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Texas employment miracle
Texas is currently living up to its nickname "State of the Lone Star". The great recession hardly affected the state - but the collapse of the oil price brings back bad memories.
The tariffs of the American-wide moving and storage company U-Haul speak a clear language: The state of Texas and its capital Austin are in demand. If you rent a van in San Francisco, California at the end of this month to drive your belongings to Austin, Texas and drop off the vehicle there, you will pay $ 1,693. The same exercise in reverse costs $ 685. The relations for the Chicago (Illinois) –Austin and New York City – Austin routes are similar or even more extreme.
Booming Texas triangle
Hard data from the US Census Service confirm the statement of the soft “U-Haul indicator”. In 2013 a gross total of around 550,000 people from other US states moved to the Lone Star State. According to the latest estimates, the population has swelled to almost 27 million. 66,000 people have come from California, 29,000 from Illinois and 20,000 from New York. In terms of population, California, which is still much larger (around 39 million inhabitants) and traditionally extremely attractive, attracted “only” 485,000 people in 2013, 32,000 of them from Texas. For about a decade, more people have been emigrating from the “Golden State” than they have been to.
The Texas experience is different: Much more people immigrate than emigrate from other US states as well as from abroad. Immigration was unusually high in 2006 as a result of Hurricane Katrina, which led to an exodus in the immediate vicinity of Texas. The flow of newcomers has continued since then, not least because Texas was much less affected than other US states by the most recent nationwide financial and real estate crisis that started in 2007.
This is why people sometimes speak of the "Texas economic miracle". The growth in employment is particularly impressive: since the end of 2007, almost 1.5 million net new jobs have been created in the state, and employment is 13% higher than at that time The crisis is still not over: Employment is around a quarter of a million (or 0.2%) below its level at the end of 2007. The unemployment rates are also correspondingly: It is 4.6% in Texas, while the national mean is a whole percentage point is more (5.6%).
In 2014 alone, employment in Texas increased by 457,900. This tempted the governor of Texas to rejoice almost in high spirits recently, after several years with the strongest employment growth in the US, Texas had outdone itself in the truest sense of the word last year. In fact, it was the strongest job growth ever recorded in the history of the Lone Star State.
What is particularly noteworthy is the broad support for the increase in employment. Often references are made to the booming oil and gas sector; Texas is particularly fortunate thanks to its natural resources - the state has by far the largest proven oil reserves. There is no doubt that the extraction of oil and gas and the upstream and downstream economic activities make an important contribution to the employment miracle. In 2014, however, “only” 4900 new jobs were created in funding in the narrower sense.
If you include the supporting services, it was around 20,000. The highest employment growth was seen in the so-called professional services, which include law firms, consulting and architecture firms, IT services and the like, with 94,600 new jobs. Construction also boomed with almost 50,000 new jobs. The fastest growing city in America, Houston, had more single-family building permits on a 12-month basis than in the entire state of California. Overall, the Texan economy is far more diversified than the energy sector-centric headlines suggest.
Anyone who speaks of the Texan economy today means primarily the triangle formed by the metropolitan regions of San Antonio, Houston and Dallas and which also includes the capital Austin. The metropolises are connected by three lifelines, Interstate Highways 45, 10 and 35. Around 80% of all Texans live in this sprawling metropolitan area and achieve an economic performance that is roughly comparable to that of Australia. According to a Brookings analysis, which combines employment growth and the increase in per capita economic output into one indicator, Austin and Houston are developing particularly dynamically. These two agglomerations also top a US-wide ranking in this regard.
Another study by the think tank shows that Austin, Houston and Dallas have an above-average proportion of employees who work in research and technology-intensive industries. These activities, which range from vehicle and aerospace engineering to digital services such as computer system design and software development, are considered particularly important for the long-term prosperity of a region. It is true that no US metropolitan area comes close to California's Silicon Valley, where 30% of all employees work in such sectors.
Locals proudly point out that Michael Dell attended the Austin-based University of Texas thirty years ago and founded his company there, which is now one of the global market leaders in the computer industry and is headquartered in the north of the capital. The area is often referred to as the “Texas Silicon Valley”. Austin is also home to the trendy Whole Foods grocery chain, for example. Texas is also home to around 50 other Fortune 500 companies. These particularly high-turnover US companies are distributed in addition to Austin, which as the capital also has the entire state apparatus, on San Antonio, which plays a key role in trade with Mexico as a result of the Nafta free trade zone, and on Dallas with its focus on telecommunications, aviation, logistics, and financial services and Houston (port, oil and gas, NASA, healthcare). The four cities seem to complement each other almost perfectly, and where there is overlap, the competition is welcomed.
Three success factors
Vance Ginn, economist at the market-oriented Texas Public Policy Foundation, names three pillars that make Texas a success and attraction: low taxes, low levels of regulation and a legal system that rules out frivolous lawsuits. Texas is one of nine US states that have no personal income tax. In contrast, California has a top tax rate of over 13%. In combination with the higher density of regulation, this leads to around 40% higher cost of living in the west coast state, according to Ginn - which explains why so many young, performance-oriented Americans tried their luck in Texas.
As an example of the lean but effective regulation in Texas, the strict lending limit of 80%, which applies to property purchases, is mentioned. This, together with the abundant building land, has (until now) helped avoid a real estate bubble like the one other parts of the country have experienced in the past decade. Texas experienced a severe recession in the 1980s after the oil price bubble burst that swept the finance and real estate sectors with it. The memory of it keeps politics and economy vigilant.
This time - again the oil price has plummeted by 50% - everything is different, but it is said far and wide. Whenever such statements are made during a boom, the greatest possible skepticism is appropriate. Is the Texan economy really less vulnerable because it is more diversified than it was then? After all, according to economist Michael Feroli of JP Morgan, two-thirds of the breathtaking US oil production growth of the past five years can be traced back to Texas, and the Lone Star State's share of total US production is from 25% to in a short period of time 30% increased to 40%.
The collapse in oil prices will therefore undoubtedly have negative consequences. According to Baker Hughes' Rig Count, the number of drilling rigs operated in Texas has already decreased from around 900 to 600 today in the past ten weeks. This goes hand in hand with layoffs and an investment freeze; there has been a consolidation in the industry. Overall, however, the sector is much less labor-intensive than it used to be. Although it recently made up 13% of Texan's economic output again, its share of total employment is only around 2.5%, compared to 5% 30 years ago. Another difference is the financing of the recent boom. In the 1980s, the industry was predominantly supported by local banks, which is why the crisis quickly spilled over into finance and real estate after the collapse of the oil price. Experts say that today bond and private equity financing predominate. In addition, the same applies to Texas: lower prices create winners and losers. The chances are not bad that Texas will overcome this challenge. A little cooling down might even do the lonely glowing star good.
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