas Region is made up of thirty counties. There are also three metropolitan statistical areas (s) located within the region Midland, Odessa, and San Angelo. The West Texas Region represents 2.29% of the state s population and 2.60% of the state s wage and salary jobs. It also generates 3.27% of real gross product (RGP or output) in Texas. The substantially higher percentage of output relative to income and employment reflects the value-added characteristics of the dominant oil and gas industry. Over the long term ( ), the area s population is forecast to grow at a compound annual growth rate (CAGR) of 1.40%. Real retail sales is expected to increase at an annual pace of 3.95%, and real personal income (RPI) is expected to grow at a rate of 4.06% over the next twenty-five years. The most recent economic news for the West Texas Region proves that the area is moving forward despite the uncertainties and only tentative recovery in the energy sector. In San Angelo, the local economy is getting a boost from Angelo State University where over 9,600 students were registered this fall, the first time enrollment has exceeded 9,000. Two major construction projects (a $4.5 million engineering lab and a $26 million health and human services building) are also underway on campus. The aerospace industry in Midland continues to evolve. Sierra Nevada Corporation announced that it has selected Midland International Air & Space Port as an official landing site for its Dream Catcher spacecraft. In Odessa, a $72 million hotel development is in the works. Gatehouse Capital s project will include a 219-room Marriott hotel and conference center along with a parking garage and 27,000 square foot plaza. Construction is also planned for the Texas Tech University Health Sciences Center at the Permian Basin. A $22.3 million, 51,000 square foot academic facility will be built at the school s Odessa campus. Long Term Growth for RGP in West Texas Over the long-term forecast period, the West Texas Region s RGP is likely to grow at a CAGR of 3.06%. Compared with Texas projected CAGR of 3.27% over the next twenty-five years, real gross product in the area is expected to expand at a slightly slower pace than that of the state. The graph below highlights the West Texas Region s projected total RGP by sector for the year Projected Sectoral Composition of Real Gross Product for the West Texas Region 2040 Services 12.98% FIRE 7.24% Information 2.66% TWU 5.49% Government 5.10% Agriculture 0.87% Trade 11.53% Construction 3.20% Nondurable Mfg. 3.37% Durable Mfg. 5.68% Note: TWU is Transportation, Warehousing, & Utilities FIRE is Finance, Insurance, & Real Estate Source: The Perryman Group Mining 41.88% Moderate Job Gains for the Region Over the next twenty-five years ( ), the West Texas Region s total wage and salary employment is expected to expand at an annual pace of 1.41%. The following table displays projected employment growth and annual expansion rates, along with the percentages of total employment in 2040 for each sector. Growth in Employment in the West Texas Region by Industrial Sector: Compound Percentage Annual of 2040 Growth Rate Employment Agriculture 0.13% 1.03% Mining 1.20% 15.09% Construction 0.83% 5.62% Durable Mfg. 0.75% 3.11% Nondurable Mfg. 0.46% 1.07% Trade 1.38% 15.96% TWU 1.25% 4.34% Information 4.04% 1.64% FIRE 1.01% 4.05% Services 2.17% 34.66% Government 0.60% 13.42% Compound Annual Growth Rate reflects changes in the size of the base used to calculate growth.

5 Economic Development News from Around the State Baytown: Ravago Americas, a global plastics company, purchased 200 acres here. The company will develop a 1.5 million square foot distribution & manufacturing complex. Dallas: Jacobs Engineering Group relocating global headquarters from CA to city. $1.3 mln Texas Enterprise Fund grant recipient will create over 100 jobs & invest $4 mln. Frisco: Texas Scottish Rite Hospital for Children breaks ground on new campus. The 345,000 square foot orthopedic ambulatory care center will be located on 40-acre site. Carrollton: $113 mln regional campus in the works for wholesale drug company. AmerisourceBergen Specialty Group to add 1,039 workers as it consolidates operations. Beaumont: Major expansion planned for ExxonMobil s local polyethylene plant. The company will increase its capacity by 65% with the addition of a new production unit. San Antonio: Customer support firm boosts employment at its local operations. VMC Consulting Corp. has hired around 1,000 over the last few months to meet demand. McAllen: South Texas College receives grant from Texas Workforce Commission. Will provide skills training for 288 Lineage Logistics & Wonderful Citrus Packing workers. Houston: $162 million tech operations center is in the works for United Airlines. Facility at George Bush Intercontinental Airport ready in 2018, expected to add 200 jobs. Amazon recently announced plan to open its seventh fulfillment center in the state. Approximately 1,000 full-time workers will be hired for the 855,000 square foot location. Gatesville: Coryell Memorial Hospital launches major renovations and expansion. Project includes 117,000 square feet additional space and new hospital and rehab wings. Tyler: New luxury living & retail development will be coming to the city in Fine dining, shopping, offices on first floor and Copper Ridge Lofts apartments on second. El Paso: VibraLife, an innovative nursing & assisted living complex is underway. Community will include 92 total beds (nursing, rehabilitation, memory care, assisted living). Want to include a business announcement for your community? Let our editors know what s taking place in your neck of the woods. Share the details of recent economic development happenings in your area. The Perryman Report & Texas Letter is read monthly by the state s most notable leaders. submissions to info@perrymangroup.com or send fax to THE PERRYMAN GROUP Page 5

6 continued from page 3 ated with lower oil prices. Although additional fallout may well occur, it appears the area is set for stronger growth. The area has added 20,100 net new jobs over the past year ending in September. Large net gains in leisure and hospitality (20,700 jobs), education and health services (16,000 jobs), and government (8,200 jobs) helped offset losses in the manufacturing (10,400 jobs), mining and logging sectors (9,800 jobs), and professional and business services (7,000 jobs) sectors. The Dallas Fed s Houston Business Cycle Index increased to 2.9% in September, marking the fourth consecutive month of growth and the fastest month of growth in over a year. Through 2040, real gross product in the Houston area is forecast to expand by 3.35% yearly, for a total increase of close to $630.7 billion. Employment is expected to increase by close to 1.6 million to reach 4.7 million, an annual growth rate of 1.70%. The most significant job expansion in the area is projected to be in the services and trade sectors, with employment in each expecting to expand by 2.35% and 1.51% annually, respectively. The McAllen-Edinburg-Mission recently surpassed El Paso for the sixth most populous city in Texas. The area has added 8,200 net new jobs over the past year ending in September (a 3.3% annual growth rate). Education and health services led the employment growth after adding 4,900 net jobs (a 7.4% growth rate). Some of this growth in the area and several other border cities is tied to the recent positive economic performance in Mexico following structural reforms; however, there is a lot of uncertainty over Texas relationship with our largest trading partner following the election of Donald Trump (see the Perryman Perspective in this issue). The Valley is poised to see healthy growth over the long-term horizon. The area is projected to have an annual growth rate of 1.75%, or nearly 145,000 jobs, through Output is forecast to expand at a 3.25% annual growth rate for a total increase of $21.6 billion. The San Antonio-New Braunfels economy has been affected by the lower oil prices and the resulting slowing of activity in the nearby Eagle Ford Shale. Even so, the area is adding more jobs than are being lost. The has added 21,100 net new jobs over the past year, with particularly strong growth across the service sectors such as education and health services, government, and professional and business services. The area also added a net 2,500 jobs in the construction sector for a 4.9% annual increase which accompanied growth in home construction and appreciating home prices in the area. In addition to a 7.4% increase in year-to-date existing home sales, these are positive indicators for a healthy real estate market. The Perryman Group s latest longterm forecast indicates growth in real gross product in the San Antonio area at a 3.27% annual growth rate for an increase of $125.6 billion through Employment is expected to rise at a 1.62% yearly rate, generating an increase of over 512,000 jobs. The services sector is expected to show significant employment gains of 2.25% yearly, while the durable manufacturing and information sectors experience the greatest RGP growth with rates of more than 4% annually. ECONOMIC FORECAST FOR SMALLER S Though most of the growth in the state occurs in the larger, the state s smaller s will also be a notable source of job and output gains. The smaller s are expected to account for nearly $238 billion in gains in real gross product, which is approximately 12% of the total state increase. Amarillo still has the lowest unemployment rate in the state, tied with Austin-Round Rock, at 3.5% as of September Lubbock (3.6%) and College Station-Bryan (3.7%) also have a ranking in the top five in addition to the Dallas- Plano-Irving MD (4.0%). College Station-Bryan also continued to experience significant job growth recently, adding 4,700 jobs in September for a growth rate of 4.3%, the highest in the state. It also had the second-highest annual job growth rate at 3.8%, behind Dallas-Plano-Irving. Overall, the smaller s are projected to add almost 1.03 million jobs by Only the Tyler (1.66%) has a projected growth rate exceeding the state s rate of employment gain over the period (1.64%). The state s rural areas are projected to see employment expansion of just under 400,000. The gain accounts for about 6.4% of overall state growth in employment. Rural areas are also expected to gain approximately $123 trillion in real gross product, about 6.2% of total state output growth. CONCLUSION The state s largest s have performed strongly over the past year despite some being more exposed to the slow growth of the energy sector. With most of the losses connected with lower oil prices behind us, the state s cities are poised for positive growth over an extended time horizon. Much of the economic prosperity in Texas originates in its major s, a trend that is only expected to increase. Irrespective of the inevitable business cycles, the Texas population centers will likely see relatively solid performance through 2040 and beyond. Page 6 THE PERRYMAN GROUP

7 The Recent Presidential Election (aka Brexit On Steroids!) The results are in and Donald Trump has been elected as the 45th President of the United States in a surprise victory. Despite the polls showing Hillary Clinton to have a slight but consistent and sustained lead, Donald Trump pulled off key wins in swing states such as F l o r i d a, Ohio, North C a r o l i n a, Wisconsin, PERRYMAN S PERSPECTIVE and Pennsylvania to end up with the majority of the electoral votes. While it is much too early to determine what a Trump Administration will ultimately look like, we do have some guidance from recent history about the near-term effects BREXIT ON STEROIDS! Whenever there is uncertainty on a global scale, markets typically respond accordingly, especially when adjusting to surprising events. Overnight, futures for the Dow Jones Industrial Average fell as much as 800 points and the S&P 500 dropped 5% as investors responded to updates about the election. Massive selloffs occurred throughout the world as returns started to come in. Asian markets fell sharply as indexes in Hong Kong, South Korea, and Japan fell between 3-5%. European stocks also dropped sharply, and the Mexican peso was off 11% before the election was called. Most of the losses were subsequently recovered, which is also not surprising. Although market volatility is typically about twice the normal pattern on the day after an election (a fact which has absolutely no predictive power about the following twelve months), the Brexit experience is useful because of its recent vintage and its similar nature. Both Brexit and Mr. Trump s election reflects surprising (more aptly, shocking) populist revolt in a major advanced economy. After Brexit, markets initially plummeted, recovered quickly, and have since been hypersensitive to any new information about an event with an uncertain future. We will likely see the same pattern in the coming months. Irrespective of whether you liked Secretary Clinton s proposals, they were predictable, incremental, and colored inside the lines of typical public policy. Mr. Trump s do not, and markets are not fond of uncertainty. Thus, investors will tend to try to read meaning into everything, parse every word and deed, and react accordingly. The difference is that, while Great Britain is 3% of the global economy, the US is 25% of world business activity and the linchpin of the international financial system. Hence, the reactions will be exaggerated accordingly. The bigger question, of course, is the longer term economic consequences of President Trump s tenure. That is also a source of mystery. Former New York Governor Mario Cuomo famously said that leaders campaign in poetry but govern in prose. In Mr. Trump s case, he tended to campaign more in angry sound bites, and it remains to be seen how he governs. His prescriptions were often inconsistent, but the major ones, if truly implemented would be disastrous. If the US were to suddenly begin deporting people by the millions, denying rights to millions of citizens, cancelling trade agreements, failing to honor treaties, dismantling the health care system, and a dozen other proposals shouted out loud, we would see an economic calamity that would make the 1930s look like a walk in the park, not to mention a social and human crisis of even greater proportions. In the prose of governing, however, that is not how things work. Whether spoken in poetry or angry sound bites, the most provocative aspects of a campaign are invariably tempered by the system of checks and balances that our Founders provided. Presidents do not have unlimited powers, and there is ample statesmanship and common sense among the leaders of both parties. The Union has survived challenges that were much more daunting than a potentially unpredictable Presidency, and it will do so again. Despite our political discord and divisions, our economic and political institutions are the envy of the world and a source of great stability. We had an election on Tuesday, and we went to work on Wednesday. That is a treatment for our strength, which will endure. Speaking of endurance, we can take comfort in the fact that we can now enjoy a respite from political ads and punditry. That, in and of itself, should be a source of great joy and optimism! M. Ray Perryman, PhD Note: This essay originally appeared in Dr. Perryman s regular column following the election; it is reprinted here because of the interest that it generated. THE PERRYMAN GROUP Page 7

8 ADDRESS SERVICE REQUESTED 510 N. Valley Mills Drive, Suite 300 Waco, TX A B O U T O U R S E R V I C E S The Perryman Group (TPG) is a team of highly skilled and focused analysts who stand ready to tackle any economic information task. Our in-house professionals bring expertise in finance, statistics, economics, mathematics, real estate, database management, valuation, programming, systems analysis, engineering, technical communications, and marketing. Dr. Ray Perryman, President and CEO, has almost 40 years of experience in developing systems, analyzing complex problems, and communicating effectively. Services provided by The Perryman Group include: Economic Impact Assessment, Public Policy Studies, and Economic Development Complex Business Litigation, Regulatory Matters, and Dispute Analysis Forecasting and Customized Economic Modeling Speeches and Testimony Additional Areas of Practice Market and industry analysis, Statistical modeling and analysis, Survey and demographic studies, Economic research and information, Feasibility studies and business plans, Business and product valuation For more information, contact Ray Perryman by ing info@perrymangroup.com or calling on Twitter Like us at facebook.com/perrymangroup Follow us linkedin.com/company/the-perryman-group M. RAY PERRYMAN, PhD President and Chief Executive Officer, The Perryman Group Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies Dr. Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. His firm has served the needs of more than 2,000 clients ranging from major corporations to small startups and from local communities to the federal government. Over the past 30 years, Dr. Perryman has helped recruit corporations providing tens of thousands of jobs through economic development work, resolved billion-dollar legal issues, and revamped public policy through impact assessments and other studies. His firm has measured economic impacts for corporate locations and expansions involving billions in investments, and his economic forecasts are used by corporations and government agencies alike. Dr. Perryman has provided economic analysis and expert testimony for civil litigation across a wide range of practice areas. His list of clients includes nationally renowned law firms and Fortune 500 companies and his expert opinions have helped shape important legal decisions. Author: M. Ray Perryman Contributors: Virginia Gleghorn, Cristin Hulyk, and Nancy Risinger Graphics & Layout Director: Shelia W. Smith Research/Editing Assistants: Karen Amos and Elodia Cavazos Technical Advisor: Pete Tamez For subscription information, call For information about our corporate services, economic forecasts, and other reports, call Fax: info@perrymangroup.com Texas Economic Publishers, Inc. is a division of The Perryman Group 510 N. Valley Mills Dr., STE 300, Waco, TX Page 8 THE PERRYMAN GROUP