Christmas and New Year’s Holiday Hours

Quick Start for:
Fiscal Notes Logo

April 2009

This article is the third in a series of reports on the Texas economic climate. View the series.

the Storm

Batten the Hatches


The Texas Economy Over the Next Two Years

After years of robust growth, Texas is finally feeling the global recession. The braking effect exerted by the financial meltdown and plunging energy prices will hit many Texas industries hard in 2009, causing the state to shed jobs and cutting its economic growth rate by more than half.

The value of Texas exports jumped by 16 percent in fiscal 2008, but the biennial revenue estimate anticipates an increase of just 1 percent for fiscal 2009 and a decline of 1 percent in 2010.

Recovery is projected to begin in 2010, and 2011 should see the state’s growth approach pre-recession levels. But for the next two years, Texas lawmakers will have about 10 percent less in state revenue available for general-purpose spending than they did in the previous biennium.

That’s the path charted by the Comptroller’s biennial revenue estimate (BRE) for the state’s 2010-11 budget cycle.

“Texas has a strong and diverse economy that has helped us outpace the rest of the country, even in recent tough times,” says Texas Comptroller Susan Combs. “However, while we have fared better than other states, Texas is not immune to a recession that is affecting our nation and the entire world.”

The Texas Constitution requires the Comptroller to issue a BRE before each regular session of the Legislature, to inform its members of the amount of revenue the state can expect to receive over the next two-year budget period. Since Texas’ taxes are tied directly or indirectly to the state’s economy, the BRE process includes a detailed forecast of economic conditions.

Rough Seas Ahead

Economists now believe that the nation entered recession in December 2007, but Texas seemed immune through most of the following year, buoyed by skyrocketing oil prices, a healthy real estate market and a weak dollar that boosted Texas exports.

YearTotal Jobs*Annual
Percent Change

The total number of jobs is based on annual averages. Data for 2008 through 2011 is estimated or projected.

Source: Texas Comptroller of Public Accounts

Feeling Flattened

The Comptroller estimates state employment growth will grind to a halt in fiscal 2009, with recovery beginning in the following year and picking up steam in 2011.

At the end of the state’s 2008 fiscal year (Sept. 1, 2007 to Aug. 31, 2008), the state had added about 252,000 jobs. The nation lost 279,000 jobs over the same period. The Texas real gross state product rose by 4.2 percent in fiscal 2008, while the national economy expanded by just 1.9 percent.

By the end of fall 2008, however, collapsing financial markets and lower energy demand had begun to leave their mark on Texas. The state lost 102,000 jobs in the first two months of 2009.

“Things should begin turning around late in the year, though,” says John Heleman, the Comptroller’s chief revenue estimator. “We expect the state to go back to adding jobs throughout 2010. By fiscal 2011, the state should be adding about 20,000 jobs a month.”

But the knocks and shocks of the recession won’t be spread evenly throughout the economy. Some industries are in for a rougher ride than others.

Energy in the Doldrums

Until just a few months ago, energy production was one of the hottest sectors in the Texas economy. In the last four years, Texas employment in energy production rose by an average of 8.7 percent annually. But those days are over, at least for a while.

“Right now, the prices just aren’t high enough to support a lot of exploration and drilling activity,” says Heleman. “And while we do expect to see some escalation in oil prices by 2011, it won’t be anything like the tremendous run-up we saw in the last few years.”

According to the BRE, employment in the Texas oil and gas industry will fall by about 5 percent annually through 2010 and 2011, for a total loss of about 21,100 jobs.

Construction: Gains Lost

During the past few years, Texas’ construction industry was much healthier than the nation’s, due to continuing strength in real estate and a series of major utility, refinery and roadway projects. But the state can’t avoid the worldwide credit crunch, and construction activity is headed for a sharp reduction.

“Commercial building will be hit hardest,” says Heleman. “We’re expecting nonresidential construction activity to fall by 42 percent over the next biennium.” Residential construction will fare little better, with a 36 percent drop in building starts.

The BRE estimates that job losses in the Texas construction sector during 2010 and 2011 will wipe out the previous two years’ gains.

Export Recovery Ahead

Texas has been the nation’s top exporting state for six consecutive years, and export sales have helped its manufacturers weather recent economic shocks very well. But financial chaos around the world has strengthened the dollar, making Texas exports less attractive, while also reducing worldwide consumer demand for a variety of products. The value of Texas exports jumped by 16 percent in fiscal 2008, but the BRE anticipates an increase of just 1 percent for fiscal 2009 and a decline of 1 percent in 2010.

“We’ll see a strong recovery in 2011, though,” says Heleman, when exports are expected to rise by about 9 percent.

Services: Some Good News

Most Texas service industries added jobs in 2008. Professional and business services was the fastest-growing industry over the last biennium, accounting for nearly a quarter of all additional Texas jobs, and its growth should remain solid over the next two years, gaining jobs at an annual average rate of 3.1 percent.

Education and health services look secure as well. An average annual job growth of 3.3 percent in 2010 and 2011 should net the state about 89,000 new jobs. Transportation employment is projected to remain flat in 2010 and add jobs during the following year. And leisure and hospitality – restaurants, bars, hotels and motels – are expected to outpace overall state growth even in an era of tighter disposable income.

Texas’ financial services companies are in infinitely better shape than most of the nation’s, but that’s a relative term. The BRE expects anemic job growth at an annual average of 0.5 percent for the sector, translating into 6,400 more jobs for the biennium.

Retail trade can expect rougher times. “We expect retail to lose a lot of jobs this year and in fiscal 2010, before picking up some gains in 2011,” Heleman says. “In particular, sales of big-ticket items like cars are going to be hurt by the credit crunch.”

The State’s Books

Tougher economic times mean slumping tax collections. Texas sales tax revenue, for instance, rose by 10.9 percent in fiscal 2007 and 6.6 percent in fiscal 2008, but is expected to increase by just 0.4 percent in fiscal 2009. The BRE forecasts a fiscal 2010 increase of 0.5 percent and 4.2 percent in 2011.

In all, the Comptroller’s office estimates the state will have $77.1 billion available for general-purpose spending during the 2010-11 biennium, about 10.5 percent less than in the previous two years. That figure represents the 2009 ending balance in the General Revenue Fund, funds from tax collections and other income from sources such as fees and interest on investments, less $1.1 billion that will be transferred to the state’s Economic Stabilization Fund (the “rainy day” fund). FN

Go To BRE Read the Biennial Revenue Estimate at
The chart compares the percent change in U.S. and Texas real gross product for 2006 through 2011. The numbers for 2008 on are estimated or projected. In 2006, Texas was up 4.1%, U.S. 2.8%.  In 2007, Texas was up 4.5%, U.S. 2.1%.  In 2008, Texas was up 4.2%, U.S. 1.9%.  In 2009, Texas is up 1.8%, U.S. in down 0.9%.  In 2010, Texas is up 1.9%, U.S. 1.0%.  In 2011, Texas is up 3.8%, U.S. 2.9%.  Source: Texas Comptroller of Public Accounts.

Avoiding “Negative Growth”

Growth in the Texas economy will slow significantly over the next two years, but the state is expected to avoid a contraction. The nation as a whole will not be so fortunate.

Read the entire “Weathering the Storm” series:

Required Plug-ins