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Fall 2004
The Rebound Is Here

Current Economic Conditions

The Economic Indicators Appendix
(PDF, 312 KB) presents tables and figures of current economic and demograhic statistics for the nation, the states, and Texas' metropolitan statistical areas and counties.

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Comptroller Carole Keeton Strayhorn reports that, following national economic trends, the state economy is finally rebounding after the sharp decline that began during 2001. After falling by 218,300, or 2.3 percent, from March 2001 through September 2003, statewide nonfarm employment has increased in 10 of the next 11 months. From September 2003 through August 2004, the Texas job count increased by 122,100, or 1.3 percent (see Appendix Figure A1). And as statewide jobs have increased, the jobless rate has slowly declined. Although still less favorable than its low point of 3.8 percent in December 2000, the statewide unemployment rate has declined from a high of 6.9 percent in April and May of 2003 to 5.7 percent in August of this year (see Appendix Figure A2). “These are sure signs that the Texas economy is coming back,” said Strayhorn.

Major indicators point to perhaps even stronger growth in the upcoming months. The Comptroller’s Texas Index of Leading Economic Indicators has risen for 15 consecutive months compared to one year earlier, and as of July 2004 the index was 4.5 percent above its level in July 2003 (see Appendix Table A1). Nine of the ten leading indicator components in July pointed towards stronger growth. Among major components, initial claims for unemployment compensation were down by 13.7 percent from one year earlier, the help-wanted index was up by 4.9 percent, new business incorporations were up by 10.1 percent, and the U.S. leading indicators index was up by 2.8 percent. Although Texas industrial output is growing, strong productivity gains continue to stall manufacturing job growth both in Texas and in the U.S.

Historically there has been a strong relationship between the Texas Leading Economic Indicators Index and statewide nonfarm employment, so the latest Index would point toward much stronger employment growth in the remainder of 2004 (see Figure 1). Even though jobs gains will accelerate, however, the continuation of strong productivity gains, i.e. output per worker, in all sectors of the economy will put a lid on employment growth. Thus, the current state year-over-year job growth should average about 2 percent over the coming year.

Figure 1 Graphic

Short Term Economic Outlook

As the national economy improves, so will Texas. “With nonfarm employment on the rise, and the unemployment rate falling, we have proof that the turnaround is real,” Strayhorn said. After three consecutive years of subpar performance, the Comptroller’s latest state economic forecast calls for the return of moderate growth in 2004, 2005 and 2006.

Through these three years, the Texas economy, as measured by real, inflation-adjusted gross state product (GSP), will grow at a relatively healthy 4.3 percent average annual rate—well above the 2.4 percent annual growth rate achieved from 2000 through 2003, and even somewhat above national GDP growth of 3.8 percent annually (see Table 1). Texas’ central Sunbelt location, relatively low costs of doing business and continued migration into the state will allow the state to slightly outpace the U.S.

Table 1
Texas Economic History Outlook for Calendar Years: 2000 to 2006

  2000 2001 2002 2003 2004* 2005* 2006*
Texas Economy
Gross State Product (Billion 1996$) 688.5 698.5 717.7 739.1 771.3 802.2 837.5
   Annual % Change 4.2 1.5 2.7 3.0 4.4 4.0 4.4
Gross State Product (Billion current $) 738.3 763.9 793.7 827.0 877.5 927.4 984.6
   Annual % Change 8.8 3.5 3.9 4.2 6.1 5.7 6.2
Personal Income (Billion current $) 586.6 608.5 618.6 638.1 673.3 711.4 758.8
   Annual % Change 8.8 3.5 3.9 4.2 6.1 5.7 6.2
Nonfarm Employment (Thousands) 9,433.4 9,518.7 9,427.2 9,448.8 9,614.2 9,815.3 10,042.6
   Annual % Change 3.0 0.9 -1.0 0.2 1.8 2.1 2.3
Resident Population (Thousands) 21,006.0 21,420.1 21,830.9 22,245.3 22,652.5 23,057.6 23,466.6
   Annual % Change 1.9 2.0 1.9 1.9 1.8 1.8 1.8
Unemployment Rate (%) 4.2 4.8 6.3 6.7 6.3 6.1 6.0
Taxable Oil Price ($ per Barrel) $28.71 $23.73 $24.29 $29.35 $24.10 $23.55 $23.97
Natural Gas Price, Taxable ($ per MCF) $3.48 $3.75 $2.98 $4.05 $3.76 $3.33 $3.15
U. S. Economy
Gross Domestic Product (Billion 1996$) 9,191.4 9,214.5 9,439.9 9,684.5 10,079.7 10,453.3 10,826.8
   Annual % Change 3.8 0.3 2.4 2.6 4.1 3.7 3.6
Consumer Price Index (1982-84=100) 172.2 177.1 179.9 184.0 186.3 189.5 193.0
   Annual % Change 3.4 2.8 1.6 2.3 1.2 1.8 1.8
Prime Interest Rate (%) 9.2 6.9 4.7 4.1 4.1 4.9 5.32
*Estimated or Projected
SOURCES: Carole Keeton Strayhorn, Texas Comptroller (Spring 2004 State Economic Forecast); and Global Insight, Inc.

During this period, Texas output per worker will continue to climb by a relatively robust 2.2 percent annually. However, during the same period, the job count will increase by only about 2.1 percent, as compared to almost 3 percent annually during the 1990s, as employers continue to do more with lean payrolls

After an anemic two years, statewide personal income growth is expected to rise to a much healthier 5.9 percent per year from 2003 to 2006. More importantly, after falling for three consecutive years, statewide real per-capita income, after adjusting for inflation, will increase by a 2.4 percent average annual rate through 2006, meaning that the standard of living for the average Texas will once again be on the rise.

Driven by relatively high birth rates and continuing net migration into the state, the state’s population is expected to increase by more than 1.2 million from 22.25 million in 2003 to 23.5 million in 2006. But even with more Texans looking for work, job growth will be sufficient to further reduce the state’s unemployment rate.

Overall, even relatively slow employment growth will be sufficient to produce almost 594,000 net new jobs across the state from 2003 through 2006. Over 90 percent of these new jobs will be in service-providing sectors, including business and professional services (182,000), education and health services (104,000) and trade, transportation and utilities (79,000). Among goods-producing sectors, manufacturing jobs are expected to increase by 20,000, and jobs in construction will be up by 41,000. Jobs in natural resources and mining (oil and gas) are expected to fall by 5,000 as domestic oil and gas prices stop rising and production continues to decline.

Industrial Detail

This is the first Comptroller economic forecast to use the new 1997-based North American Industrial Classification System (NAICS) now being used to produce most government economic data. In general, NAICS provides a more accurate grouping of economic activities in the technology-enhanced U.S. economy than the old 1987-based Standard Industrial Classification (SIC) system (see Table 2). For example, under the SIC system, computer manufacturing was grouped under Industrial Machinery and Computers, a classification that also included oil-field machinery and air-conditioning equipment, while the production of semiconductors was included in electronics along with other less-technologically advanced electronics such as automobile wiring harnesses. Under the new NAICS system, computers and semiconductors are combined under a new category as Computers and Electronics, while “lower-tech” electrical manufacturing such as appliances, light bulbs, and residential lighting equipment are classified under Electrical Equipment.

Table 2
Comparison Between Industry Classification Categories

Standard Industrial Classification (SIC) North American Industry Classification System (NAICS)
Code Title Code Title
GOODS PRODUCING SECTORS
10-14 MINING 1133, 21 NATURAL RESOURCES and MINING
15-17 CONSTRUCTION 23 CONSTRUCTION
- MANUFACTURING - MANUFACTURING
- Durables - Durables
24 Lumber and Wood 321 Wood Products
25 Furniture 327 Nonmetallic Minerals
32 Stone, Clay & Glass 331 Primary Metals
33 Primary Metals 332 Fabricated Metals
34 Fabricated Metals 333 Machinery
35 Industrial Machinery &Computers 334 Computers and Electronics
36 Electronics 335 Electrical Equipment and Appliances
37 Transportation Equipment 336 Transportation Equipment (incl Aerospace)
38 Instruments 337 Furniture
39 Miscellaneous Durables 339 Miscellaneous Manufacturing
- Nondurables - Nondurables
20 Food Processing 311-312 Food, Beverages and Tobacco
22 Textiles 313-316 Textiles, Apparel and Leather
23 Apparel 322 Paper
26 Paper 323 Printing
27 Printing & Publishing 324 Petroleum and Coal (incl Refining)
28 Chemicals 325 Chemicals (incl Petrochemicals)
29 Petroleum Refining 326 Plastics and Rubber
31 Leather -  
21,30 Other Nondurables -  
SERVICE PROVIDING SECTORS
- TRANSPORTATION & UTILITIES - TRADE, TRANSPORTATION and UTILITIES
40-47 Transportation 42 Wholesale Trade
48 Communications 44-45 Retail Trade
49 Public Utilities 48-49 Transportation and Warehousing
- TRADE 22 Utilities
50-51 Wholesale Trade 51 INFORMATION
52-59 Retail Trade - FINANCIAL ACTIVITIES
- FINANCE, INSURANCE & REAL ESTATE 52 Finance and Insurance
60 Banks and Savings Institutions 53 Real Estate and Rental/Leasing
63,64 Insurance - PROFESSIONAL and BUSINESS SERVICES
61, 62, 65,67 Real Estate/Other Finance 54 Professional, Scientific and Technical
- SERVICES 55-56 Management, Administrative and Support
73 Business Services - EDUCATIONAL and HEALTH SERVICES
75,76 Repair 61 Educational Services, Private
80 Health Services 62 Health Care and Social Assistance
87 Engineering, Accounting & Research 71-72 LEISURE and HOSPITALITY
70,72,78,79,
81-84,86,88,89
Other Services 81 OTHER SERVICE
91-97 GOVERNMENT 92 GOVERNMENT
- Federal Civilian - Federal Civilian
- State - State
- Local - Local
SOURCES: Carole Keeton Strayhorn, Texas Comptroller; Texas Workforce Commission; and U.S. Bureau of the Census.

Long-term Economic Outlook

Comptroller Strayhorn points out that if Texas were a nation, its economy would rank as the eighth largest in the world, and continuing a trend established in the early 1970s, Texas will continue to outpace U.S. economic and population growth over the next 20 years. However, as the population of both Texas and the U.S. grows older and the natural increase rate (births minus deaths) falls, overall population growth will slow. U.S. population growth will decline from an average annual rate of 1.3 percent during the period from 1993 to 2003 to 0.8 percent during the period from 2013 to 2023, while Texas population growth will fall from 2.0 percent to 1.3 percent.

Over the next 20 years, slowing population growth and the maturation of the workforce will constrain overall economic growth both in Texas and the U.S. In addition, as the Texas economy matures and becomes more like the U.S., state economic growth will converge to the national rate. For example, from 2003 through 2023, Texas economic growth, as measured by real gross state product, will average 3.5 percent per year, or half a percentage point above the U.S. gross domestic product growth rate of 3.0 percent. But after growing 4.4 percent annually, or 1.2 percentage points faster than the U.S. economy from 1993 through 2003, average annual state economic growth will slow to 3.0 percent, or only 0.2 percentage points above the U.S. rate from 2013 through 2023. Following a similar trend, Texas nonfarm employment growth will fall from 2.4 percent per year during 1993-2003 to 1.6 percent per year from 2013-2023 (see Table 3).

Table 3
Texas and U.S. Economic and Population Growth, 1983 through 2023

  Average Annual Growth Rate
  1983-1993 1993-2003 2003-2013 2013-2023   1983-2003 2003-2023
Texas    
Gross State Product (Constant $) 3.5% 4.4% 3.9% 3.0% 3.9% 3.5%
Personal Income (Current $) 6.3% 6.0% 6.5% 7.0% 6.1% 6.8%
Nonfarm Employment 1.9% 2.4% 2.1% 1.6% 2.1% 1.8%
Resident Population 1.5% 2.0% 1.8% 1.3% 1.7% 1.5%
United States   
Gross Domestic Product (Constant $) 3.2% 3.2% 3.3% 2.8% 3.2% 3.0%
Personal Income (Current $) 6.7% 5.1% 5.5% 6.5% 5.9% 6.0%
Nonfarm Employment 2.1% 1.6% 1.5% 1.0% 1.8% 1.2%
Resident Population 1.0% 1.3% 0.8% 0.8% 1.1% 0.8%
SOURCE: Carole Keeton Strayhorn, Texas Comptroller (Spring 2004 State Economic Forecast).

Even though the rate of growth will slow as the economy grows larger, Texas will continue to generate employment at the historical rate of roughly 200,000 net new jobs per year over the next 20 years. While recovering from the 2001-03 slowdown, state employment growth will rise from 197,000 jobs per year during the decade from 1993 through 2003, to 216,000 jobs annually during the following decade, and then fall back to 193,000 new jobs per year during the decade from 2013 through 2023 (see Table 4).

Table 4
Texas Nonfarm Employment Growth, 1993 through 2023

  Annual Change in Jobs Total 2003-23 Change Average
2002
Earnings**
  NAICS Code* 1993-2003 2003-2013 2013-2023 Jobs Share
Total Nonfarm Employment - 196,758 215,775 193,304 4,090,806 100.0% $42,641
Goods Producing Sectors - 18,329 22,817 12,672 354,904 8.7% $56,854
Natural Resources and Mining 1133, 21 -1,284 -1,765 -1,645 -34,101 -0.8% $77,244
Construction 23 22,335 17,806 13,349 311,542 7.6% $40,000
Manufacturing - -2,722 6,777 969 77,463 1.9% $65,09
   Durables - 2,331 4,860 1,873 67,333 1.6% $62,409
   Wood Products 321 283 -99 607 5,075 0.1% $36,528
   Nonmetallic Minerals 327 779 531 508 10,384 0.3% $56,654
   Primary Metals 331 -250 -281 -315 -5,958 -0.1% $56,127
   Fabricated Metals 332 777 2,467 977 34,436 0.8% $48,624
   Machinery 333 840 2,326 169 24,954 0.6% $68,363
   Computers and
   Electronics
334 172 -331 -630 -9,607 -0.2% $88,828
   Electrical Equipment
   and Appliances
335 235 199 -62 1,365 0.0% $50,901
   Transportation Equipment
   (incl Aerospace)
336 -931 -169 -293 -4,625 -0.1% $68,506
   Furniture 337 897 165 384 5,486 0.1% $33,473
   Miscellaneous
   Manufacturing
339 -472 54 529 5,824 0.1% $55,122
   Nondurables - -5,053 1,917 -904 10,130 0.2% $69,500
   Food, Beverages
   and Tobacco
311-312 519 843 276 11,182 0.3% $41,930
   Textiles, Apparel
   and Leather
313-316 -4,425 -1,280 -378 -16,579 -0.4% $28,610
   Paper 322 -315 225 231 4,556 0.1% $61,124
   Printing 323 -289 343 -377 -333 0.0% $44,884
   Petroleum and Coal
  (incl Refining)
324 -371 107 -451 -3,445 -0.1% $253,941
   Chemicals
   (incl Petrochemicals)
325 -850 1,190 23 12,129 0.3% $104,670
   Plastics and Rubber 326 678 490 -228 2,620 0.1% $42,867
Service Providing Sectors - 178,429 192,958 180,631 3,735,901 91.3% $39,491
Trade, Transportation and Utilities - 31,804 29,000 20,620 496,191 12.1% $42,957
   Wholesale Trade 42 8,456 7,166 5,083 122,487 3.0% $61,689
   Retail Trade 44-45 18,186 13,401 9,424 228,257 5.6% $26,855
   Transportation and
   Warehousing
48-49 5,095 9,394 7,001 163,956 4.0% $54,090
   Utilities 22 66 -962 -889 -18,509 -0.5% $190,519
Information 51 5,605 5,001 6,361 113,623 2.8% $65,762
Financial Activities - 12,955 8,391 738 91,291 2.2% $46,536
   Finance and Insurance 52 9,276 4,735 -2,756 19,796 0.5% $58,383
   Real Estate and
   Rental/Leasing
53 3,679 3,656 3,494 71,495 1.7% $32,375
Professional and Business Services - 36,572 59,283 58,559 1,178,416 28.8% $45,838
   Professional, Scientific
   and Technical
54 13,424 17,255 21,534 387,892 9.5% $64,065
   Management, Administrative
   and Support
55-56 23,148 42,028 37,025 790,524 19.3% $28,716
Educational and Health Services - 34,601 36,227 38,945 751,720 18.4% $37,758
   Educational Services,
   Private
61 4,892 2,821 3,926 67,476 1.6% $25,315
   Health Care and
   Social Assistance
62 29,709 33,406 35,018 684,245 16.7% $39,580
Leisure and Hospitality 71-72 21,758 19,224 18,757 379,816 9.3% $17,110
Other Services 81 7,461 8,699 7,685 163,833 4.0% $21,318
Government 92 27,673 27,133 28,968 561,011 13.7% $42,681
    Federal Civilian - -1,681 -182 -377 -5,591 -0.1% $74,913
    State - 4,166 3,352 4,813 81,643 2.0% $43,879
    Local - 25,188 23,964 24,532 484,958 11.9% $37,221
* North American Industry Classification System
** Wage and salary disbursements, supplements to wages/salaries, and proprietor's income divided by total full- and part-time workers, including proprietors.
SOURCES: Carole Keeton Strayhorn, Texas Comptroller (Spring 2004 State Economic Forecast); Texas Workforce Commission; and U.S. Bureau of Economic Analysis.

In total, 4.1 million net new jobs will be created in Texas from 2003 through 2023. Of these, 3.7 million—over 90 percent—will be in service-providing sectors, such as management/administrative/support services (791,000), health care/social assistance (684,000), local government (485,000), professional/scientific/technical services (388,000), and leisure/hospitality (380,000). And contrary to popular belief, not all of these new service-providing jobs will be “bad” jobs with relatively low wages and benefits. Among these major job-producing industries, professional/scientific/technical services provides earnings (including wages, proprietor’s income and employer-provided benefits) well above the statewide average, and jobs in health care/social assistance and state/local government provide earnings at about the statewide average.

Among goods-producing sectors, almost all of the 355,000 net new jobs will be in construction (312,000). From 2003 through 2023, manufacturing will provide a total of only 77,000 new Texas jobs, while natural resources/mining employment will fall by 34,000, as Texas oil and gas production continue to decline.

However, again contrary to popular belief, even though manufacturing will produce a relatively small number of new jobs, the continuation of strong productivity gains will allow manufacturing to maintain a relatively important role in the Texas economy. From 2003 through 2023, real inflation-adjusted manufacturing output will remain at approximately 14 percent of the state economy, while manufacturing’s share of nonfarm employment will decline from almost 10 percent to just over 7 percent.