Don’t mess with Texas cities
Slowing economy means politicians need to rely on data, not fiction, to do what’s best for state
Gather around y’all. Let me tell you about Pecos Bill. Born in 1845, Pecos Bill traveled across Texas as a baby but fell out of the covered wagon and was raised by coyotes. Later, he became a cowboy, slinging a rattlesnake as a lasso with which he roped a twister. He rode a horse named Lightning and shot out all the stars except one: the Lone Star.
Of course, Pecos Bill was just a tall, Texas tale actually hatched in the mind of writer Edward “Tex” O’Reilly in 1917. As we enter 2020, the Texas economy is the new Pecos Bill. So commonplace as to be a trope: the Texas economy is booming at a record pace. Jobs bloom like bluebonnets. There’s just one hitch: It’s about not to be true.
The breakneck economic growth of the Lone Star State is about to slow down in 2020 and 2021 — way down in some corners. The economies of the biggest Texas cities will still grow but not at the rip-roaring rate to which we’re accustomed. And big cities such as Houston are what power Texas. There’s a lesson here. The Trump economy is not as hot as the stock market would have us believe and while the
Pecos Bill economy isn’t cold, it is cooling.
First, let’s separate the bulls from the manure.
Yes, the Texas economy
outpaced the national economy in 2018. But in 2019 the economy slowed and many leading indicators turned south, which suggests the same for next year. People have stopped stampeding to Texas. The price of oil, despite a December surge, remains way down from its earlier highs. And while a new report predicts that from 2020 to 2021 Texas cities will still outperform lots of others, they’ll do so by less impressive margins.
There is no recession on the horizon for 2020, but there are warning signs of another cooling. In October, the manufacturing sector in Texas shrunk for the first time in three years. Drilling was down 10 percent in 2019. And a couple of President Trump’s signature policies are actually hurting the Texas economy, bigly: trade and immigration.
“The U.S. would be very well-served to restructure its immigration system to be more skill-based and employerbased, like Canada,” the president of the Dallas Fed, Robert S. Kaplan, said at Rice University recently. “If you believe you’re going to cut the number of immigrants and grow GDP, those two things do not go together.”
It has been immigrant workers and their offspring who have kept the aging U.S. workforce from graying even faster, and half the growth in
the labor pool has come from immigrants and their offspring. And the best thing Texas could do? Invest in early literacy for starters, he added, as swell as math and science education. When it comes to education, Texas ranks consistently in the bottom half of the 50 states.
So, now this is a moderate growth economy, not a red-hot one. Our massive population boom in Texas has actually slowed. The cost of living is no longer cheap and we have the highest uninsured rate for health in the nation. And rashly slashing immigration, instead of rewriting the law, means fewer workers and less productivity now and in the future.
The Texas economy isn’t radically distinct from the larger American economy, no matter how much politicians boast, brag and bawl about our exceptionalism. And it’s fueled by its largest cities, which are all facing, with varying levels of difficulty, a global slowdown. Two thirds of the world’s largest 900 cities will see a drop in their economic output in 2020 and 2021 because of, yes, a slowdown in global trade, according to a report by Oxford Economics, a Britishbased research and consulting firm.
“Three of the fastest growing, major North American cities in recent years are in Texas. Austin’s growth was strong throughout the last decade, thanks to a diverse mix of growth industries that includes high-tech and advanced manufacturing,” the study’s author, Stephen Adams, a senior economist, wrote. Austin’s economy grew at an explosive
3.5 percent in 2018-2019. Houston was right behind at 3.2 percent and Dallas followed at 2.8 percent.
“Looking forward, however, the situation is liable to change somewhat. In general, the large West Coast and Southern cities are still likely to be among the stronger North American performers in 2020-21,” he continued. “But we forecast that their growth rates will be similar to, rather than markedly stronger than, growth in other large cities.”
So, growth in Austin’s economy will drop by a third to 2.5 percent, the study says. San Antonio’s will drop a little further. Meanwhile, the economies of Dallas and Houston will fare better but drop by a full percentage point nonetheless, from as much as 3.6 percent, in the case of Houston, to 2.4 percent by the end of 2022. That’s better than a lot of cities across the nation but still a cut of a full third in urban growth rates. That means the big cities will have less economic oomph with which to power the state economy as a whole.
Meanwhile, outside the big cities, the oil patch, namely Odessa-Midland, is headed for a rough year.
Wall Street is losing its appetite for large-scale investments in oil.
“Investors are no longer into growth. They want returns,” said Houston consultant Jack Belcher, senior vice president of Cornerstone Energy, an advisory firm. “A big consideration is investment capital. It’s a big squeeze.”
Economist Ray Perryman notes Texas retains significant advantages, but says it faces strong headwinds.
“The state continues to be a leader in new locations and is seeing significant growth in all types of technology production and services. It is also seeing growth in key service sectors and an expanding international footprint.” Perryman said. “Having said that, there are plenty of challenges. The state is facing a substantial worker shortage (the key factor in our lower growth projections) and is harmed by the ongoing trade wars.”
That’s proof that the Lone Star State’s economy isn’t bulletproof to dumb political choices and that it’s linked to the American and global one. Which naturally reminds me of a story about roosters.
When I was a little boy my grandmother sent me to fetch eggs from the chickens and the rooster took out after me. I dutifully reported the incident. My grandmother was not a trifling woman. So, next I knew, that rooster was lunch. If politicians want to crow at every sunrise they have to face the sunset at the polls.
In Washington, that means consequences for messy, and so far failing, trade conflicts. In Austin, that means that politicians, led by the governor, need to rethink the way they are against every form of big government — except for the kinds of their own making. They need to let cities do what they need to do. If they want to ban plastic bags and fracking, kick Chickfil-A
out of the airport, grow trees or protect rights, then the state should let them.
Texas cities can help save Texas’ economy, and they are the big reason why it can, despite its challenges, stay strong for decades. But for that to happen, we must make the right choices. From now on, it is not “Don’t Mess With Texas” — it’s “Don’t Mess With Texas Cities.” But we can’t do that or solve real challenges, like the aging workforce, with the magical thinking favored by the governor and so many of the state’s other politicians.
So, if you think, as they do, that the Texas economy is magically exceptional to reality, then let me tell you how the Gulf of Mexico was created with rain from California. And the Rio Grande was dug with a stick.
You know, by Pecos Bill.