By M. Ray Perryman
The Texas economy added about 256,100 new jobs over the past year. The number would have been even higher except for the effects of Hurricane Harvey, and the Lone Star State is set for relatively strong growth in the future. Almost all major industrial sectors are expanding, and that trend is likely to continue.
The U.S. economy is performing quite well, with job gains at a relatively strong pace and falling unemployment. The stock market is up, consumer confidence is fairly high, and inflation remains in check.
There are challenges to be dealt with, both domestic and international, but the underlying pattern is generally improving.
In fact, the Federal Reserve has decided the economy is strong enough to take the next step toward normalization of monetary policy, which is important for long-term prosperity. The health of the national business complex is clearly of benefit to Texas.
On the downside, the disruption caused by Hurricane Harvey will affect the performance of the Texas economy and, in particular, the Gulf Coast areas.
Some communities were devastated by the wind and flooding rains, and 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 Perryman Group estimates that Hurricane Harvey will cause losses to the U.S. economy over the next few years of $151.1 billion in real gross domestic product (constant 2009 dollars), $100.0 billion in real personal income, and 1.1 million person-years of employment.
The bulk of the impact falls on Texas and Louisiana, with Texas seeing losses projected at $114.9 billion in real gross state product, $76.1 billion in real personal income, and 804,100 job years.
A full recovery for the economy is expected over time and many business operations are already back to normal, though the human costs and emotional toll of the massive storm will remain with us much longer.
As was the case in September, some of the economic data will show job losses due to the storm’s effects. In fact, the jobs numbers and other statistics over the next few months will likely be highly volatile, particularly for the areas directly affected by Harvey.
Even so, these twists and turns are not indicative of underlying performance.
Another contributing factor to the state’s economic expansion is recovery in energy.
The rig count is averaging nearly 200 higher than a year ago. According to Baker Hughes, the Texas count for October averaged 443, compared to an average of 250 for October 2016. This additional activity is not only beneficial to the economies of major production regions such as the Permian Basin, but also to businesses across the state.
The strength of the Texas economy will help as the we continue to deal with the aftermath of Hurricane Harvey and whatever other challenges come our way.
The state has been recognized by Business Facilities Magazine (Best Business Climate, Best Infrastructure, Installed Wind Power Capacity Leader, Wind Power Installations, and Exports Leaders) and Chief Executive magazine (where a survey of CEOs placed Texas at the top for business climate for the 13th consecutive year).
Texas has also won Site Selection Magazine’s Governor’s Cup (which goes to the state with the most major corporate location and expansion projects) five years in a row.
Looking ahead, 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.
All in all, though, the Texas economy will likely continue to be a growth leader in the years to come.
Ray Perryman is president and CEO of The Perryman Group (perrymangroup.com). He also is Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.