Nation looks to Texas’ resiliency

Relatively stable housing market, high energy costs and weak dollar all benefiting state

Dallas Business Journal - by Lyssa Jenkens Contributing writer

What is going on in Texas? We hear that question a lot lately. The business community in this country and abroad wonders how the Texas economy continues to grow as the nation struggles under the weight of declining housing markets, rising energy prices and the falling dollar.

Texas has added nearly 85,000 net new jobs since January. The other 19 states that have gained jobs this year, plus the District of Columbia, grew by 65,000 total. The remaining 30 states posted declines of some 288,000 jobs, driving the nation to a net loss of 138,000 jobs since January.

So what’s going on in the Lone Star State?

Texas is reaping the benefits of relatively stable housing markets in recent years. According to the S&P/Case-Schiller composite index for 20 large U.S. metros, home prices climbed an average of 107% above their January 2000 levels before the housing bubble imploded. Coastal markets, from Los Angeles to Miami, nearly tripled their average prices with gains of 175% to 180%.

In Dallas-Fort Worth, the only Texas metro in the index, price increases topped out at just 27%, one-fourth of the national average.

U.S. housing prices have fallen 18% on average since the market peak in July 2006. More than 15% of that drop was realized in the last 12 months reported. D-FW shows total losses below 5%, with 3.4% declines in the last 12 months.

Market stability in Texas yields two important benefits for the state’s economy: housing costs have remained relatively low and household wealth is not in free-fall. These are significant outcomes, especially as households and businesses are sorely tested by rising prices and declining dollars elsewhere in the economy.

Energy prices benefiting Texas

This leads directly to the second reason Texas is outperforming the nation in 2008: energy prices. Texas is the nation’s largest energy-producing state, accounting for roughly one-fourth of oil and gas production and reserves. In 2006, when oil and gas prices were half of today’s averages, this industry accounted for 15% of the gross state product in Texas.

In the near-term, high-priced oil and gas benefit Texas, spurring jobs and profits through local mining and directly related activities. High prices also generate new income streams for households that own mineral rights and for government tax coffers. Further, Texans benefit from the wide array of skills and resources they offer to worldwide oil and gas operations, ranging from the manufacture of drilling equipment to legal and financial expertise for this industry.

Declining dollar: near-term win

Finally, the declining value of U.S. dollars in world markets generates another near-term win for the Texas economy. Texas has a very strong global export economy, ranked first in the United States by widening margins over the years. The falling dollar benefits this sector significantly, unleashing new demand for U.S. products despite a slowing global economy.

Further, Texas export strengths in chemical and technology products are especially well-suited to current global needs. The short-term results for Texans are very much like those of rising energy prices — more jobs, more profits, more tax revenue.

In the coming months, Texans will continue to reap benefits from each of these factors that are so challenging to the rest of the country. Housing prices will continue to fall in key markets well into 2009; energy prices will remain significantly elevated in the foreseeable future; and the dollar will struggle as long as financial markets and the national economy are sorting out.

However, Texans cannot be complacent. Long-term costs will eventually overwhelm the benefits. Home prices are also falling in Texas, however slowly, and secondary impacts on financial services challenge business operations and household budgets alike. Most households and businesses bear direct costs of higher energy prices but benefits are not as widely distributed. New dollars generated by strong exports have less buying power here as well as abroad.

The one unqualified benefit for Texas from the current situation is the heightened, widespread, positive attention for the state. Business people in the United States and abroad are taking a closer look at Texas, appreciating old and new strengths that created an astoundingly resilient economy. That is the long-term payoff for Texas and it will be large.

Jenkens is chief economist/vice president of business information and research at the Dallas Regional Chamber.