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DALLAS
Federal Reserve Bank of Dallas

March 1988

Demographics Favor Long-Term Texas Growth
The number of persons moving from
Texas in 1987 exceeded the number of
newcomers to the state by 90,000
(Chart 1). Last year was the first year of
record that migration did not add to the
growth of the Texas population. How­
ever, the natural rate of population
increase (births less deaths) of 1.2 per­
cent per year more than offset migra­
tion from the state, making for a net
gain of 0.6 percent.
Movement out of state will likely
continue until improved economic con­
ditions create enough jobs to stem the
outflow. In the meantime, the state’s
young, fast-growing population will
bolster the state’s economy. Unlike the
U.S. economy, which is beginning to
experience labor shortages and re­
duced consumer demands, Texas con­
tinues to have an expanding labor
force that can easily accommodate job
growth and whose appetite for con­
sumer products is rising rapidly.
The Pig in the Python

The age distribution of the U.S.
population has been characterized as
a pig moving through a python. An ac­
celeration in the birthrate following the
Great Depression, sustained by the
generation of “ baby boomers” born
from 1946 to 1961, skewed the age
distribution to the younger age levels
(Chart 2). In the 1960s, however, the
U.S. birthrate began to decline mark­
edly as couples opted for fewer off­
spring. The birthrate remained low in
the 1970s as many women decided to
defer childbearing and to seek careers
of their own.
Indications of smaller numbers of

adolescents have become widespread
in recent years. High school enroll­
ments across the United States have
decreased noticeably, which is re­
flected in a slower-growing labor force.
Spot shortages of workers in many
areas of the country have been widely
publicized. And shortages will grow
more acute as increasing numbers of
older workers begin to retire in a
few years.
Shifting Economic Tides

The postwar population boom sig­
nificantly affected the performance of
the U.S. economy. More of everything
was required to accommodate a grow­
ing population. That achievement pro­
duced an average rate of economic
growth, after adjustment for inflation,
of 3.0 percent to 3.5 percent annually.
However, the U.S. economy is starting
to feel the effects of the decline in the
birthrate that began in the early 1960s.
A slowdown in the growth of the labor
force is already apparent. But equally
as important, changes in the age dis­
tribution of the population are begin­
ning to have a profound effect on the
composition of consumer spending.
Acquisition of goods and services
takes place at predictable stages in
the family life cycle. As a proportion of
total spending, expenditures for motor
vehicles are greatest when the heads
of households are less than 25 years of
age (Chart 3). Automobile purchases
then fall through the remainder of the
life cycle except between the ages of
45 and 54, with that temporary upturn
reflecting the need for additional ve­
hicles for teenage children. Housing

expenditures also move predictably
over the life cycle. They absorb the
largest proportion of total expendi­
tures when the household head is age
25 to 34 and fall sharply when he is 45
or older. In general, then, the acquisi­
tion of goods, especially major pur­
chases, occurs early in the life cycle of
a household. Once a full complement
of goods is acquired, buying becomes
a process of replacement and upgrad­
ing of items as they wear out. Pur­
chases then move increasingly toward
services.
The impact of fewer births after 1961
and fewer persons now less than 27
years of age is already noticeable for
some categories of spending. Unit
automobile sales have leveled off dur­
ing this decade, reflecting a decline in
the number of first-time buyers. The
current trend in car sales will be mir­
rored in housing in the coming decade.
Since the median age of the first-time
home buyer is 28, a prolonged slump in
new housing starts is only a couple of
years away. The U.S. household forma­
tion rate has been running at an annual
rate of 1.7 million units in recent years,
or in line with the number of new hous­
ing units started since 1983. As the
baby-boom generation ages, however,
the household formation rate will fall
sharply, reaching nearly 1 million by
the year 2000. This suggests a signifi­
cant slowing in growth as the housing
industry and its suppliers adjust to a
shrinking market.
A partial reversal of current demo­
graphic trends, nevertheless, is in
sight. U.S. births have increased in this
(Continued on back page)

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

Chart 1
NET MIGRATION TO TEXAS

Chart 2
TOTAL U.S. BIRTHS

SOURCES: U.S. Bureau of the Census.
Author's estimate for 1987.

SOURCE: U.S. Bureau of the Census.

Chart 3
SELECTED HOUSEHOLD EXPENDITURES,
BY AGE GROUP, 1984

-

28 PERCENT OF TOTAL EXPENDITURES------■ SHELTER
665 MOTOR VEHICLES
21

-

14

[-

Chart 4
PROJECTED AGE DISTRIBUTION, 1990

7

0

SOURCES: U.S. Bureau of Labor Statistics.
Author’s calculations.

SOURCES: U.S. Bureau of the Census.
Author’s calculations.

LOANS— LARGE WEEKLY REPORTERS

DEPOSITS— LARGE WEEKLY REPORTERS

Eleventh Federal Reserve District

Eleventh Federal Reserve District

r-

1. Percent change from same quarter in previous year.
SOURCE: Federal Reserve Bank of Dallas.

22 PERCENT1--------------------------

(NOT SEASONALLY ADJUSTED)

1. Percent change from same quarter in previous year.
SOURCE: Federal Reserve Bank of Dallas.

DISTRICT BRIEFS
Overall, the District economy continues to grow, although several sectors remain weak.
•

Nonagricultural employment in the Eleventh
District increased in January after decreasing
slightly in December. Other than in December,
employment has increased every month since
June 1987. Recently, employment has grown in
both manufacturing and service industries.
• The seasonally adjusted drilling rig count in the
District edged up in February after declining in
each of the previous four months. The February
rig count was 22.2 percent higher than a year
earlier but was 9.6 percent lower than its
previous peak reached in September 1987. A re­
cent increase in well permit applications points
to a continued firming of the rig count.
• District construction remains very weak. The
total value of construction contracts is trend­
ing down, with both residential and nonresidential building on the decline. The weakness in
contracts has recently been reflected in con­

UNEMPLOYMENT RATE
i—

HOUSING PERMITS IN TEXAS

12 PERCENT------------------------------------------------------------------------(QUARTERLY AVERAGES,
SEASONALLY ADJUSTED)

I

1985

I

struction employment, which has decreased
significantly. A recent sharp drop in residential
building permits suggests further declines in
residential construction.
• Manufacturing activity in the District continues
to expand at a steady pace. Constructionrelated manufacturing is the only major sector
experiencing significant declines. Production
of electric and electronic equipment, apparel,
and defense-related goods is increasing
moderately. Steel production is still growing
strongly.
• District banks continue to experience declines
in deposits and loans. Total deposits at finan­
cial institutions remain below year-earlier
levels. At large banks, business and real estate
loans remain below their levels a year before,
with particularly large declines appearing in the
business loan category.

1986

I

1987

r-

16 THOUSAND------------------------ —

--------------------------------------(QUARTERLY AVERAGES,
SEASONALLY ADJUSTED)

I

1985

I

1986

I

1987

1. Louisiana, New Mexico, and Texas.
SOURCES: Texas Employment Commission.
U.S. Bureau of Labor Statistics.
Federal Reserve Bank of Dallas.

SOURCES: U.S. Bureau of the Census.
Federal Reserve Bank of Dallas.

CONSUMER PRICE INDEX

TEXAS INDUSTRIAL PRODUCTION INDEX

r-

6 PERCENT'----------------------------------------------------- ------------------(SEASONALLY ADJUSTED)

1. Percent change from same quarter In previous year.
SOURCES: U.S. Bureau of Labor Statistics.
Federal Reserve Bank of Dallas.

decade, as women who had deferred
childbearing during the 1970s have
decided to have families. As a result,
an “ echo” of the baby boom, or
another population bulge, is develop­
ing (Chart 2). Elementary school enroll­
ments and sales of children’s products
are already rising. But it will be another
10 years before the slowdown in
numbers of first-time car buyers is
reversed and still another 10 years
before the downward trend in home
building is reversed.
Implications for Texas

Compared with the nation as a
whole, Texas has a higher birthrate

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and a younger population (Chart 4).
From 1980 to 1986, the number of
Texans less than 5 years of age in­
creased 28 percent, and the number 5
to 17 years old increased nearly 10 per­
cent. The comparable figures for the
nation are 10 percent and 5 percent,
respectively. That Texas has a fairly
young population serves to bolster the
state’s labor force and provide an ex­
panding market for consumer goods.
Even though the troubled Texas
economy is losing population and jobs
to other states, the outflow is only tem­
porary. Demographic characteristics
of the state’s population will swing
business conditions for the better once

the current problems are resolved. A
young, fast-growing population has ad­
vantages in a nation that is aging
rapidly. It offers a ready pool of
workers that can accommodate cor­
porate relocations and business ex­
pansions. And its pattern of spending
will lend support to markets plagued
by sagging national demand. Thus,
population is the basic fuel that will
drive the Texas economy to outperform
the nation in the future.
—Edward L. McClelland
Economic Consultant