Ten Reasons Why the Texas Economy is Growing That Have Nothing to Do with Rick Perry

Rick Perry may credit much of Texas’ recent economic success to the low-regulation, small-government philosophy he has espoused, but some economists say that the governor’s policies aren’t the only (or even the primary) reason for Texas’ economic health. Texas's unemployment rate currently stands at 8.2%, which is a point below the national average, but nonetheless too high. This alone complicates Mr Perry's claims to be some kind of economic magician, and more generally, some of the underlying factors and political decisions that have helped Texas through the recession can't simply be extrapolated to other states, or scaled to the nation as a whole.

On the plus side, the Dallas Federal Reserve notes that Texas entered the Great Recession late and came out of it early, with job growth standing at 2 percent for 2010 and an expected 3 to 4 percent for 2011. And of the 496,000 jobs added to the U.S. economy between fall 2009 and spring 2011, more than half of that job growth came from Texas — a finding Perry has bragged about recently.

On the other hand, Texas’ unemployment has remained stubbornly high. According to Bureau of Labor Statistics data, the state’s jobless rate increased from 8.1 percent in 2010 to 8.2 percent in June, while the unemployment rate in nearby states remained lower or dropped. And many of the new jobs in Texas have been government and low-wage positions. Though economists say Perry’s low-tax, low-regulation policies have helped the state’s economy, there are many other reasons why Texas’ economy is thriving while other states’ flail. Here are ten of them:

1. Rising oil prices.

In January 2008, crude oil sold at $92.97 a barrel, but as of June 2011 it stood at $96.26 a barrel, according to Energy Information Administration data. The fuel peaked at $134.02 per barrel in June 2008.

Those rising oil prices may have been bad news for drivers, but they helped out the Texas economy, said Howard Wial, a fellow and economist at the Brookings Institution.

Rising oil prices have been one factor helping the Texas economy, economists say. (AP photo)

When oil prices are high, job growth in Texas historically has exceeded that of the nation, said Keith Phillips, the senior economist and advisor at the San Antonio branch of the Dallas Federal reserve. He said Texas entered the recession late and came out early, mirroring trends in oil prices, which rose towards the beginning of the recession, fell in 2009, but have been steadily rising since.

“If you look at what states were expanding, they are almost all the energy states,” he said. “When oil prices are high, our job growth is stronger relative to that of the nation.”

Based on Dallas Fed research, a 10 percent increase in oil prices leads to a 0.3 percent rise in employment and a 0.5 percent rise in GDP for the state of Texas.

2. Government growth.

“Creation of government jobs help to create jobs in the rest of the economy, because people spend money and buy things,” Wial said.

Wial said that even as the federal government directed stimulus monies towards the state — federal spending topped $227 billion in 2009, up from almost $107 billion in 2000, according to the Census Bureau — Texas didn’t see the same cutbacks in state government spending that other regions did because of its bi-annual budgeting. He said that could have protected jobs, and the overall economy, from the fallout of the recession.

According to a recent Wall Street Journal article, employment in Texas’ public sector has grown more rapidly than the private sector recently, with a 19 percent growth in government jobs compared to 9 percent growth in private jobs since 2000. Texas has added more than one in five of the public-sector jobs nationwide at local, state and federal levels.

That trend will change with the implementation of the new state budget, which will make cuts to state spending to account for a state budget shortfall.

3. Military spending.

The federal government has significantly expanded its military spending in the decade since 9/11, and that has been good news for Texas, home to major bases like Fort Bliss and Fort Hood.

For example, over the past three years the Army has relocated about 14,000 troops to Fort Bliss, which is outside El Paso, and plans to permanently relocate an additional 6,000 troops there in the next two years, according toCNNMoney.

“If there were military bases that expanded, there are government jobs that are being created,” Wial said, explaining that military spending has the potential to make a big impact on the Texas economy because beyond supplying jobs on the base, it pumps money into the local economy.

According to a fact sheet issued in August of 2009 by the Fort Hood Public Affairs Office, “Fort Hood is the largest single site employer in Texas, directly inserting nearly $3 billion annually into the Texas economy.”

4. No housing bubble.

Texas escaped the foreclosure bust that crippled other states’ economies — only 6 percent of Texas mortgage borrowers are in or near foreclosure, according to the Mortgage Bankers Association, while the national average is nearly 10 percent.

While nearby states like Arizona and Nevada face mortgage borrower foreclosure rates of 13 percent and 19 percent, respectively, Texas’ relatively stable market may have been a factor in preventing housing prices from climbing.

Some credit Texas’ stability to state regulations on cash-out and home equity loans, which don’t allow borrowers to take out loans that total more than 80 percent of a home’s appraised value.

Wial said cash-out loans allowed borrows in other places to refinance their homes for more than their original mortgage value — driving up home prices and contributing to the eventual burst of the housing bubble.

“One force of the foreclosure wave didn’t exist in Texas,” he said.

Texas house prices stayed down during the bubble, so when it burst the state didn't suffer as much as other regions. (AP photo)

Phillips said that because housing prices never rose during the housing boom, partly because Texas has cheap, open land for building, they also didn’t crash during the recession.

5. Cheap immigrant labor.

Texas has added more people than any other state during the past decade and now accounts for 8.1 percent of the U.S. population, up from about 7.4 percent in 2000. The state has grown by 4.3 million people over the past ten years, and according to U.S. Census Bureau statistics Hispanic minorities account for 65 percent of that population increase

About one in five new residents moved from other states, but nearly 25 percent were immigrants, the AP reports. Click here to see a larger version of the map to the right for a county-by-country growth breakdown.

Texas population change by county.

Many of those new residents are immigrants from Mexico and Latin American countries who work at low wages and help keep wage averages throughout the state down. Because cheap labor is readily available in Texas, employers looking for low-wage employees are more likely to locate in the state, contributing to its economic growth.

Statistics support the states’ trend toward low pay, as many of the jobs Texas has added since the recession are low-wage. Texas is tied with Mississippi for the greatest percentage of minimum wage workers.

Liberal New York Times columnist (and Nobel Prize winning economist) Paul Krugman wrote in an editorial assessing Texas’ job growth:

Assume that for some reason the population of Texas, and hence its work force, rises – say, because of immigration from Mexico, or because of high birth rates among past immigrants.

What this will do is push wages down — and the reduction in wages will lead to faster job growth

6. A young, consumer-oriented population

Not only is Texas’ population expanding, but it is also young and has a tendency to spend more than most Americans on consumer goods. With one of the youngest populations in the country, the state benefits from the high consumption levels. According to Bloomberg Businessweek:

Texas is one of the youngest U.S. states, with a median age of 33, almost four years below the national average. That means it is blessed with a consumption-driven economy, full of young adults renting their first apartments. As families expand, their needs create thousands of jobs in retailing and manufacturing

7. High-Tech industries

Phillips said high-tech industries weathered the recession better than other sectors of the economy, entering the downturn late and improving more quickly as consumer demand has ramped up.

Texas Instruments and other high-tech companies have done well right out of the recession, helpilng the state's overall recovery. (AP Photo/Paul Sakuma, file)

And he said Texas — home to many high tech industries — has benefited from that.

“When the economy came back, consumer demand for high tech products- automobiles, cell phones, Ipads, semiconductors — has been strongest,” he said. “Texas is a high-tech state.”

8. Fracking.

A decade ago, Texas oil engineers decided to combine horizontal drilling and a process called hydraulic fracturing, or fracking, which injects chemical-laced water into the shale to push out the minerals. The system has been effective in releasing previously untapped pockets of natural gas in shale formations, such as the Eagle Ford shale formation.

According to the Wall Street Journal, in 2000, 1 percent of the U.S. gas supplies were from shale, but now the figure is 25 percent. And as a result of the new technology, Texas is home to some of the most prosperous new oil fields in the country.

“The Eagle Ford formation is really quite an exciting economic opportunity for the area,” Phillips said.

“That’s a pretty sparsely populated area that has not historically been very economically strong. It’s bringing a lot of activity there, and we’re seeing a lot of new millionaires being created.”

9. Texas Exports

Texas is a big producer of products that either weathered the recession well or have rebounded quickly, including high-tech goods and oil and gas. Those goods have also been leading exports during the recovery, meaning that Texas has experienced an inflow of foreign capital even as other states lag behind pre-recession export levels.

“We’re a big export state,” Phillips said, explaining that Texas’ current export levels exceed the pre-recession peak by more than 12 percent. He said that advantage has helped the state’s overall economy to recover more quickly than other areas.

He said that petrochemical exports have been doing especially well since the recession, and Texas has a big cost advantage in the industry, explaining some of the states’ export-prowess.

10. Drug Trafficking.

Jack Schumacher, a recently retired Texas-based DEA agent, told New York Magazine that at least half the drug shipments coming from Mexico stop and offload in Texas, where it is repackaged for sale elsewhere.

That means the money that comes with the drug trade also flows through Texas, driving consumption and investment in the state and possibly contributing substantially to the state’s economy.

““If you have a few million,” Schumacher said in the article, “would you invest in a war zone or a bank in San Antonio?”

Editor's Note: It is also vital to note that the "opportunity" noted in Item 8 above is having devastating consequences for many of the communities involved, due to the usual licentious behavior of the energy companies involved and the horrifically bad effect that fracking has on the living environment of the area being fracked. Anybody who is blind enough to challenge this assertion should take it up with the mayor of Dish, Texas, whose town has been virtually destroyed by the effects of fracking. He has become an active anti-fracking spokesperson nationwide.

The bulk of this post was posted in the blog "Texas on the Potomac" @ http://blog.chron.com/txpotomac/2011/07/ten-reasons-why-the-texas-economy-is-growing-that-have-nothing-to-do-with-rick-perry/ and was too important/good not to repost here.

Thanks for reading,

Smokemaster