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

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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.

1 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 s latest forecast for the state s metropolitan areas. The Upper Rio Grande Region The Upper Rio Grande Region includes six counties and the El Paso Metropolitan Statistical Area (MSA). Representing 3.29% of the state s population, approximately 876,630 residents call the region home. Despite recent layoff announcements, the overall economic outlook for the area is optimistic. Economic Development News Around the State Economic development successes continue to pop up across the Lone Star State. This month s special section features the latest business announcements from 11 selected Texas cities. Focus On: Real Gross Product A breakdown of real gross product by metropolitan statistical area provides a quick look at the forecast for 2013 to See page 7 to get a snapshot of the anticipated growth for the state as well as for an MSA near you. The Economic Forecast for Texas Metropolitan Areas Over the next five years, Texas is expected to be among the best-performing economies in the United States, with growth across a spectrum of industries. Expansion is likely to occur in communities large and small, though the pace of projected expansion varies with differences in industrial composition and other variables. This issue of The Perryman Report & Texas Letter highlights the economic forecast for the state s metropolitan statistical areas (MSAs). SUMMARY OF THE TEXAS OUTLOOK The Texas economy continues to improve, with real estate markets, the employment situation, and other measures of business activity trending ahead of the national expansion pace. Texas has been adding jobs at a rate of over 250,000 jobs per annum, with the resulting prosperity contributing to notable in-migration from other parts of the nation. In fact, the seasonally unadjusted unemployment rate in Texas fell to 5.7% at the beginning of the year, the lowest level since November Metropolitan Statistical Area Definitions Austin-Round Rock-San Marcos MSA Bastrop Caldwell Hays Travis Williamson Dallas-Plano-Irving MD* Collin Dallas Delta Denton Ellis Hunt Kaufman Rockwall Arlington MD* Johnson Parker Tarrant Wise El Paso MSA El Paso Houston-Sugar Land-Baytown MSA Austin Brazoria Chambers Fort Bend Galveston Harris Liberty Montgomery San Jacinto Waller San Antonio-New Braunfels MSA Atascosa Bandera Bexar Comal Guadalupe Kendall Medina Wilson THE PERRYMAN GROUP Page 1

2 Compound Annual Growth Rate Billions of 2005 Dollars 6% 5% 4% 3% 2% 1% $120 Projected Growth Rates in Real Gross Product for Texas and Major MSAs % Texas Austin- Round Rock-San Marcos $100 $80 $60 $40 $20 $0 4.59% Austin- Round Rock-San Marcos 4.48% 4.45% 4.52% Dallas- Plano- Irving MD* Total Expansion in Real Gross Product for Major MSAs $72.83 $23.28 $24.06 Dallas- Plano- Irving MD* Arlington MD* Arlington MD* $4.94 El Paso 3.70% El Paso 4.90% Houston- Sugar Land- Baytown $ Houston- Sugar Land- Baytown 4.14% San Antonio- New Braunfels $18.48 San Antonio- New Braunfels The Perryman Group s most recent outlook for Texas (as discussed in a prior issue of this newsletter) indicates that this relatively strong performance is likely to continue. Real gross product (RGP) is forecast to expand by 4.59% during the next five years, while employment growth is projected to be 2.33% through 2018 (for a gain of some 1.43 million jobs over the period). FORECAST FOR TEXAS LARGEST MSAS The state s most populous metropolitan areas (in descending order of population size) are the Houston-Sugar Land-Baytown MSA, Dallas-Plano-Irving Metropolitan Division (MD), San Antonio-New Braunfels MSA, Arlington MD, Austin-Round Rock-San Marcos MSA, and El Paso MSA. (The counties included in each area are listed on page 1.) About 67.9% of Texans live in these population centers, a proportion which has been rising over time. As a group, the state s largest metropolitan areas account for 71.5% of employment in the state and 78.8% of output. These centers for economic activity have linkages to businesses in communities across the state. The Perryman Group s latest forecast indicates that the Austin-Round Rock-San Marcos MSA will continue to expand at the fastest pace, while the large Houston-Sugar Land- Baytown MSA is the source of the most new jobs. AUSTIN-ROUND ROCK-SAN MARCOS MSA The Austin-Round Rock-San Marcos MSA continues to be among the strongest performers in the nation and the state, remaining the top market in the nation in numerous rankings. The area is expected to sustain momentum and continue to outpace growth in other parts of the United States, despite a slight slowdown over the past few months that is largely attributable to a particular weakness in the government sector. Through 2018, the Austin area is forecast to see gains in output (real Page 2 THE PERRYMAN GROUP

3 gross product or RGP) at a 4.48% yearly rate, for an overall increase of almost $23.3 billion. In particular, output growth is projected to be strong in services, trade, and durable manufacturing. Nearly 119,500 net new jobs are projected to be added (2.55% per annum growth) to bring wage and salary employment to more than a million jobs over the next five years. DALLAS-PLANO-IRVING METROPOLITAN DIVISION Though the national fiscal situation is weighing down performance in the Dallas-Plano-Irving MD, it is expected the area will return to substantial growth over the next few months. The Greater Dallas area had been outperforming the national trend, but has recently seen job losses in several sectors which have slowed the momentum building through much of last year as the area is home to many corporate headquarters, distribution/logistic firms, and other companies more likely to be affected by national uncertainty. However, it is expected we will see notable improvement through the forecast horizon. The Perryman Group s most recent forecast indicates output (RGP) expansion at a 4.45% pace, for a gain of more than $72.8 billion through All industrial sectors are projected to expand, with gains concentrated in the services industry group. Wage and salary employment is likely to expand by more than 295,400 over the period as well (a 2.45% yearly pace). FORT WORTH-ARLINGTON MD The Arlington MD added almost 25,000 new jobs during 2013, though some industries shed positions late in the year. The area s services, trade, and manufacturing segments have been important sources for hiring. Ongoing national improvement will enhance Compound Annual Growth Rate Persons 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Projected Growth Rates in Wage and Salary Employment for Texas and Major MSAs , % Texas Texas 450, , , , , , ,000 50,000 0 Total Expansion in Wage and Salary Employment for Major MSAs ,481 Austin- Round Rock-San Marcos 2.55% Austin- Round Rock-San Marcos 295,439 Dallas- Plano- Irving MD* 2.45% Dallas- Plano- Irving MD* the area economy, particular for distribution and logistics firms. However, the region s notable 2.32% Arlington MD* 117,697 Arlington MD* El Paso 2.02% El Paso 34, % Houston- Sugar Land- Baytown 373,872 Houston- Sugar Land- Baytown 2.22% San Antonio- New Braunfels 109,969 San Antonio- New Braunfels defense-oriented manufacturing base will continue to suffer from federal budget cuts. continued on page 6 THE PERRYMAN GROUP Page 3

An Economic Overview The Upper Rio Grande Region Six counties (Brewster, Culberson, El Paso, Hudspeth, Jeff Davis, and Presidio) are located in the Upper Rio Grande Region.

About 2.87% of all wage and salary jobs in Texas are located in the region, and the area generates 1.98% of the state s real gross product (RGP or output).

In 2018, real personal income (RPI) in the region is forecast to reach nearly $30 billion, an increase from $24.2 billion in 2013. Real retail sales is also projected to increase by more than $3.

In El Paso, the hotel industry is experiencing a flurry of activity.

4 An Economic Overview The Upper Rio Grande Region Six counties (Brewster, Culberson, El Paso, Hudspeth, Jeff Davis, and Presidio) are located in the Upper Rio Grande Region. The El Paso Metropolitan Statistical Area (MSA) is also included in the region. Representing 3.29% of the state s population, approximately 876,630 people reside in the Upper Rio Grande Region. About 2.87% of all wage and salary jobs in Texas are located in the region, and the area generates 1.98% of the state s real gross product (RGP or output). The area s population over the short term ( ) is expected to see an increase of about 78,950 at a compound annual growth rate (CAGR) of 1.74%. In 2018, real personal income (RPI) in the region is forecast to reach nearly $30 billion, an increase from $24.2 billion in Real retail sales is also projected to increase by more than $3.03 billion at a 4.78% CAGR during the same period. Despite recent layoff announcements in the area, the overall economic outlook for the Upper Rio Grande Region is optimistic. In El Paso, the hotel industry is experiencing a flurry of activity. A 146-room TownePlace Suites by Marriott is opening soon, a 101-room Hampton Inn and Suites is under construction, and a 100-room Courtyard by Marriott will be built in A couple of downtown hotel renovation projects are also in the works. Finally, ground will be broken this summer on a $64 million development near the airport that will include a 220-room Westin Hotel and 80,000 square feet of retail space. On the health care front, phase one of Texas Tech University Health Sciences Center s $11 million nursing school is complete and construction is on track for an October opening. The city also welcomed a newly expanded 35,000 square foot emergency center at Sierra Providence Medical Center East. Real Gross Product Expansion Forecast for the Region Expanding at an annual growth rate of 3.69%, real gross product in the Upper Rio Grande Region is forecast to reach $30.6 billion in Sectors likely to see the largest CAGRs from 2013 to 2018 are mining (6.20%), services (5.07%), information (4.39%), nondurable manufacturing (4.34%), and trade (4.34%). The graph below illustrates the area s anticipated total RGP by sector for the year Projected Sectoral Composition of Real Gross Product for the Upper Rio Grande Region 2018 Government 24.88% Services 20.62% Agriculture 0.53% Note: TWU is Transportation, Warehousing, & Utilities FIRE is Finance, Insurance, & Real Estate Mining 0.15% Construction 4.46% Durable Mfg. 4.52% FIRE 16.65% Nondurable Mfg. 5.57% Trade 13.52% TWU 5.84% Information 3.26% Area to See Gains in Wage and Salary Employment An increase of approximately 35,130 jobs is forecast for wage and salary employment over the next five years. This represents an annual growth rate of 2.01%. The services sector is forecast to lead the pack, creating 20,810 jobs at a CAGR of 3.15% between 2013 and The trade, government and construction sectors are also likely to see a boost in employment 10,680 jobs combined. Projected employment growth and per-annum expansion rates, along with the percentages of total employment in 2018 for the various sectors, are noted in the table that follows. Growth in Employment in the Upper Rio Grande Region by Industrial Sector: Compound Percentage Annual Jobs Gained of 2018 Growth Rate Employment Agriculture 0.62% % Mining 2.07% % Construction 1.73% 1, % Durable Mfg. 1.05% % Nondurable Mfg. 0.94% % Trade 2.16% 5, % TWU 1.62% 1, % Information 1.68% % FIRE 1.46% 1, % Services 3.15% 20, % Government 0.79% 3, % Compound Annual Growth Rate reflects changes in the size of the base used to calculate growth. Page 4 THE PERRYMAN GROUP

5 Economic Development News from Around the State Brenham: Precision Polymer Engineering to open up a new facility on 5-acre site. A $3.3 mln, 30,000 sq. ft. building being constructed. 60 hires expected over five years. Mattress maker Tempur-Sealy adding 104 workers to its current workforce of 160. Austin: Research and development center planned for health-related software firm. Athenahealth Inc. locating to former Seaholm Power Plant building, creating over 600 jobs. Round Rock: $70 mln headquarters site for Emerson Process Management opens. With 800+ workers in the area, company plans to hire more for the 282,000 sq. ft. center. Arlington: Vought Aircraft moves engineering operations to 100,000 sq. ft. space. The aerospace manufacturer expects to bring about 500 jobs to the city with the relocation. Beaumont: $23 mln expansion project in the works for oil well services company. XL Systems (part of National Oilwell Varco) to add about 45 workers to local workforce. Longview: New facility is on the drawing board for corrugated box manufacturer. Bates Container to move from old location and build $6.3 million, 110,000 sq. ft. facility. Schertz: Expansion to create about 175 new jobs at GE Oil & Gas Inc. s local plant. $8 million project at the 400,000 square foot facility to eventually bring employment to 400. Plano: A $2 billion mixed-use development is in the works for 240-acre location. Legacy West project could include retail space, offices, hotel, and multifamily properties. FedEx Office & Print Services Inc. will move its headquarters to the new project. The company will build a 265,000 square foot corporate campus at a cost of $40 to 45 mln. Richardson: A national community association management firm unveils offices. Associa Corp. hopes its new 60,000 square foot services center will create about 600 jobs. San Antonio: CyrusOne begins construction on its second data center in the city. The facility will have 180,000 sq. ft. of raised floor space & 22,000 sq. ft. of office space. Lumberton: Altus Healthcare officially opens freestanding emergency center here. 40,000 sq. ft. complex is company s 2nd in Texas. Another was unveiled in Baytown last yr. 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 Even with these challenges, The Perryman Group s forecast indicates expansion at a rate outpacing much of the United States, with RGP forecast to increase at a 4.52% annual rate through 2018 for a gain of almost $24.1 billion. Over the same period, wage and salary employment is likely to grow by 117,700 jobs, a 2.32% per annum gain. The area s services sector will dominate job growth, with gains in output largest in the services, mining, and trade industry groups. EL PASO MSA Like all areas strongly linked to the federal government through military bases and other activity, the El Paso MSA struggled with budget cuts. However, El Paso gained jobs very late in the year to end 2013 virtually where it started in terms of total employment. The area is projected to see modest growth over the next five years, with output (RGP) expected to grow at 3.70% annually for a gain of more than $4.9 billion through Employment is forecast to increase by nearly 34,200, a 2.02% yearly growth rate. All major industrial sectors are projected to expand, though business cycles are inevitable. HOUSTON-SUGAR LAND- BAYTOWN MSA The Houston-Sugar Land-Baytown MSA economy was very strong through most of 2013, though some industries experienced slowing late in the year. As a major center for the oil industry and related activity, Houston has benefitted from the state s surge in oil exploration and production. Regional port infrastructure is also an important source of business activity for the area which is likely to grow in the coming years. Over the next five years, output in the area is projected to expand at a 4.90% annual rate, leading to an increase of more than $112.3 billion. Wage and salary employment is forecast to grow by almost 373,900 jobs (2.43% per year). All industrial sectors are projected to expand, with particularly strong growth in the mining and services segments. SAN ANTONIO-NEW BRAUNFELS MSA Over the past year, the San Antonio- New Braunfels MSA has experienced spotty performance, with job gains in some industries offset by losses in others. While there has been notable expansion, the pace of growth has been somewhat slower than in some of the other major Texas metropolitan areas (although it nonetheless ranks in the top tier nationally). Even so, the area s strengths, including health care, higher education, manufacturing, and hospitality, are gaining ground. Ongoing national improvement will also stimulate gains in the San Antonio area s financial services and tourism industries. The manufacturing sector is continuing to see expansion, and the area is benefitting from the spillover effects of the nearby Eagle Ford Shale drilling activity. The Perryman Group s most recent forecast calls for broad-based expansion, with gains concentrated in the services industry group. Wage and salary employment will grow by an estimated 2.22% per annum over the next five years with the addition of almost 110,000 net new jobs. The MSA is expected to experience relatively healthy growth in output (RGP) at a 4.14% yearly pace and a gain of $18.5 billion through SMALLER MSAS Among the smaller metropolitan areas, growth is particularly strong in areas affected by the oil surge, both in the Permian Basin (with RGP growth in Midland and Odessa at annual rates of 7.12% and 6.72%, respectively, over the next five years). These cities have recently been among the fastest growing in the nation as measured by the gain in population between July 2012 and July 2013, with Odessa (number two) rising by 3.30% and Midland (number three) rising by 3.27%. They have also been the most rapidly increasing in output for each of the past two years. Other areas are also seeing oil-related expansion in business activity, such as around the newer Cline Shale field, where output in San Angelo is projected to grow at a 4.21% annual rate and the areas enjoying benefits from the Eagle Ford Shale. Other MSAs are likely to see economic expansion through the forecast horizon ranging from 3.4 to 4.9% per annum (as measured by growth in output). These rates are noted on page 7. Together, these 20 smaller MSAs account for a significant share of future job gains in the state, adding almost 260,200 net new jobs (18.23% of the state total gain) through Particularly strong hiring is likely to continue in the Midland and Odessa MSAs. CONCLUSION All of the state s metropolitan areas are forecast to see economic growth over the next five years. The pace varies notably, depending on factors such as industrial composition and proximity to oil-rich regions. The largest population centers are attracting notable corporate locations across a variety of industries ranging from technology to corporate headquarters. Smaller communities are growing as well. Texas cities are well-positioned to outperform most parts of the United States. The state s relatively strong business climate and favorable cost conditions contribute to growth prospects. Though business cycles are inevitable, The Perryman Group s forecast for Texas cities calls for ongoing gains through the next five years. Page 6 THE PERRYMAN GROUP

7 FOCUS ON: Real Gross Product Real Projected Projected Compound Gross Real Gross Real Gross Annual Major Metropolitan Product Product Product Gain Growth Rate Statistical Areas Austin-Round Rock- San Marcos MSA $95, $118, $23, % Dallas-Plano-Irving MD* $299, $372, $72, % Arlington MD* $97, $121, $24, % El Paso MSA $24, $29, $4, % Houston-Sugar Land- Baytown MSA $415, $527, $112, % San Antonio- New Braunfels MSA $82, $100, $18, % STATE OF TEXAS $1,286, $1,610, $323, % Real Projected Projected Compound Gross Real Gross Real Gross Annual Other Metropolitan Statistical Areas Product 2013 Product 2018 Product Gain Growth Rate Abilene MSA $5, $6, $1, % Amarillo MSA $9, $11, $2, % Beaumont- Port Arthur MSA $18, $22, $4, % Brownsville- Harlingen MSA $7, $9, $1, % College Station- Bryan MSA $6, $8, $1, % Corpus Christi MSA $18, $23, $4, % Killeen-Temple- Fort Hood MSA $14, $16, $2, % Laredo MSA $6, $7, $1, % Longview MSA $10, $12, $2, % Lubbock MSA $9, $11, $2, % McAllen-Edinburg- Mission MSA $14, $17, $3, % Midland MSA $17, $25, $7, % Odessa MSA $7, $10, $2, % San Angelo MSA $3, $4, $ % Sherman-Denison MSA $3, $4, $ % Texarkana MSA $2, $3, $ % Tyler MSA $8, $10, $2, % Victoria MSA $5, $7, $1, % Waco MSA $8, $10, $1, % Wichita Falls MSA $5, $6, $1, % *Metropolitan Division (Part of the Dallas-Arlington MSA) Millions of 2005 Dollars THE PERRYMAN GROUP Page 7

comprehensive and objective analyses and presentations.

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 assists clients in analyzing and communicating complex information in commonsense terms through comprehensive and objective analyses and presentations. Whether in litigation, regulatory hearings, public finance or legislative assemblies, The Perryman Group brings the power of economic analysis in easily understood and persuasive language. Services provided by The Perryman Group include: Litigation Support and Expert Testimony Antitrust, Patent Infringement, Economic Damages Economic Impact Assessment Industry, Infrastructure, Utilities, Legislative Issues Economic Forecasting and Modeling Demand, Commodities, Interest Rates, Utilities Economic Development Analysis Target Industry, Strategic Planning, Surveys Public Policy and Regulatory Analysis Proposed State or Federal Legislation and Regulatory Issues Survey Research and Analysis Product Demand, Policy Effects, Attitudes Business Valuation Acquisitions, Tax Planning, Financial Reporting Presentations and Speeches Associations, Corporations, Organizations General Economic and Industry Research For more information, contact Ray Perryman by ing info@perrymangroup.com or calling on Twitter. 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. Perryman is a consummate economist, bringing a unique combination of credibility, creativity, energy, enthusiasm, excellence, and effective communication to every project. His experience and expertise run the gamut of academia, public policy, economic forecasting, popular writing, speaking engagements around the globe, and an active and diverse consulting practice. As President and CEO of The Perryman Group, he leads a team of skilled professionals specializing in all aspects of the strategic use of economic analysis. Dr. Perryman and his colleagues at The Perryman Group serve the information and analysis needs of hundreds of clients, including Fortune 500 corporations, government agencies, public utilities, financial institutions, investment bankers, economic development groups, trade associations, insurance companies, real estate developers, and numerous other public and private entities. 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

the United States and Texas

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,