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2008 Economic Outlook By Macy Hurwitz Despite the growing anxiety about the effects of a slowing national economy, the message for Central Texas remains positive. In December, the Greater Austin Chamber of Commerce hosted three of the area’s most respected economic minds at the downtown Hilton to discuss the coming year and what they think it will bring for Austin’s economy. The panel consisted of Daniel Kah, vice president of site selection for Angelou Economics, Jon Hockenyos, founder and managing director for Texas Perspectives, and Dr. Ray Perryman, president and chief executive officer of The Perryman Group. The overall message from the group was that the growth would decline in 2008, but they still project growth. That message is contrary to the slowing growth on the national front for several reasons which the group attributes to a smaller hit in the real estate market, energy Texas’s overall energy production and clean technologies throughout the state, and a desirable climate with access to talent making Austin an excellent destination for companies. An Overview of the National and State Economies To illustrate his point, Perryman referred to growth in the Gross National Product. It grew at approximately 2.8 percent for the fourth quarter of 2007, down from 4.9 percent in the previous quarter. The number is significantly lower, but he doesn’t believe that the nation is in imminent danger of a recession. “The U.S. economy is roughly $12 trillion in round numbers. It’s been growing at about four percent per year, so we’re talking about $480 billion a year. The highest estimate you’re going to see for the impact on the GNP from the mortgage thing is about $116 billion,” he calculated. Even with $116 billion cut, the economy still shows solid growth. Perryman predicted that the Texas economy will grow about four percent next year if the current pattern continues. That’s down from the past couple of years when it grew approximately six percent. Perryman also posited that job growth would probably slow from 260,000 to 270,000 jobs in previous years to about 200,000 jobs for 2008. However, Texas is still in pretty good shape. Perryman pointed out that Texas is eight percent of the national economy and that Texas is getting about 20 percent of the jobs. “We’re outperforming the U.S. economy pretty nicely,” he concluded. Austin’s Economy Job growth has been waning, but there is a bit of a discrepancy in the numbers as to how much it has declined. Hockenyos pointed to two different salary surveys conducted in Austin. The first salary survey was given by businesses with a number sitting at three percent growth on a year-over-year basis. But, according to a household survey, the number is much lower: somewhere between 1.2 and 1.3 percent. So, despite the fact that the Austin economy has lost some traction, Hockenyos’ outlook remains positive. He told the audience, “This is the first time in five years I’m going to say that next year will not be as good a year in terms of overall economic performance as the previous year was…But, it’s not as if the sky is falling.” Real Estate “In Texas every year we get roughly 400,000 people. You figure every 2.2 to 2.3 people you get, you need some kind of housing,” Perryman explained. “So we need about 180,000 houses a year. At the peak of this housing boom a couple of years ago, we built 215,000.” Though this seems like a huge overage, in the ‘80s during the Savings & Loan crisis it was much worse. In 1983 there was a demand for 135,000 new homes and 290,000 were built. This caused a true housing crash. Building dropped from 290,000 per year to 40,000. Perryman believes that by only building 150,000 houses a year for the next couple of years the market can adjust. Developers building the condos sprouting up in downtown Austin have told Perryman that they will probably not get the money they need to finish building the approximately 12,000 units already on the books. Perryman believes that once finished, these condos will likely be converted to high-end rental property because of the difficulties in getting single-family financing. Healthcare “I think that this place could absolutely explode and do the same thing that it did in microelectronics and be the next emerging big thing…I think the medical schools are an essential part of that,” said Perryman. Hockenyos concurred and added, “The fact is, I think it’s the largest growth opportunity facing this region. It fits perfectly with most of our core assets in this area, particularly the human capital and venture funding.” Site Selection Companies are attracted to the high percentage of college graduates, low costs for doing business, low cost of living and the large number of people moving to the area. Kah said he hasn’t seen a significant slowdown in projects or investment. But some of his clients, particularly financial institutions affected by the subprime situation, have put plans on hold that were in development six to nine months ago. Austin’s only true disadvantage is its airport. Having a smaller airport makes it more difficult for companies to bring in large numbers of people to the campus at one time. This is where some larger communities with hub airports, such as Dallas and Atlanta, have had an advantage over Austin. Transportation “If you are a growing region, you have to continue to invest in transportation and you have to continue to invest in infrastructure,” Perryman urged. “And that’s particularly true here where we’re so concerned with not only growth per se, but thinking about where it goes.” Austin will eventually have to build a mass transit system not based on buses. “We will get to the point where we will be serious (maybe we’re getting there already) about figuring out how to pay for alternatives to being stuck on MoPac,” said Hockenyos. Nobody denies that it will be expensive. But, sitting in traffic for hours each day brings down quality of life, which is one of Austin’s most precious assets. |
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