the United States and Texas

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VOL. 34, NO. 8 IN THIS ISSUE *The Long-Term Forecast for the United States and Texas The Perryman Group s latest long-term forecast for the United States and Texas calls for moderate growth.

1 VOL. 34, NO. 8 IN THIS ISSUE *The Long-Term Forecast for the United States and Texas The Perryman Group s latest long-term forecast for the United States and Texas calls for moderate growth. In this issue, expected gains through 2040 are described. * The Upper East Texas Region The Upper East Texas Region, which includes the Tyler, Texarkana, and Longview Metropolitan Statistical Areas is expected to experience moderate growth over the next few years. See page 4 for highlights of The Perryman Group's forecast for the area. * Economic Development News Around the State Take a look at the most recent economic development happenings across the state. Twelve announcements in ten different Texas cities are highlighted in this issue. * Focus On: Real Personal Income A breakdown of real personal income by metropolitan statistical area provides a quick look at the forecast for 2016 to See this page to get a snapshot of the anticipated growth for the state as well as for an MSA near you. The Long-Term Forecast for the United States and Texas The US economy has been performing well, setting the stage for future growth. However, long-term economic performance hinges on adapting to the underlying changes in the population and workforce. The Perryman Group s latest long-term forecasts for the United States and Texas indicate moderate growth over an extended period of time, though business cycles are inevitable. CURRENT CONDITIONS US Economic Indicators Much of the slack in the labor market has been eliminated. Total nonfarm payroll employment rose by 261,000 in October, and the unemployment rate is down to 4.1%, according to the US Bureau of Labor Statistics (BLS). The number of unemployed persons was 6.5 million, down 1.1 million since January. About 1.6 million of the unemployed had been jobless for 27 weeks or more. Key CAGR* Indicator Level Level Real Gross Domestic Product (2009$) $16.71 trillion $32.70 trillion 2.84% Population million million 0.72% Employment** million million 1.42% Real Personal Income (by place of residence) (2009$) $14.52 trillion $25.90 trillion 2.44% Industrial Production Index (2009=100) % Consumer Price Index (2009=100) % Interest Rates (Long-term, 20-yr. bonds) 2.29% 5.58% *Compound Annual Growth Rate **Civilian non-agricultural employment THE PERRYMAN GROUP n Page 1

2 *Compound Annual Growth Rate However, there remains room for additional strengthening. The number of persons employed part time for economic reasons (individuals who would have preferred full-time employment, but were working part time because their hours had been cut back or because they were unable to find full-time jobs) declined by 369,000, but is still fairly high at 4.8 million (as of in October). In addition, 1.5 million persons were marginally attached to the labor force, meaning that they wanted and were available for work and had looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey. The labor force participation rate also remains low by historical standards at 62.7%. The Texas economy has also seen notable job growth, adding 316,100 jobs over the past year. The state's seasonally adjusted unemployment rate fell to 3.9%, setting a record for the lowest Texas Economic Indicators Key CAGR* Indicator Level Level Real Gross Product (2009$) $1.50 trillion $3.22 trillion 3.25% Population million million 1.48% Wage & Salary Employment million million 1.70% Real Personal Income (by place of residence) (2009$) $1.20 billion $3.02 trillion 3.93% Real Retail Sales (2009$) $ billion $1.07 trillion 4.10% Housing Permits 161, , % unemployment rate recorded in four decades. The strength of the US and Texas economies will help in dealing with challenges on the horizon. FEDERAL RESERVE ACTIONS The Federal Reserve continues to normalize monetary policy, and has begun the process of reducing assets purchased during the global financial crisis and later quantitative easing (QE) to help the US economy recover from the "Great Recession." If left in place too long, extremely low interest rates and accommodative monetary policy would lead to inflation and other threats to the economy. Reducing the balance sheet will test the economy and financial system. When the Fed stops reinvesting in securities, liquidity is reduced. It is a necessary step, because the Fed has several trillion more in assets than it needs on a long-term basis. The goal is to gradually change monetary policy in hopes that the economy continues to expand and hiring is encouraged, since maximum employment is one of the Fed s statutory mandates. However, the other component of the Fed s role is to keep inflation in check, and an overheated economy can cause price escalation. Balancing these two goals will involve careful monitoring of economic data, and future adjustments will be based on evolving conditions. Normalization is essential to long-term growth, and it is a positive sign that the Federal Reserve is working in that direction. WORKFORCE CHANGES As the US population ages and labor force participation continues to decline, workforce growth may become a constraint in some segments of the economy. In addition, the composition of the workforce will change dramatically over the next several decades. Hispanics will become an ever more essential aspect of the US and Texas workforce, accounting for most of the growth in the labor force in the future. Hispanics are a large and growing component of the workforce, a pattern which will become more pronounced in the future. Since 2000, Hispanics (and other Latinos) accounted for almost twothirds of the increase in the workforce (10.1 million of a total gain of 16.6 million over the period). The pattern is a relatively recent development, and it is likely to intensify over time. Hispanics have a higher labor force participation rate (nearly 66%) than non-hispanics (just over 62%). Part of the explanation for this divergence is that the US Hispanic population is younger, with more people in key working age groups. However, although there has been some improvement, educational attainment among Hispanics still lags other groups. Page 2 THE PERRYMAN GROUP

3 As the population and workforce become increasingly Hispanic, improving overall educational attainment will depend on adding to the numbers of Hispanic youth who attend college. A major challenge is college affordability. The most common reason for quitting college (or not attending in the first place) is financial strain, and it is crucial to provide the needed resources to facilitate attendance among all groups. Otherwise, educational attainment in the state will trend downward and overall economic performance, opportunity, and standards of living will be eroded over time. TEXAS ECONOMIC OUTLOOK Texas has been a growth leader in the nation and, indeed, the world for a number of years. The state weathered the Great Recession and ensuing real estate crisis better than most parts of the United States, and was adding jobs at a notable pace even before the energy sector (a major export sector) began its recovery. On the downside, the disruption caused by Hurricane Harvey will affect the performance of the Texas economy and, in particular, the Gulf Coast areas. A number of communities were devastated by the wind and flooding rains, and many are still recovering. In the short term, some industries will see an increase in activity (such as construction), but the long-term effects are decidedly negative. The effects will occur over several years and will be partially masked by other positive growth factors. Moreover, a full recovery for the economy is expected over time. Another contributing factor to the state s economic performance is recovery in energy. The rig count is current averaging nearly 5% Agriculture Projected Percentages of Total RGP (Output) Gains for Texas Note: FIRE is Finance, Insurance, & Real Estate is Transportation, Warehousing, & Utilities Billions of 2009 Dollars 4% 3% 2% 1% 0% $600 $500 $400 $300 $200 $100 $0 Agriculture Mining Construction Durable Nondurable 200 higher than a year ago. According to Baker Hughes, the Texas counts were averaging in the range of 440 through much of the fall of This additional activity is not only beneficial to the economies of major production regions such as the Permian Basin, but to businesses across the Information Projected RGP (Output) Growth for Texas Mining Construction Durable Note: FIRE is Finance, Insurance, & Real Estate is Transportation, Warehousing, & Utilities Nondurable Information FIRE FIRE Services Services Government Government state as well. Current forecasts of oil prices and demand support continued activity at these levels, with some upward movement in the future. Manufacturing is also a source of strength, employing more than 7% of Texans, paying high wages, continued on page 6 THE PERRYMAN GROUP Page 3

The area also includes 3.58% of the Lone Star State s wage and salary jobs and generates 2.89% of its real gross product (RGP or output).

4 An Economic Overview H The Upper East Texas Region Twenty-three counties make up the state s Upper East Texas Region. The area is also home to three metropolitan statistical areas (MSAs) Tyler, Texarkana, and Longview. With approximately 1.14 million residents, the region represents 4.13% of Texas total population. The area also includes 3.58% of the Lone Star State s wage and salary jobs and generates 2.89% of its real gross product (RGP or output). Population in the Upper East Texas Region is expected to increase by 54,530 at a compound annual growth rate (CAGR) of 0.94% for the short-term period ( ). Over the next five years, real personal income is forecast to grow at an annual pace of 4.44% and real retail sales by 4.40%. New developments across the area are giving a boost to the Upper East Texas economy. In Kilgore, a 43,000 square foot trailer plant with 35 workers is now part of boat maker Skeeter Products Inc s local operations. Several projects are also in the works in the city of Longview. Plans are moving forward with Everest Rehabilitation Hospital, a 36-bed, 37,780 square foot inpatient facility that will employ about 140 to 150 workers, and work on an 80-room, 40,800 square foot Tru by Hilton hotel will soon get underway. The city of Athens will see up to 21 new jobs thanks to two projects at HVAC Manufacturing. The company is investing $2.5 million in a state-of-the-art machine shop and an Innovation Center with Siemens, one of its top customers. CHRISTUS Mother Frances Hospital in Tyler is also undergoing a major expansion. The massive undertaking includes a 200,000 square foot tower with a skywalk to a parking garage that holds about 850 spaces. Real Gross Product Growth Continues for Upper East Texas The region s RGP is on track to reach nearly $53.1 billion in 2021 growing at a CAGR of 4.16% over the short term. The sectors with the highest growth rates from include mining (6.36%), durable manufacturing (5.08%) and information (4.71%). The graph below displays projections for the region s total RGP by industrial sector for the year Projected Sectoral Composition of Real Gross Product for the Upper East Texas Region 2021 Services 20.80% Government 9.35% FIRE 7.22% Information 3.17% 6.10% Agriculture 2.30% 14.90% Note: is Transportation, Warehousing, & Utilities FIRE is Finance, Insurance, & Real Estate Mining 15.46% Construction 5.24% Durable 8.83% Nondurable 6.63% Short-Term Outlook Positive for Job Gains in the Region Increasing at an annual pace of 1.89%, total wage and salary employment in the Upper East Texas Region is forecast to gain almost 44,300 jobs over the next five years bringing the total to 496,100 in The services sector is projected to lead employment growth and add around 23,850 jobs at a 2.70 % CAGR. The projected growth from 2016 to 2021 for all employment sectors is shown in the following table. Growth in Employment in the Upper East Texas Region by Industrial Sector: Compound Percentage Annual Jobs Gained of 2021 Growth Rate Employment Agriculture 0.33% % Mining 3.95% 2, % Construction 1.34% 1, % Durable 0.92% 1, % Nondurable 0.92% % 1.90% 7, % 1.06% 1, % Information 1.01% % FIRE 1.21% 1, % Services 2.70% 23, % Government 1.04% 3, % Compound Annual Growth Rate reflects changes in the size of the base used to calculate growth. Page 4 n THE PERRYMAN GROUP

5 Economic Development News from Around the State Waco: Construction of a $40 million senior living community is now complete. The Delaney at Lake Waco includes 171 total units for both independent & assisted living. Harlingen: Work on convention center is now underway after years of planning. A 150-room Hilton Garden Inn will sit next to the $16.7 million, 44,436 sq. ft. facility. Austin: Another office tower is in the works, will be added to downtown skyline. Trammell Crow to develop the 37-story building with 665,000 square foot office space. Fort Worth: Massive distribution center recently opened for Campbell Soup Co. Company plans to create approximately 120 jobs for its new 578,000 square feet facility. Logistics provider Ryder System plans to expand here and hire over 200 workers. The Texas Enterprise Fund recipient will invest more than $5.2 mln & add 25,500 sq. ft. Garland: Logistics Pointe Distribution Center lands big tenant Kraft Heinz Co. Company leasing close to 261,000 sq. ft. space that includes 90,000 sq. ft. cold storage. San Benito: $23.7 mln service center for AEP Texas currently under construction. Utility company combining operations of 5 locations for the 87,900 square foot complex. Rockwall: Maker of paper and plastics products is building $50 million plant here. Lollicup USA Inc. plans to open its 70,000 square foot manufacturing facility October 18. Midland: Funding approved for University of Texas at the Permian Basin project. Plans call for construction of an 80,000 sq. ft. building for school s engineering programs. $30 million, 92,000 sq. ft. customer support center announced for Weir Oil & Gas. Locating to 20 acres at business park, the company expects to create 100 jobs over 5 years. Humble: Israeli plastics manufacturer Starplast moving to 89-acre business park. Will occupy 181,540 square foot space for manufacturing, storage, distribution operations. San Antonio: $20 million project in the works at former Kelly Air Force Base site. Port San Antonio constructing two 200,000 sq. ft. buildings for potential business tenants. 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 and producing hundreds of billions of dollars in goods for export each year. Texas has been adding jobs in manufacturing, even as other states lose them by the thousands. Manufacturing businesses generate opportunities for a broad spectrum of other types of firms ranging from suppliers of needed inputs to those providing business services. In fact, according to an impact assessment by The Perryman Group, a typical manufacturing job leads to additional jobs in the state, with some sectors (such as refining which uses Texas oil) bringing much higher benefits. Viewed in this manner, manufacturing accounts for about 30% of Texas employment and an even larger proportion of gross product. Looking ahead, there are challenges with the potential to affect both short-term and long-term growth prospects. Over the short term, it will take time for the Gulf Coast region to return to normal after Harvey. From an economic perspective, long-term economic performance is unlikely to be harmed for the state or for the greater Houston area, though communities sustaining major wind damage (such as Rockport and Port Aransas) may struggle to recover. Longer-term challenges include ensuring adequate investment in infrastructure, improving public education, encouraging higher education and training for young Texans, and enhancing the preparedness of the workforce for the jobs of the future. US AND TEXAS FORECAST The Perryman Group's forecast for the US economy indicates expansion in real gross product at a 2.84% compound annual rate through 2040, with employment gains at a 1.42% annual pace over the period. Texas is likely see somewhat faster growth, with Projected Percentages of Total Wage and Salary Employment Gains for Texas Agriculture Note: FIRE is Finance, Insurance, & Real Estate is Transportation, Warehousing, & Utilities Thousands of Persons 2.8% 2.4% 2.0% 1.6% 1.2% 0.8% 0.4% 0.0% 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Mining Construction Durable Nondurable Projected Wage and Salary Employment Growth for Texas Agriculture Mining Construction Durable Note: FIRE is Finance, Insurance, & Real Estate is Transportation, Warehousing, & Utilities Nondurable real gross product up by 3.25% per annum though 2040 while employment rises by a yearly 1.70%. (See the accompanying graphs and tables for additional detail including growth by major industrial sector.) Information Information FIRE FIRE Services Services Government Government Current economic strength will help the US and Texas economies deal with both short-term issues and long-term challenges. While business cycles are inevitable, the overall pattern for the nation and state are likely to be expansionary. Page 6 THE PERRYMAN GROUP

7 FOCUS ON: Real Personal Income (residence) Real Projected Projected Compound Personal Real Personal Real Personal Annual Major Metropolitan Income Income Income Gain Growth Rate Statistical Areas Austin- Round Rock- San Marcos MSA $89, $242, $153, % Dallas-Plano-Irving MD* $231, $584, $353, % Fort Worth- Arlington MD* $104, $257, $153, % El Paso MSA $25, $61, $35, % Houston-Sugar Land- Baytown MSA $347, $892, $545, % McAllen-Edinburg- Mission MSA $19, $47, $28, % San Antonio- New Braunfels MSA $93, $239, $145, % STATE OF TEXAS $1,198, $3,021, $1,822, % Real Projected Projected Compound Personal Real Personal Real Personal Annual Other Metropolitan Income Income Income Gain Growth Rate Statistical Areas Abilene MSA $6, $15, $8, % Amarillo MSA $10, $25, $14, % Beaumont- Port Arthur MSA $15, $36, $21, % Brownsville- Harlingen MSA $10, $25, $14, % College Station- Bryan MSA $8, $20, $12, % Corpus Christi MSA $18, $44, $26, % Killeen-Temple- Fort Hood MSA $16, $36, $20, % Laredo MSA $7, $17, $10, % Longview MSA $9, $21, $12, % Lubbock MSA $11, $26, $15, % Midland MSA $14, $39, $24, % Odessa MSA $7, $17, $10, % San Angelo MSA $4, $11, $6, % Sherman-Denison MSA $4, $10, $6, % Texarkana MSA $3, $7, $4, % Tyler MSA $9, $22, $13, % Victoria MSA $4, $10, $6, % Waco MSA $8, $21, $12, % Wichita Falls MSA $6, $14, $8, % *Metropolitan Division (Part of the Dallas-Fort Worth-Arlington MSA) Millions of 2009 Dollars THE PERRYMAN GROUP Page 7

8 ADDRESS SERVICE REQUESTED First-Class Mail U.S. Postage Paid Waco, TX 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: n Economic Impact Assessment, Public Policy Studies, and Economic Development n Complex Business Litigation, Regulatory Matters, and Dispute Analysis n Forecasting and Customized Economic Modeling n Speeches and Testimony n 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 n THE PERRYMAN GROUP

Over the next five years, Texas is expected to be among the best-performing. States, with growth across a spectrum

Over the next five years, Texas is expected to be among the best-performing. States, with growth across a spectrum VOL. 31 NO. 2 IN THIS ISSUE The Economic Forecast for Texas Metropolitan Areas Texas population centers are expected to continue to see relatively healthy growth. This issue highlights The Perryman Group