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At the Heart of TEXAS Cities’ Industry Clusters Drive Growth A special report of the Federal Reserve Bank of Dallas February 2016 Staff Executive Editor Pia M. Orrenius Authors Laila Assanie Kristin E. Davis Pia M. Orrenius Michael Weiss Data Analysts Sarah Greer Emily Gutierrez Associate Editors Kathy Thacker Dianne Tunnell Art Director Darcy Melton Graphic Designers Samantha Coplen Ellah Piña Emily Rogers Published February 2016 At the Heart of Texas is a special report of the Research Department at the Federal Reserve Bank of Dallas, P.O. Box 655906, Dallas, TX 75265-5906. It is available on the web at www.dallasfed.org/ research/heart. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Research Department. Contents Overview: At the Heart of Texas 4 Section 1: Austin—Round Rock 10 Section 2: Dallas—Plano—Irving 16 Section 3: El Paso 22 Section 4: Fort Worth—Arlington 28 Section 5: Houston—The Woodlands—Sugar Land 34 Section 6: McAllen—Edinburg—Mission 40 Section 7: Midland—Odessa 46 Section 8: San Antonio—New Braunfels 52 Appendix 58 At the Heart of Texas: Cities’ Industry Clusters Drive Growth I t is the age of the city. Paradoxically, as globalization has put everything and everywhere seemingly within reach, attention has been drawn from national boundaries to the smaller units of civilization—cities. This is not new when taking a longer perspective; after all, cities have typically been the rock stars of history, whether it’s Babylon, the cradle of civilization; Athens, the birthplace of democracy; Florence, the origin of the Renaissance; or Birmingham, home of the Industrial Revolution. Cities were centers of population, commerce, learning, wealth and economic opportunity long before economists explained why agglomeration matters to growth. Cities are dense areas, with relatively high productivity and wages compared with noncities. The productivity advantage stems from agglomeration, which means firms that co-locate have ready access to a deep labor pool, the facile exchange of ideas and low transportation costs.1 When firms in like industries cluster, they can further leverage the benefits of agglomeration. Examples are Silicon Valley, de facto headquarters of the U.S. hightech industry, and Houston, home to the bulk of the na- tion’s oil and gas sector. Harvard economist Ed Glaeser calls cities “mankind’s greatest invention” and argues in a 2011 book that cities have led human progress through the ages by acting as engines of innovation.2 With five metropolitan areas of 1 million or more residents, Texas has more big cities per capita than the other large U.S. states with the exception of Florida and Ohio. Dallas–Fort Worth and Houston rank among the top five largest metropolitan areas in the U.S. in terms of both population and economic output. In fact, Texas is the only state to have two metros in the top five. The abundance of large cities is an additional growth advantage on the state’s list of favorable economic factors: central location, rich oil and gas deposits, well-placed sea and land ports, proximity to Mexico, rapid population growth, low cost of living and business-friendly climate. With so many advantages, it is no surprise that employment grows a percentage point faster in Texas than the nation on average and that state gross domestic product growth was more than twice that of the nation in the recent economic recovery.3 El Paso Round Rock Fort Worth Austin Plano Irving Dallas Arlington 4 Federal Reserve Bank of Dallas The Woodlands While the Texas economy slowed notably in 2015 due to the collapse of oil prices and related drilling, metros will continue to play a key role in the state’s economic expansion. Those with a more diversified industrial base, such as Dallas and Austin, will have to offset some of the downturn playing out in Houston, Midland–Odessa and the other energy-producing regions in the state. This Federal Reserve Bank of Dallas special report details the historical, economic and demographic profiles of eight of Texas’ most important cities: Austin, Dallas, El Paso, Fort Worth, Houston, McAllen, Midland–Odessa and San Antonio. Together, the eight accounted for 73 percent of the state’s population, 76 percent of its employment and 82 percent of its economic output in 2014. While such an aggregate view tells part of the story, the industrial clusters of each area define a metro’s distinctive place in the state’s economy and explain its returns to agglomeration, in terms of both job growth and income gains. Accordingly, the state as a whole provides useful context with which to look at the individual metros. Sugar Land Houston McAllen Edinburg Mission Dominant Clusters Power Texas Characteristics such as location, natural resources and labor force contribute to an area’s long-run economic performance. Another important factor is industry agglomeration, or clusters, which are geographically concentrated groups of firms linked by the technologies they employ, the markets they serve, the goods and services they produce and the labor skills they require. Clusters are important because they provide their participants (firms) with access to specialized knowledge and/or resources, enhancing productivity, spurring innovation and attracting new business and investment in the area.4 An area typically has an economic base that consists of several dominant industry clusters. These clusters exceed the national average in their share of employment, output or earnings. Location quotients (LQs), which compare the relative concentration of various industry clusters locally and nationally, are one way of assessing these key drivers in an economy. We use annual employment data from the Quarterly Census of Employment and Wages to compute location quotients. These data are readily available at the threedigit-or-higher North American Industry Classification System (NAICS) level by metropolitan area, facilitating Odessa Midland New Braunfels San Antonio Overview: At the Heart of Texas 5 analysis. Industry cluster definitions are taken from StatsAmerica, with some modifications that are detailed in the Appendix. Clusters generally comprise multiple interdependent or interrelated industries or NAICS classifications. The entertainment cluster in Los Angeles and the auto manufacturing cluster in Detroit are examples of such broad groupings that include the main industry and its suppliers and service providers. An LQ exceeding 1 indicates that a specific industry cluster is more dominant locally than nationally. Industry cluster growth is measured by the percentage-point change in its share of local employment between 2006 and 2014.5 Chart O.1 plots industry cluster LQs and growth for Texas. Clusters in the top half of the chart, such as mining and energy, construction, and transportation and logistics, are referred to as base clusters. They have a larger share of state employment relative to the nation and, thus, an LQ exceeding 1. A base cluster is usually vital to an area’s economy and can be expanding rapidly (star) or growing slowly (mature). Those in the bottom half are less dominant locally than nationally. They generally produce services or goods for local consumption and, hence, have an LQ below 1. “Emerging” clusters, such as education, are fast growing, while those growing slowly are termed “transitioning.” Clusters comprise only private sector employment, with the exception of the government cluster, which includes public school teachers and staff. Texas has several dominant clusters. An abundance of oil and gas has traditionally made mining and energy and related industries a major cluster—employing nearly 10 percent of the state’s workforce. Texas’ geological makeup includes four shale formations—the Permian Basin, Barnett, Haynesville and Eagle Ford—helping make the state the No. 1 producer of oil and gas in the nation. Texas produces 37 percent of all U.S. crude oil and 28 percent of U.S. natural gas and employs nearly 14 percent of the workers in the nation’s mining and energy cluster. The employment share of this cluster expanded from 2006 to 2014, with the head count up 30 percent— the second-fastest increase among the clusters covered in this report (Chart O.2). This remarkable expansion came as Texas oil production tripled from 2008 to 2014. Tied to oil and gas exploration is machinery manufacturing, a cluster with 1.2 times the U.S. concentration. Chart O.1: Energy and Information Technology Help Set Texas Apart from Nation 2.1 Mature Star Mining and energy 1.8 Transportation and logistics Machinery manufacturing Information technology and telecommunications Location quotient in 2014 1.5 Construction Business and financial services Government Chemicals 1.2 Health services Retail 1 0.9 Recreation and food services 0.6 Education Agribusiness 0.3 Transitioning Emerging 0 –2 –1.5 –1 –0.5 0 0.5 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. 6 Federal Reserve Bank of Dallas 1 1.5 2 Chart O.2: Mining and Energy the Second-Fastest Growing Cluster in the State Education Mining & energy Health Machinery mfg Recreation & food svcs Business & financial svcs Transportation & logistics Biomedical Fabricated metal mfg Retail Utilities Information technology & telecom Construction Government Defense & security Electrical equipment mfg Chemicals Advanced materials Transportation equipment mfg Agribusiness Primary metal mfg Publishing & information Glass & ceramics Computer mfg Wood products Textiles 47 30 29 24 24 21 14 13 12 11 10 10 8 6 3 3 –2 –4 –5 –5 –11 –11 –11 –14 –16 –17 –20 –10 0 10 20 30 40 50 60 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. Employment in the cluster expanded 24 percent from 2006 to 2014. Employment in construction and fabricated metal manufacturing—both sectors with an LQ exceeding 1—grew over the same period. This growth was supported by a booming energy sector and overall strong economic performance that increased demand for office, industrial and residential space. The chemical industry also plays a meaningful role in Texas, not surprising given the significant presence of refineries and petrochemical plants near the Gulf Coast. Texas has evolved into a major high-tech hub (LQ of 1.1 in 2014). The industry took off after World War II as Dallas-based Texas Instruments and other military-electronics manufacturers branched into civil electronics. Texas also flourished during the high-tech boom, when the information technology and telecommunications industries took off in Austin and Dallas. Employment in the IT and telecom cluster grew about 10 percent in 2006–14 and now represents 5 percent of the state’s workforce. The energy and high-tech clusters dominate, but Texas’ central U.S. location and its border with Mexico also boosted the concentration of the transportation and logistics industry (LQ of 1.2). The state is home to two large commercial airlines, a major railroad and two of the nation’s busiest ports—Houston and Laredo. Government also has a slightly higher-than-average presence in the state, likely due to the number of major military bases in the state. Several of Texas’ dominant clusters, such as mining and energy and computer manufacturing, boast high pay (Table O.1). In fact, Texas’ dominant clusters—those with an LQ exceeding 1—pay about 1.9 times more than the industries that are less concentrated in the state. Also, while real average earnings in clusters with an LQ below 1 dipped during 2006–14, real earnings in Texas’ dominant clusters increased 6.7 percent. In Texas and its metros, clusters with an LQ exceeding 1 generally pay more than ones that aren’t as geographically concentrated. However, dominant clusters don’t necessarily have faster inflation-adjusted earnings growth; performance depends on the underlying industries. Overview: At the Heart of Texas 7 Texas Outperforms Nation; Slower Growth Ahead Texas on average has grown faster than the nation, with job gains in the state averaging 1.9 percent per year from December 2005 to December 2014, compared with 0.4 percent for the nation. Similarly, Texas output expanded at 3.5 times the U.S. pace from 2006 to 2014. Texas weathered the Great Recession better than the nation, and its economy rebounded strongly. The state surpassed its 2008 employment peak in 40 months (by December 2011)—a little over half the time it took the U.S. Texas ranked third among the states in job growth in 2012, eighth in 2013 and third again in 2014. The state’s eight major metropolitan areas also experienced the expansion and contraction, albeit at different paces. Employment declines during the Great Recession were steepest in Midland–Odessa, followed by Dallas and Fort Worth (Chart O.3). As the depth of decline varied, so did the pace of recovery. Despite major employment losses, Midland–Odessa achieved faster postrecession growth than all other metros in this re- port thanks to the shale oil boom. Meanwhile, the pace of recovery in Dallas was relatively slow because of its large construction and business and financial services sectors, which were hit hard during the recession. Though the rates of job loss in Austin, El Paso and San Antonio were comparable, Austin bounced back, paced by its large and fast-growing high-tech sector. The state’s rapid recovery from the recession reflected the shale oil and gas boom, but it was also due to the notable absence of a housing bust that weighed significantly on other large states such as California and Florida. The downstream energy industry also came to play a very important role in the Texas recovery. Petroleum product exports such as gasoline and diesel ballooned, and the petrochemical producers became highly competitive internationally when the price of the natural gas used as an input declined as the price of the oil used by competitors abroad rose in the months after the economic downturn. For a few years during the recovery, Texas was the only large state adding jobs. This growth, combined Table O.1: Annual Earnings in Texas Exceed Nation in Most Dominant Clusters Cluster Texas U.S. 2006 2008 2010 2012 2014 2014 Mining and energy 86,086 87,081 89,239 92,530 93,260 76,815 Construction 52,317 53,882 53,454 55,934 58,639 55,041 Transportation and logistics 55,401 54,937 57,548 60,067 59,956 51,043 Fabricated metal manufacturing 54,490 57,026 56,590 58,468 59,210 53,130 Machinery manufacturing 73,401 74,418 78,646 82,375 84,134 66,715 Glass and ceramics 51,256 53,116 49,738 52,086 55,759 51,073 115,743 101,443 107,555 110,404 110,490 105,968 Chemicals 74,466 75,289 77,843 80,802 82,901 69,856 Information technology and telecommunications 91,046 87,933 90,288 92,034 92,434 96,631 Utilities 96,333 97,463 97,617 101,886 100,414 98,149 Business and financial services 81,973 82,511 83,207 84,674 87,090 92,957 Government 45,149 46,303 47,693 46,834 47,835 51,726 Defense and security 61,874 58,117 60,119 59,420 59,989 59,588 Health services 49,325 49,406 50,454 49,777 50,341 56,055 Clusters with location quotient >1 64,367 64,802 65,391 67,186 68,700 – Clusters with location quotient <1 38,281 37,011 37,111 37,133 37,085 – Average earnings (total) 49,827 50,526 50,975 52,152 53,220 51,361 Computer manufacturing NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings data are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. 8 Federal Reserve Bank of Dallas with traditional Texas advantages such as a low cost of living and of doing business, prompted record numbers of people and firms to relocate from other states.6 With the plunge in oil prices, the economic landscape in the region changed, and employment growth in 2015 through November slowed to 1.3 percent from 3.6 percent in 2014. Given that energy-related industries are dominant in the state and oil prices have fallen further, employment growth will continue below trend in 2016. Chart O.3: Texas Metros’ Recovery Reflects Underlying Strengths Index, each metro’s peak employment = 100 135 Midland– Odessa 130 San Antonio Austin McAllen 125 Houston 120 Fort Worth Dallas El Paso 115 110 105 100 95 90 Peak = t t + 12 t + 24 t + 36 t + 49 t + 60 t + 72 t + 84 t + 96 Number of months since prerecession employment peak SOURCES: Texas Workforce Commission; Federal Reserve Bank of Dallas. Notes 1 “The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States,” by Edward L. Glaeser and Joshua D. Gottlieb, National Bureau of Economic Research, NBER Working Paper no. 14806, March 2009. 2 Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier, by Edward Glaeser, New York: Penguin Press, 2011. 3 Texas job growth averaged 2.1 percent per year compared with 1.1 percent for the nation during 1990–2014. State gross domestic product growth averaged 4.9 percent per year compared with 1.7 percent for the U.S. during 2010–14. 4 For more information on what clusters are and how they affect competition and innovation, see “Location, Competition and Economic Development: Local Clusters in a Global Economy,” by Michael E. Porter, Economic Development Quarterly, vol. 14, February 2000, pp. 15–34. Also, see “Clusters, Convergence, and Economic Performance,” by Mercedes Delgado, Michael Porter and Scott Stern, National Bureau of Economic Research, NBER Working Paper no. 18250, July 2012. Individual industry cluster shares add up to more than 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. 6 See “Gone to Texas, Immigration and the Transformation of the Texas Economy,” by Pia M. Orrenius, Madeline Zavodny and Melissa LoPalo, Federal Reserve Bank of Dallas Special Report, November 2013. 5 Overview: At the Heart of Texas 9 Killeen Georgetown Marble Falls Cedar Park Belton Round Rock Austin Wimberley Bastrop San Marcos Lockhart Population (2014): 1.9 million Population growth (2006–14): 29 percent Median household income (2014): $63,603 National MSA rank (2014): No. 35* Kauffman Startup Index rank (2015): No. 1* Irving At a Glance • • • • Austin’s political and educational influence arose from its position as the state capital and home to the University of Texas. Today, the region is a major high-tech hub for both the state and the U.S. and home to numerous large and small technology companies. Fueling Austin’s rapid economic expansion is its young and well-educated workforce. Austin’s employment growth appears little affected by the slowdown in the state economy attributable to low oil prices, and the area will likely experience continued solid growth in the near term. Midland Plano Fort Worth Dallas El Paso Odessa Round Rock Arlington Austin The Woodlands New Braunfels Houston San Antonio Sugar Land Edinburg Mission McAllen *The Austin–Round Rock metropolitan statistical area (MSA) encompasses Bastrop, Caldwell, Hays, Travis and Williamson counties. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix. Austin–Round Rock: Government and High Tech at the State’s Center HISTORY: A Government, Education and Technology Hub pand the economic base and by a flourishing research program at UT, major technology firms such as IBM, Texas Instruments and Motorola began locating in the area in the late 1960s and early 1970s. Austin gradually emerged as a high-tech center. Among the 180 major employers in the Greater Austin area in 2014, about 70 were high-tech firms.2 Austin was established in 1839 as the capital of the Republic of Texas. The city became the westernmost railroad station along the Houston and Texas Central Railway in 1871, and with no other railroad towns for miles in most directions, it became a trading center.1 Austin’s status as Texas’ political center remained uncertain until 1872, when the city was chosen as the permanent capital in a statewide referendum. In 1881, it was selected as the site for the new University of Texas. Oil-boom growth in the early 20th century largely bypassed Austin, and the city fell from its fourth-place population ranking in Texas in 1880 to 10th place in 1920. Completion of two dams in the early 1940s greatly aided the area’s subsequent growth. Expansion of Austin’s key education and government sectors supported the region in the 1950s and 1960s. Buoyed by chamber of commerce efforts to ex- INDUSTRY CLUSTERS: Hotbed for High Tech Cluster concentration is measured by location quotients (LQs), which compare the metro-area and U.S. economies. Growth in a cluster is measured by the percentage-point change in employment share between 2006 and 2014.3 Chart 1.1 displays the composition of industry clusters in Austin–Round Rock. The top two quadrants—“mature” and “star”—display industry clusters Chart 1.1: Austin Thrives as a High-Tech Hub 5 Mature Star Computer manufacturing Location quotient in 2014 4 Defense and security Information technology and telecommunications 3 Recreation and food services Mining and energy Government 2 Business and financial services Biomedical Publishing and information Advanced materials 1 Transitioning Retail Construction Education Emerging Health services 0 –4 –3 –2 –1 0 1 2 3 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 1: Austin—Round Rock 11 As the state capital and home to the flagship UT campus—a highly regarded research institution— Austin’s government sector is large. Both state government and the university are top area employers. Other concentrated clusters include publishing and information, defense and security, mining and energy, biomedical, and business and financial services. Growth in the private education sector has been the fastest among the clusters, expanding by nearly 80 percent from 2006 to 2014 and complementing UT’s presence (Chart 1.2). The defense and security and business and financial services clusters take the third and fourth spots among rapidly growing clusters. Recreation and food services, which round out Austin’s base clusters—those with LQs greater than 1—are important to the local economy. An Austin slogan, “Live Music Capital of the World,” is a nod to the numerous live music venues. The health cluster, which employs over 7 percent of Austin’s workforce, has also grown significantly in recent years. The second- and third-largest private employers in the city are the Seton Healthcare Family, with 10,900 employees, and St. David’s HealthCare, with 8,300 employees. with a larger share of employment relative to the nation (LQs exceeding 1). These clusters are vital to the metro-area economy and can be expanding rapidly (star) or growing slowly (mature). Clusters shown in the bottom two quadrants—such as retail and health—are smaller relative to the nation (LQs below 1). These less-concentrated clusters are labeled either “emerging” if they are fast growing or “transitioning” if they are slow growing. The underpinnings of Austin’s economy are government, which includes UT, and the technology industry. Computer manufacturing boasts four times the concentration in Austin than in the U.S. due to the significant presence of manufacturers of personal computers and related parts such as Dell, Apple, Advanced Micro Devices and Applied Materials. Dell, with 13,000 local workers, and IBM, with 6,000 employees, are among the area’s largest employers.4 Additionally, a sizable footprint from numerous hardware, software, computing and systems design companies— including tech giants Samsung Electronics, Intel and Hewlett-Packard—make the concentration of Austin’s information technology and telecommunications cluster 2.6 times that of the nation.5 Chart 1.2: Austin Job Gains Led by Education, Transportation Equipment, Defense and Security, and Business and Financial Services Education Transportation equipment mfg Defense & security Business & financial svcs Health svcs Utilities Recreation & food svcs Agribusiness Information technology & telecom Biomedical Retail Transportation & logistics Electrical equipment mfg Publishing & information Fabricated metal mfg Mining & energy Textiles Government Construction Wood products Chemicals Computer mfg Advanced materials Machinery mfg Glass & ceramics Primary metal mfg 80 52 51 48 47 44 43 42 35 33 27 24 21 20 14 12 10 8 6 6 0 –6 –7 –9 –16 –53 –60 –40 –20 0 20 40 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 12 Federal Reserve Bank of Dallas 60 80 100 Table 1.1: Annual Earnings in Austin Higher than U.S. Average in Several Dominant Clusters Cluster Austin U.S. 2006 2008 2010 2012 2014 2014 Computer manufacturing 131,343 119,873 130,238 130,009 122,831 105,968 Information technology and telecommunications 107,654 104,378 106,652 106,401 99,768 96,631 Defense and security 85,028 80,165 83,691 85,690 88,538 59,588 Business and financial services 82,730 81,244 87,090 87,779 87,734 92,957 Biomedical 85,520 78,293 77,114 83,974 91,505 91,463 Publishing and information 74,872 76,407 78,568 76,988 80,812 82,107 Government 48,257 48,793 50,534 48,584 51,557 51,726 Mining and energy 87,932 76,810 85,291 87,201 84,773 76,815 Construction 52,963 52,188 50,271 50,652 53,790 55,041 Recreation and food services 21,711 21,591 21,391 21,980 22,430 23,870 Clusters with location quotient >1 69,812 66,530 67,740 68,543 69,158 – Clusters with location quotient <1 53,350 49,513 49,699 50,452 50,676 – Average earnings (total) 53,710 52,334 53,132 53,603 54,104 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings data are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Though the concentration of health industry workers remains below that of the U.S. (the LQ is 0.82), cluster employment has increased 47 percent since 2006. Austin’s star and mature clusters pay considerably higher wages than their less-concentrated counterparts (Table 1.1). Computer manufacturing, information technology and telecommunications, and business and financial services boast some of the region’s best-paying jobs. In fact, the average wage for computer manufacturing was around $122,800 in 2014, more than double the Austin average of $54,100. Overall, Austin residents employed in the base clusters earn a third more on average than those employed in less-concentrated clusters, $69,158 versus $50,676. Moreover, wages in Austin’s top three most-concentrated clusters—computer manufacturing (LQ of 4.3), information technology and telecommunications (LQ of 2.6) and defense and security (LQ of 2.3)—were significantly higher than the national average for those clusters in 2014. DEMOGRAPHICS: Young, Highly Skilled Talent Pool The Austin metro area’s strength is its young and well-educated workforce—its median age is nearly four years lower than the U.S. median and it ranks No. 1 in college education among the major Texas metros (Chart 1.3). Austin is 15th among the 150 biggest U.S. metros, and it has one of the most educated talent pools in the country, according to a study by WalletHub.6 Over 41 percent of adults (25 years or older) in the metro area have at least an undergraduate degree, compared with 27.8 percent in Texas and 30.1 percent nationally in 2014. This is one reason the metro area has attracted many high-tech companies and boasts a median household income of $63,603, superior to that of the state and nation. Austin’s population is predominantly non-Hispanic white at 53.2 percent; Hispanics make up 32 percent of the area’s inhabitants, less than their share in Texas. Foreign-born residents constitute 14.9 percent of the metro population, lower than their share in Texas but higher than the national average. Section 1: Austin—Round Rock 13 Chart 1.3: Austin Has the Most Highly Educated Population Among Texas Metros Percent 45 Bachelor’s degree or higher 40 No high school diploma 35 30 25 20 15 10 5 0 Austin Dallas El Paso Fort Worth Houston McAllen Midland–Odessa San Antonio NOTES: Chart shows share of population age 25 and over. Data are for 2014. SOURCE: 2014 American Community Survey. EMPLOYMENT: Strong Rebound; Unrelenting Growth Employment declines in Austin during the Great Recession were steep at 3.1 percent (24,100 jobs). However, the area was the first major metro to bounce back, regaining all lost jobs in 26 months. In November 2015, total nonfarm employment was 22 percent over its previous peak, in September 2008. Austin’s rapid postrecession expansion has benefited from its outsized concentration of high-tech jobs—both in information technology and telecommunications and in business and financial services. From December 2009 to November 2015, employment in professional, scientific and technical services increased 63 percent, and payrolls in information services grew 40 percent.7 Even as Texas job gains slid with lower oil prices, Austin job growth remained vigorous. During the first 11 months of 2015, Austin augmented its payrolls at an annualized 4.2 percent rate. Unemployment in Austin was nearly a full percentage point below the Texas rate in 14 Federal Reserve Bank of Dallas 2015; it dropped 0.3 percentage points from December 2014 to November 2015. Austin is also a hotbed of entrepreneurial activity, taking the top spot among U.S. metro areas, according to the Kauffman Startup Activity Index.8 OUTLOOK: No Slowing in Sight Austin’s economy is heavily dependent on the technology industry, with over 16 percent of its 2014 gross domestic product generated from the information services and professional and technical services sectors combined. Global semiconductor sales, which are considered a barometer for the technology sector, are expected to grow into 2016 and 2017, according to World Semiconductor Trade Statistics.9 This bodes well for the Greater Austin economy. Still, some of the area’s technology jobs are vulnerable because they are tied to the energy industry. Examples are those in the production of high-tech instruments and computer equipment for hydraulic fracturing of shale formations. In 2015, employment in computer and electronic product manufacturing was flat as oil prices remained at low levels. UT’s presence provides stability and growth to the education, biomedical and health sectors. Also, the area’s vibrant and educated workforce will likely continue to attract employers, providing new growth opportunities. In 2015, several large companies either expanded or began operations in the metro area, including Amazon, General Motors Co., Accenture and Google Inc.10 Addi- tionally, venture capital investment in the biotechnology sector increased from $25 million in 2011 to $101 million in the first half of 2015, according to the MoneyTree Report, pointing to expansion in the sector.11 Both the commercial real estate and housing markets in the metro area are healthy, although some analysts suggest that the luxury apartment market may be overbuilt and will likely experience weakness in coming months. Austin–Round Rock Growth Outlook Drivers • • • • Challenges A positive growth forecast for global semiconductor demand will drive employment gains in Austin’s large technology sector. The presence of the state government and the University of Texas should provide stability to the area’s economy. Austin’s vibrant and educated workforce will further attract employers, fueling new growth. Increasing venture capital investment in biotechnology will boost growth in the biomedical cluster. • The impact of low oil prices will adversely affect firms tied to the manufacturing of high-tech instruments and equipment used in hydraulic fracturing. The area’s low unemployment rate will restrain job growth. Rising rents and home prices will make living in Austin unaffordable for many entry-level employees, including innovators and hospitality workers, who are part of Austin’s base clusters. • • Notes The history of Austin has been adapted from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hda03. 2 Detail about the largest Austin metro-area employers is provided by the Austin Chamber of Commerce. 3 Individual industry cluster shares add up to more than 100 because some smaller industries (at the three-digit-or-higher NAICS level) are included in multiple clusters, while some industries are not part of any cluster shown. For instance, semiconductor and other electronic component manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.) 4 See footnote 2. 5 The Information technology and telecommunications cluster includes firms categorized in NAICS code 334, computer and electronic product manufacturers. 6 Data are from the “Most and Least Educated Cities in America” list published by WalletHub. The study ranked the 150 largest U.S. metros based on nine metrics, including the percentage of adult residents with a high school diploma, associate’s degree, bachelor’s degree, and graduate or professional degree or above; quality of public schools and universities; and the share of students enrolled in the top 200 universities in the U.S. See https://wallethub.com/edu/most-and-least-educated-cities/6656. 1 Employment data are from the Texas Workforce Commission and are seasonally adjusted by the Federal Reserve Bank of Dallas. 8 Data are from the 2015 Kauffman Startup Activity Index, which is based on three indicators: the rate of new entrepreneurs starting businesses, opportunity share (a measure of the percentage of new entrepreneurs not coming out of unemployment) and startup density. 9 World Semiconductor Trade Statistics’ December 2015 release projects that the worldwide semiconductor market will grow 1.4 percent to $341 billion in 2016 and increase 3.1 percent to $352 billion in 2017. See wsts.org/PRESS/Recent-News-Release. 10 Detail about Austin-area relocations and expansions is from the Austin Chamber of Commerce, www.austinchamber.com/site-selection/business-climate/relocations-expansions-log.php. 11 Data are from the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. See www.siliconhillsnews.com/2015/07/17/austin-dips-in-vc-investmentsfor-second-quarter-but-still-strong-for-2015. 7 Section 1: Austin—Round Rock 15 At a Glance • Dallas’ prominence arose from its importance as a center for the oil and cotton industries and its location along numerous railroad lines. • Today, Dallas serves as the business and financial services center for the state and has evolved into a major high-tech hub. • • Dallas has become a popular migrant destination, attracting residents from abroad as well as from other states. Irving Midland Fort Worth El Paso Odessa Round Rock Dallas Arlington Austin New Braunfels The metro’s finance, insurance and transportation sectors are expected to see rapid growth over the next two years. Plano The Woodlands Houston San Antonio Population (2014): Median household income (2014): 4.6 million* $60,231 Sugar Land Edinburg Mission McAllen Population growth (2006–14): National MSA rank (2014): 14.5 percent No. 4* Kauffman Startup Index rank (2015): No. 15* (Dallas and Fort Worth combined) Sherman Gainesville Denton McKinney Frisco Lewisville Plano Sulphur Springs Greenville Rockwall Dallas Irving Kaufman Waxahachie *The Dallas–Plano–Irving metropolitan division is part of the Dallas–Fort Worth metropolitan statistical area (MSA) and encompasses Collin, Dallas, Denton, Ellis, Hunt, Kaufman and Rockwall counties. The population of the Dallas–Fort Worth MSA is 6.95 million. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix. Dallas–Plano–Irving: Texas’ Business and Financial Services Hub HISTORY: Business Center Rises from Rail Crossroads increasing the area’s prominence as the state’s business and financial center.1 Dallas quickly became a service center for the surrounding countryside after its founding in 1841. By the 1870s, Dallas had attracted two major rail lines, making it one of the first rail crossroads in Texas and establishing the city as a strategic location for the transport of regional products to manufacturers to the north and east. Dallas became the world’s leading inland cotton market at the beginning of the 20th century. It also rapidly evolved into a center of petroleum financing; Dallas bankers were among the first in the nation to lend money to oil companies using oil reserves as collateral. The growth of companies such as Texas Instruments Inc. helped make Dallas the nation’s third-largest technology center during the 1950s and ’60s. The opening of Dallas/Fort Worth International Airport in 1974 helped attract corporate headquarters to Dallas, further INDUSTRY CLUSTERS: Business and Finance Looms Large Industry cluster concentration is measured by location quotient (LQ), which compares the metro-area economy with the national economy (Chart 2.1). Growth within an industry cluster is measured by the percentage-point change in its share of local employment between 2006 and 2014.2 Clusters in the top half of Chart 2.1, such as business and financial services and computer manufacturing, have a larger share of employment relative to the nation and, thus, an LQ greater than 1. These clusters are generally vital to the area’s economy and can be expanding rapidly (“star”) or growing slowly (“mature”). Those in Chart 2.1: Business and Finance, and IT and Telecom Dominate Dallas 3.5 Mature Star Defense and security 3 Location quotient in 2014 2.5 Computer manufacturing Business and financial services 2 Construction 1.5 Information technology and telecommunications Transportation and logistics Health services Recreation and food services 1 Advanced materials Mining and energy 0.5 Education Government Transitioning Emerging 0 –2 –1.5 –1 –0.5 0 0.5 1 1.5 2 2.5 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 2: Dallas—Plano—Irving 17 the bottom half, such as advanced materials (semiconductors and fiber optics) and education, are less-dominant locally than nationally and, hence, have an LQ below 1. “Emerging” clusters are fast growing, while those expanding slowly are “transitioning.” Not surprisingly, Dallas’ most important star clusters are business and financial services, information technology and telecommunications, and defense and security. Business and financial services is the largest cluster, employing around 14 percent of the workforce in 2014. Many of Dallas’ largest employers are banks, such as JPMorgan Chase, Bank of America, Comerica and Citigroup, and insurance companies, such as Health Care Service Corp.’s Blue Cross and Blue Shield of Texas unit. The business and financial services cluster has grown rapidly since 2006, increasing its employment share 0.4 percentage points between 2006 and 2014. Liberty Mutual Insurance and State Farm Insurance are consolidating operations in the Dallas area and bringing thousands of jobs, making insurance one of the metro’s fastest-growing industries. The relocations will contribute to growth in the already large business and financial services cluster. The Dallas area is also home to major technology companies, including Texas Instruments and AT&T. The IT and telecommunications cluster employed about 8 percent of the metro’s workforce in 2014 and was among the fastest-growing clusters from 2006 to 2014 (Chart 2.2). During the peak of the high-tech boom, the Telecom Corridor was an expansive part of the Dallas area’s economy. The region was hard hit by the 2001 dot-com bust, but it has recovered in recent years, adding the operations of numerous companies in technology and other fields. Defense and security, employing about 5 percent of the workforce, and health care, accounting for nearly 9 percent, have emerged as fast-growing clusters since the Great Recession. Mining and energy’s significance declined between 2006 and 2014 as many energy companies moved business operations to Houston. Drilling for natural gas in North Texas’ Barnett Shale has slowed because of low gas prices.3 Dallas’ neighbor, the Fort Worth–Arlington metropolitan division, also has large defense and energy clusters. Fort Worth–Arlington serves as a logistics and distribution hub for the North Texas region. Dallas and Chart 2.2: Dallas Sees Rapid Job Gains in Its Dominant Clusters and in Education, Health Education Health svcs Defense & security Information technology & telecom Recreation & food svcs Business & financial svcs Utilities Government Retail Transportation & logistics Mining & energy Construction Primary metal mfg Transportation equipment mfg Chemicals Electrical equipment mfg Publishing & information Glass & ceramics Fabricated metal mfg Agribusiness Textiles Wood products Biomedical Advanced materials Computer mfg Machinery mfg 48 43 35 26 22 15 12 10 8 7 1 –1 –2 –5 –6 –8 –10 –12 –16 –16 –17 –17 –17 –18 –27 –34 –40 –30 –20 –10 0 10 20 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 18 Federal Reserve Bank of Dallas 30 40 50 60 Table 2.1: Annual Earnings in Dallas Exceed National Average in Dominant Clusters Cluster Dallas Defense and security Computer manufacturing U.S. 2006 2008 2010 2012 2014 2014 79,821 77,819 79,551 79,018 82,667 59,588 103,414 99,947 107,391 116,169 125,052 105,968 Information technology and telecommunications 97,211 97,227 99,438 101,597 106,007 96,631 Business and financial services 91,458 90,674 89,072 90,211 93,752 92,957 Glass and ceramics 55,564 58,331 54,280 55,604 61,862 51,073 Construction 56,368 54,957 55,338 56,440 58,215 55,041 Transportation and logistics 52,714 51,104 51,724 48,001 51,571 51,043 Publishing and information 74,941 74,756 77,071 80,509 82,535 82,107 Wood products 50,646 49,699 50,378 51,624 52,549 48,793 Clusters with location quotient >1 80,853 79,836 81,722 83,439 86,252 – Clusters with location quotient <1 52,814 51,693 52,041 52,024 51,889 – Average earnings (total) 58,315 57,947 57,813 58,489 59,013 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Fort Worth together are home to 21 Fortune 500 companies on the 2015 list. Dallas’ star and mature clusters are relatively high paying and boast an annual average wage ($86,252) that is 46 percent higher than the annual average wage in Dallas ($59,013) (Table 2.1). While overall real (inflation-adjusted) wages have grown little since 2006, wages in the star and mature clusters have grown an average of 6.7 percent; wages in other, less-prominent industry clusters have declined 1.8 percent. DEMOGRAPHICS: A Destination for New Arrivals The Dallas–Fort Worth metroplex (Greater Dallas and Fort Worth components) has become a favored domestic destination, although it has attracted many residents from other countries as well. New arrivals from other parts of the U.S. accounted for 38 percent of DFW’s population increase in 2014 (Chart 2.3). The metroplex held one of the top two spots among U.S. metro areas for population gains through total net migration from 2011 to 2014. Overall, it is the fourth-largest metropolitan statistical area in the U.S., with 6.95 million people.4 Despite record migration, Dallas’ unemployment rate has remained low, averaging 3.9 percent in the first 11 months of 2015. Per capita income and median household income are higher than national and Texas figures. (Dallas’ median household income increased 15.7 percent between 2006 and 2014 in nominal terms.) Dallas’ population is predominantly non-Hispanic white, 45.2 percent; Hispanics also make up a significant share of the area’s inhabitants, 29.5 percent. Foreign-born residents constitute 19.9 percent of the metro population, higher than their shares in Austin and San Antonio. Also, Dallas has a relatively young population, with about 36 percent of the total under age 25, and 43.5 percent between 25 and 54. Dallas ranks second in educational attainment among the Texas metros in this report, with over onethird of its residents holding a bachelor’s degree or higher. This is likely because the defense and security, business and financial services, and information technology sectors make up a large share of the workforce and require an elevated educational skill set. EMPLOYMENT: Solid After Slow Start to Recovery The Dallas economy was the hardest hit among the large Texas metros during the Great Recession.5 The area not only registered the largest drop in employment (5.4 percent), it also was the slowest to recover: Dallas Section 2: Dallas—Plano—Irving 19 Chart 2.3: Domestic Migration to Dallas–Fort Worth Accelerates After 2005 Thousands 200 Domestic migration 180 International migration 160 Natural increase 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010* 2011 2012 2013 2014 *Estimate not available for decennial census year. NOTE: Components of annual population change are shown. SOURCE: Census Bureau. required more than four years to regain all its lost jobs. A major reason is that the national recovery was slow— and the industrial profile of Dallas is a closer match to the U.S. than the profiles of most other large Texas metros (Table 2.2). In Dallas, the shares of only five industry clusters significantly differ (by more than 1 percentage point) from the U.S. share. Accordingly, U.S. job growth in 2014 coincided with gains in Dallas. The metro area added 100,200 jobs—a 4.5 percent growth rate, the fastest among the large Texas metros. Moreover, Dallas and Fort Worth combined recorded the fastest annual increase in employment among the largest metropolitan areas in the country.6 Dallas job growth moderated to a 4.1 percent annual rate in the first 11 months of 2015 as the Texas economy slowed, in part due to low oil prices. Still, Dallas employment gains are far outpacing the state’s 1.3 percent annual rate, and the unemployment rate dropped in 2015 to near a 14-year low, suggesting a tight labor market. 20 Federal Reserve Bank of Dallas OUTLOOK: Faster Job Growth than in the State Although the Dallas area is not immune to the impact of low oil prices, it will likely achieve net job gains in 2016 and outperform the state average. One factor is that only 6 percent of the metro area’s workers are employed in the mining and energy cluster. Additionally, the U.S. economy is doing well, and thousands of jobs are coming to the Dallas area as companies such as State Farm, Toyota and Liberty Mutual consolidate operations. Despite a few challenges, the area will continue to realize good growth in the medium term. Table 2.2: Dallas’ Industrial Makeup Closely Matches Nation’s Deviation from U.S. cluster employment share Dallas Austin Houston San Antonio 5 11 6 4 0.89 1.26 1.10 0.65 Number of clusters with more than a 1 percentage-point difference from U.S. share Average percentage-point deviation (in absolute terms, across all clusters) from U.S. share NOTES: Data are for 2014. The table compares shares of each metro area’s industry clusters with the comparable U.S. share. The percentage-point deviation is the absolute difference between the metro area’s share and the U.S. share for each industry cluster. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Dallas–Plano–Irving Growth Outlook Drivers • • • Challenges A diversified economy (less dependent on the energy sector) and planned corporate relocations and expansions will help boost job growth and buoy current high levels of office and industrial development. A relatively well-educated populace and low unemployment may attract businesses to the area. Newcomers to the area will further drive demand for both single-family and multifamily housing. • • A slowing Texas economy will suppress job growth relative to 2014. A tight housing supply combined with rapid population growth and continued job gains will further push up home prices, eroding the area’s low-cost-of-living advantage. Rapid population growth will increase strain on existing infrastructure and public resources. • Notes The history of Dallas is taken from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hdd01. 2 Individual industry cluster shares add up to more than 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.) 3 The mining and energy cluster grew minimally, 1.2 percent, between 2006 and 2014. 1 2014 population estimates are from the Census Bureau. Large Texas metros are Austin, Dallas, Fort Worth, Houston and San Antonio. 6 See “Dallas Has Largest Percentage Increase in Employment Among Large Metropolitan Areas, December 2014,” The Economics Daily, Bureau of Labor Statistics (BLS), Feb. 5, 2015, www.bls.gov/opub/ted/2015/ dallas-has-largest-percentage-increase-in-employment-among-largemetropolitan-areas-december-2014.htm. The BLS compared 38 large metro areas with employment above 750,000 in 2013. 4 5 Section 2: Dallas—Plano—Irving 21 At a Glance • The government sector is the largest cluster in El Paso owing to Fort Bliss, but retail, recreation and food services, and transportation and logistics are also important, reflecting the border with Mexico and the region’s relationship with Ciudad Juárez across the Rio Grande. • El Paso wasn’t as negatively affected by the Great Recession as Texas overall. El Paso employment growth was slow following the recession, but the metro area outperformed the rest of the state in 2015. • Federal government workers and the military are dependent on government spending, posing downside risk. However, strong U.S. auto sales spur maquiladora manufacturing growth, aiding trade in El Paso. The strong U.S. dollar will continue to suppress retail sales in the near future. El Paso Population (2014): 836,444 Sierra Blanca Population growth (2006–14): 13.6 percent Median household income (2014): $40,133 National MSA rank (2014): No. 67* Irving Midland Plano Fort Worth Dallas El Paso Odessa Round Rock Arlington Austin New Braunfels The Woodlands Houston San Antonio Sugar Land Edinburg Mission McAllen *The El Paso metropolitan statistical area (MSA) encompasses El Paso and Hudspeth counties. El Paso: Gateway to Mexico Relies on Government, Commerce HISTORY: From Agriculture to Trade Hub In the days before the Rio Grande marked the border between the United States and Mexico in 1848, the flags of Mexico and Spain flew over what would become El Paso. U.S. Army post Fort Bliss came into existence in 1854, five years before the city was formally established in 1859. El Paso was a small, quiet village for several decades until the railroad arrived in 1881. It grew into a frontier boomtown, called the “Six-Shooter Capital” and “Sin City” because of its saloons and gambling establishments.1 Over the years, more conventional industries emerged. Augmenting cotton production, copper smelting and oil refining entered the area and expanded the economy in the late 19th and early 20th centuries. Fort Bliss has been the largest employer in El Paso for over a century. Underscoring the region’s commercial standing, El Paso is the second-largest port of entry between the U.S. and Mexico. Retail, consumer services and tourism have also remained important sectors of the local economy. INDUSTRY CLUSTERS: Prime Site for Government, Retail Clusters in Chart 3.1 are organized by location quotient (LQ)—the share of local employment in each industry cluster relative to the nation—and the change in employment share between 2006 and 2014.2 “Star” quadrant clusters, such as health services and retail, have a large share of employment relative to the nation (an LQ exceeding 1) and are fast growing; “emerging” industries, like business and financial services, are smaller relative to the nation (an LQ below 1) and fast growing. Industries in the “mature” quadrant, such as transportation and logistics, are more concentrated but slower growing, and “transitioning” industries, such as Chart 3.1: El Paso’s Economy Dependent on Government, Retail and Health Sectors 1.8 Mature Primary metal manufacturing 1.6 1.4 Location quotient in 2014 Star Government Transportation and logistics Health services Retail 1.2 Utilities Construction 1 0.8 Business and financial services Recreation and food services 0.6 Advanced materials 0.4 Education 0.2 Transitioning Emerging 0 –2.5 –2 –1.5 –1 –0.5 0 0.5 1 1.5 2 2.5 3 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 3: El Paso 23 Border crossings, trade with Mexico and the Interstate 10 corridor through El Paso make transportation and logistics an important sector. El Paso is also a historically important railway stop between the Southwest and the rest of Texas. About 19.1 million personal vehicle passengers, 6.6 million pedestrians and more than 390,000 commercial vehicles crossed the border in 2014.6 Additionally, cross-border manufacturing through the maquiladora industry stimulates employment in transportation.7 A 10 percent increase in maquiladora output has been shown to increase El Paso’s transportation employment 5.3 percent.8 Education and business and financial services have gained importance since 2006 (Chart 3.2). While the education cluster’s share of employment in El Paso grew just 0.3 percentage points, sector jobs increased 69 percent between 2006 and 2014. Similarly, employment in the business and financial services cluster experienced rapid expansion, up 19 percent. Large service employers in the metro include staffing firms such as T&T Staff Management, customer service providers like Alorica and GC Services, and other advanced materials, are smaller relative to the nation and slower growing. Government is the largest sector, accounting for 23 percent of workers. Fort Bliss employed 40,000 people in late 2014 and indirectly supported the jobs of about 18,000 more in 2013, according to a University of Texas at El Paso study.3 Public school districts and the Department of Homeland Security’s Bureau of Customs are also among the top employers.4 Retail and recreation and food services continue as star clusters of the El Paso economy, driven by a strong relationship with neighboring Ciudad Juárez and a thriving tourism industry. Mexican shoppers account for approximately 10 to 15 percent of El Paso’s retail sales.5 The health services cluster has grown significantly since 2006, accounting for more than 10 percent of employment. University Medical Center employs 2,400 people, and Texas Tech University Health Sciences Center has more than 1,500 workers. Large private health care providers such as Tenet Health, Del Sol Medical Center and the Las Palmas Medical Center also rank among El Paso’s top employers. Chart 3.2: Education and Health Pace Employment Cluster Growth in El Paso Education Health svcs Recreation & food svcs Business & financial svcs Utilities Retail Agribusiness Information technology & telecom Government Construction Mining & energy Transportation & logistics Fabricated metal mfg Defense & security Biomedical Publishing & information Primary metal mfg Machinery mfg Wood products Chemicals Textiles Transportation equipment mfg Glass & ceramics Electrical equipment mfg Advanced materials Computer mfg –80 69 –61 –54 –56 –41 –45 –46 –60 –40 –31 –24 –17 –20 0 –4 –7 –8 –9 –9 0 4 3 19 18 14 13 10 9 23 20 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 24 Federal Reserve Bank of Dallas 36 40 60 80 Table 3.1: Low-Paying Sectors Depress Annual Average Earnings in El Paso Cluster El Paso U.S. 2006 2008 2010 2012 2014 2014 Primary metal manufacturing 50,798 51,803 54,707 55,409 57,985 64,454 Government 44,655 46,263 47,708 46,918 47,551 51,726 Transportation and logistics 41,789 40,421 42,396 41,512 41,207 51,043 Retail 24,739 23,454 24,720 24,462 24,567 28,743 Utilities 79,427 78,012 80,651 86,899 72,429 98,149 Health services 40,655 39,471 40,986 39,442 38,945 56,055 Construction 36,612 36,799 37,146 36,425 38,130 55,041 Recreation and food services 14,749 14,886 15,986 15,190 14,925 23,870 Clusters with location quotient >1 34,920 34,940 36,538 35,573 35,346 – Clusters with location quotient <1 42,316 41,311 42,478 42,114 44,180 – Average earnings (total) 35,116 35,057 36,266 35,905 35,834 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. business service providers such as Automatic Data Processing Inc. and Datamark. The star and mature segments are not as high paying as their less-concentrated counterparts, partly due to the nature of the industries that are heavily represented in El Paso (Table 3.1). Recreation and food services and retail generally employ a large number of part-time workers, driving down the overall average, and even full-time employees in these industries are generally not highly paid. However, inflation-adjusted wages have increased much faster than overall wages in some high-concentration industries. While average wages have grown 2 percent since 2006, wages in primary metal manufacturing are up 14 percent, and government sector wages have increased 6.5 percent. Still, wages in El Paso remain below national averages for each cluster. DEMOGRAPHICS: Population Reflects Border Proximity El Paso’s population is predominantly Hispanic, with 81.2 percent of residents self-identifying as Hispanic, the second-highest percentage among the metros in this report behind McAllen (Chart 3.3). Over a quarter of El Paso’s population in 2014 was foreign born and migrated to the U.S., with 90 percent of these inhabitants born in Mexico. El Paso residents trail those of other metros in measures of education. Seventy-five percent of El Paso adults age 25 and older had at least a high school diploma in 2014. That figure is more than 6 percentage points lower than the Texas average. Only 21 percent of adults had a bachelor’s degree or higher, compared with nearly 28 percent for Texas. These education levels are in line with the large immigrant population in El Paso and the composition of its industry clusters; some of the most concentrated clusters do not require highly skilled or educated workers. Labor force participation in El Paso is low. Sixty percent of the population age 16 and older is in the labor force. A sizable portion of the population, 16.5 percent, is 15 to 24 years old (a time when young people are generally still in school). The figure is 2 percentage points higher than the Texas average. A large share of the population, 11.3 percent, is also at retirement age (over 64 years old). EMPLOYMENT: Smaller Job Losses, Slower Recovery In terms of employment, El Paso wasn’t as affected by the Great Recession as the rest of Texas. Between the prerecession peak in February 2008 and the trough in May 2009, El Paso lost 2.7 percent of its jobs, while Texas lost 4.1 percent from peak to trough. However, job growth after the peak was slower in El Paso. The region required Section 3: El Paso 25 Chart 3.3: El Paso’s Population Is Mostly Hispanic Percent 100 White, not Hispanic 90 Hispanic 80 70 60 50 40 30 20 10 0 Austin Dallas El Paso Fort Worth Houston McAllen Midland–Odessa San Antonio SOURCE: 2014 American Community Survey. 40 months to regain prerecession levels of employment, and of the major metros, only Dallas and Fort Worth took longer to recover. Moreover, while El Paso employment grew 7 percent between December 2009 and December 2014, Texas employment expanded 15 percent. Government spending cuts likely led to El Paso’s sluggish job gains, owing to the area’s greater dependence on government. (El Paso’s concentration of government and military workers ranked fifth nationally in 2012, immediately after the District of Columbia.)9 However, El Paso outperformed the rest of Texas in 2015, expanding at a 3.5 percent annual rate, compared with 1.3 percent for Texas overall. El Paso’s economy is heavily tied to Mexico due to the cross-border trade of goods and services. Thus, the slump in the energy sector that has suppressed employment growth in Texas has had little effect in El Paso so far, though slowing growth in Mexico may be felt in the future. OUTLOOK: Ties to Mexico Bring Risks, Benefits El Paso’s close economic ties to Mexico may be a downside risk in the near future. The strong dollar may 26 Federal Reserve Bank of Dallas negatively affect retail and recreation and food services, which benefit from cross-border tourism. As U.S. goods and services become relatively more expensive, tourists from Mexico may visit and spend less. Improving security in Juárez may shift spending from El Paso to Juárez. Mexico’s economic outlook for 2016 reflects the possibility of falling government revenue—a result of lower oil prices and the potential negative effect of higher import prices (due to the falling peso) on economic activity. While Fort Bliss has been an economic generator, a general decline in government spending such as that experienced in 2013 could significantly affect the military base, stifling growth in El Paso. Fort Bliss contributes an estimated $6 billion per year to the local economy.10 However, continued strong U.S. auto sales during the first half of 2016 could further boost Juárez maquiladoras, providing a tailwind to El Paso’s economy. The maquiladoras typically have positively affected overall employment in El Paso. Though the strong dollar may discourage foreign tourists from crossing the border to shop in El Paso’s many retail areas, the decline in energy prices could provide a boost to retail spending from other regional tourists and El Paso residents. Similarly, falling fuel prices are a boon to a strong transportation industry. Mexican energy reform, allowing private investment (particularly for oil and gas exploration) and private participation in the sale, transport and distribution of energy products, could boost trade and investment ties in the medium to long term. El Paso Growth Outlook Drivers • • • • Challenges Strong U.S. auto sales stimulate growth in manufacturing in the maquiladoras in adjacent Juárez and the rest of the state of Chihuahua. Low fuel prices boost retail consumer spending and benefit the transportation industry. A burgeoning health services industry will continue to expand to meet the needs of both an aging local population and Mexicans who visit to acquire health services. Mexico energy reforms could boost cross-border trade and investment over the medium to long run. • Additional declines in government spending could negatively impact Fort Bliss, the largest employer in El Paso. A strengthening U.S. dollar will negatively affect cross-border trade and retail sales. Mexico confronts the possibility of lower oil revenues, which may depress Mexican government spending and economic growth and damp economic activity in El Paso. • • Notes 1 The history of El Paso has been adapted from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hde01. 2 The percentage shares of each cluster add up to more than 100 because some industries are counted in multiple clusters and some industries are not counted at all based on the cluster definitions. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.) 3 See “The Economic Impact of Fort Bliss and William Beaumont Army Medical Center in El Paso County, Texas,” by David A. Schauer, Roberto Tinajero, David Ramirez and Dennis L. Soden, Technical Report no. 201301, Institute for Policy and Economic Development, University of Texas at El Paso, February 2013, www.elpaso.org/_/documents/armedforce/EconomicImpactofFortBlissandWilliamBeaumontHospitalinElPasoTexas2013_ Final.pdf. 4 Detail on top employers in the El Paso metro area is from the Borderplex Alliance and Texas A&M Real Estate Center, www.borderplexalliance.org/ regional-data/el-paso/overview/major-employers and https://assets.recenter. tamu.edu/documents/mktresearch/El%20Paso_Top_Employers.pdf. “Dollar-Sensitive Mexican Shoppers Boost Texas Border Retail Activity,” by Roberto A. Coronado and Keith R. Phillips, Federal Reserve Bank of Dallas Southwest Economy, Fourth Quarter 2012, www.dallasfed.org/assets/documents/research/swe/2012/swe1204g.pdf. 6 Border crossings data are from the Bureau of Transportation Services, transborder.bts.gov/programs/international/transborder/TBDR_BC/TBDR_ BCQ.html. 7 Maquiladoras are manufacturing operations in Mexico that assemble imported components into exportable products that are free of import and export duties. 8 “The Impact of Maquiladoras on U.S. Border Cities,” by Jesus Cañas, Roberto Coronado, Robert W. Gilmer and Eduardo Saucedo, Growth and Change, vol. 44, no. 3, September 2013, pp. 415–42. 9 “Relying on a Federal Paycheck During the Shutdown,” Washington Post, March 7, 2013 (updated Oct. 1, 2013), www.washingtonpost.com/wp-srv/ special/business/diversify-economy. 10 See note 3. 5 Section 3: El Paso 27 Irving At a Glance Plano Fort Worth • Fort Worth began as an outpost marking Texas’ western frontier. Rail connections and a central location for cattle drives helped establish the city’s identity as “Cowtown,” a moniker that endures. • In the years surrounding World War II, Fort Worth emerged as a hub for the aviation and defense industries, key elements of the local economy today. • Fort Worth’s relatively less-well-educated populace provides a ready workforce for the manufacturing sector but may be a factor shifting some types of employment toward its regional neighbor, Dallas. • Depressed energy prices limit exploration of the area’s natural gas reserves but provide support to Fort Worth’s strong transportation sector. Midland Dallas El Paso Arlington Odessa Round Rock The Woodlands Austin New Braunfels Houston San Antonio Sugar Land Edinburg Mission McAllen Population (2014): 2.3 million* Population growth (2006–14): National MSA rank (2014): No. 4* 18.4 percent Median household income (2014): $58,132 Kauffman Startup Index rank (2015): No. 15* (Dallas and Fort Worth combined) Decatur Fort Worth Grapevine Mineral Wells Weatherford Benbrook Granbury Arlington Cleburne Glen Rose Hillsboro *The Fort Worth–Arlington metropolitan division is part of the Dallas–Fort Worth metropolitan statistical area (MSA) and encompasses Hood, Johnson, Parker, Somervell, Tarrant and Wise counties. The population of the Dallas–Fort Worth MSA is 6.95 million. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix. Fort Worth–Arlington: Transportation-Related Sectors Predominate in Local Economy HISTORY: Cowtown Takes Off with Aviation Both began slaughterhouse operations in 1903, helping draw a burgeoning livestock trade to North Fort Worth. Following the discovery of big oil in Texas in 1901, refinery and pipeline firms came to Fort Worth, leading to the establishment of oil stock exchanges. Oil and gas companies increased their foothold during the oil boom of the 1980s and the more recent discovery of large natural gas deposits in the nearby Barnett Shale. With World War II, the aviation industry established a major presence in the form of Consolidated Aircraft Corp. (later acquired by General Dynamics Corp. and now part of Lockheed Martin Aeronautics Co.). Carswell Air Force Base (now the Naval Air Station Joint Reserve Base), part of the Strategic Air Command, was located next door. The siting of Dallas/Fort Worth International Airport (DFW) in 1973 on the Tarrant–Dallas county line and subsequent relocation of American Airlines nearby have continued to link the city to the aviation industry.1 Fort Worth, established as an Army fort near the Clear Fork of the Trinity River in 1849, is named after Mexican War hero U.S. Army Gen. William Jenkins Worth. He had proposed a series of 10 forts from Eagle Pass to North Texas to mark the western Texas frontier. Shortly after Fort Worth’s inception, settlers began moving in and, by 1860, had established the city as a county seat. However, its initial growth spurt didn’t occur until after the Civil War. Once a wayside for cowboys on cattle drives to Kansas, Fort Worth attracted the interest of cattle buyers and meatpackers and acquired the nickname “Cowtown.” The Texas Pacific Railway completed a route linking Fort Worth with San Diego in 1876—the first in a series of railroad ties—and the city caught the attention of Armour and Co. and Swift and Co. Local citizens assembled a $100,000 incentive to entice the companies. Chart 4.1: Transportation Clusters Drive Fort Worth’s Economy 3.5 Mature Star Transportation equipment manufacturing 3 Location quotient in 2014 2.5 Defense and security Machinery manufacturing Recreation and food services 2 Transportation and logistics Glass and ceramics Construction 1.5 Mining and energy Business and financial services Retail 1 Health services 0.5 Government Transitioning 0 –4 –3 –2 –1 0 Percentage-point change in employment share, 2006–14 Information technology and telecommunications 1 Emerging 2 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 4: Fort Worth—Arlington 29 INDUSTRY CLUSTERS: Transportation Manufacturing, Defense Vital defense and security reflect their outsized role in the region. Along with DFW Airport, Fort Worth Alliance Airport and the Joint Reserve Base are major hubs of activity. Additionally, General Motors Co. has operated an assembly plant in Arlington since 1954 and continues to invest in its growth, recently unveiling a $1.4 billion upgrade and expansion. The plant specializes in larger sport utility vehicles. Government, which saw employment growth of 7 percent during the 2006–14 study period, is the largest cluster (Chart 4.2). The Fort Worth metropolitan division is a regional federal employment center supporting a defense and security cluster that also includes Lockheed Martin Corp. and Bell Helicopter. Jobs in recreation and food services, the second-largest cluster, expanded 25 percent during the period. This includes growth at Arlington’s Six Flags Over Texas amusement park, whose parent company, Six Flags Entertainment Corp., is based in nearby Grand Prairie. Arlington is the site of two premier sports facilities—AT&T Stadium, where the Dallas Cowboys football team has played since it moved from Irving in 2009, and Globe Life Park (formerly the Ballpark in Arlington), home field of the Texas Rangers baseball team. Location quotients (LQs), which compare the relative concentration of various industry clusters locally and nationally, are a convenient way of assessing key drivers in an economy. An LQ exceeding 1 indicates that a specific industry cluster carries more relative weight locally than nationally. Industry cluster growth is measured by the percentage-point change in its share of local employment between 2006 and 2014 (Chart 4.1).2 Clusters in the top half of Chart 4.1, such as transportation equipment manufacturing, defense and security, and mining and energy, have a larger share of employment relative to the nation and, thus, an LQ greater than 1. These clusters are generally vital to the area’s economy and can be expanding rapidly (“star”) or growing slowly (“mature”). Those in the bottom half, such as information technology and telecommunications, are less-dominant locally than nationally and, hence, have an LQ less than 1. “Emerging” clusters, such as business and financial services and health services, are fast growing; those growing slowly are “transitioning.” The relatively large LQs of transportation equipment manufacturing, transportation and logistics, and Chart 4.2: Energy Sector Employment Growth Leads Fort Worth Gains Mining & energy Health svcs Recreation & food svcs Machinery mfg Education Fabricated metal mfg Business & financial svcs Information technology & telecom Utilities Government Electrical equipment mfg Retail Biomedical Transportation equipment mfg Construction Defense & security Agribusiness Primary metal mfg Chemicals Wood products Advanced materials Textiles Publishing & information Glass & ceramics Transportation & logistics Computer mfg –60 –31 –46 –50 –40 –24 –30 –20 –20 –20 –10 –13 –7 –10 –2 –4 1 0 0 0 4 8 7 7 7 11 10 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 30 Federal Reserve Bank of Dallas 18 18 17 20 22 33 25 30 37 40 50 Table 4.1: Transportation and Defense Sectors Pace Earnings Cluster Fort Worth U.S. 2006 2008 2010 2012 2014 2014 Transportation equipment manufacturing 91,891 86,307 90,998 92,760 91,066 71,570 Defense and security 87,189 82,426 84,467 84,506 85,350 59,588 Transportation and logistics 59,676 48,906 48,954 56,451 48,164 51,043 Mining and energy 72,359 72,649 80,370 73,236 76,008 76,815 Machinery manufacturing 61,635 68,351 63,782 67,174 65,604 66,715 Fabricated metal manufacturing 47,487 48,896 50,730 51,500 53,572 53,130 Construction 51,110 50,735 48,734 49,983 52,717 55,041 Glass and ceramics 51,387 50,721 50,156 53,140 58,214 51,073 Chemicals 79,827 75,367 95,256 89,891 84,615 69,856 Biomedical 134,348 117,066 145,951 133,680 121,426 91,463 Recreation and food services 22,471 20,571 20,667 21,221 20,505 23,870 Retail 32,350 31,217 30,907 30,324 30,598 28,743 Wood products 46,257 44,639 45,906 46,639 47,825 48,793 Clusters with location quotient >1 52,716 49,921 51,491 51,578 50,889 – Clusters with location quotient <1 58,196 58,050 59,307 59,146 59,955 – Average earnings (total) 49,718 48,617 49,544 49,103 50,170 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings data are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Mining and energy was the cluster with the fastest employment growth, up 37 percent in 2006–14. Fort Worth was a center for oil exchanges early in the last century and enjoyed easy access to the Permian Basin to the west. Today, it is the center of the Barnett Shale formation, a prolific source of natural gas. Persistent price weakness—natural gas was selling for roughly 15 percent of its July 2008 high in the first week of November 2015—has prompted some retrenchment. On average, clusters with a greater employment concentration than the national economy paid about $50,900 annually, less than those with a relatively smaller presence at $60,000 (Table 4.1). However, certain locally concentrated clusters such as biomedical boasted the region’s best-paying jobs at more than $121,400 per year. Transportation equipment manufacturing—with three times the national employment share (LQ of 3)—also pays well at $91,100, as does defense and security (LQ of 2.3) at $85,400. By comparison, recreation and food services (straddling the star and emerging categories) and the large retail cluster (sitting between the mature and transitioning categories) were among the lowest paying at about $20,500 and $30,600 a year, respectively. DEMOGRAPHICS: In-Migration Plays Key Growth Role Fort Worth and its larger neighbor, Dallas, make up the Dallas–Fort Worth metroplex—the fourth-largest MSA in the country, with 6.95 million people.3 New residents from elsewhere in the U.S. accounted for 38 percent of the metroplex’s population growth in 2014, and the region took one of the two top spots nationally for total net migration from 2011 to 2014. About 61.5 percent of the Fort Worth area’s foreign-born population came from Latin America, less than the almost 70 percent share for Texas. Fort Worth’s per capita income of $28,629, while about 8 percent lower than Dallas’, was close to the U.S. figure of $28,889. However, Fort Worth’s median household income—the midpoint at which half of incomes are above and below—was $58,132, exceeding the U.S. median of $53,657 and trailing Dallas. Consistent with the area’s manufacturing emphasis, 28.4 percent of workers age 25 or older hold a bachelor’s or higher degree, less than Dallas at 34.5 and the U.S. at 30.1 but nearly on par with Texas at 27.8 percent (Chart 4.3). The share of adults with only a high school diploma in Fort Worth exceeds the share in Dallas. Section 4: Fort Worth—Arlington 31 Chart 4.3: Share of College Graduates Lower in Fort Worth Relative to Dallas Percent 40 Dallas 34.5 35 Fort Worth 31.6 30 27.6 28.4 25.1 25 21.8 20 16.1 15 14.9 10 5 0 Less than high school High school graduate or equivalent Some college or associate's degree Bachelor's degree or higher NOTE: Chart shows share of population age 25 and over in each grouping. SOURCE: 2014 American Community Survey. EMPLOYMENT: Energy Affects Postrecession Recovery OUTLOOK: Transportation and Defense Lead While Fort Worth and Dallas together make up a diversified economy that closely resembles the U.S. as a whole, the influence of the mining and energy cluster—whose LQ of 1.3 makes it more prominent locally than nationally—likely helped Fort Worth get a quicker start than its sister metro following the Great Recession. While it took Dallas 51 months to regain all the jobs it lost during the recession, Fort Worth was able to rebound in 42 months. The situation was reversed in 2015, with the steep decline of oil and gas prices restraining the Fort Worth area’s expansion. Through much of 2012 and 2013, the Fort Worth area’s unemployment rate was 0.2 percentage points lower than Dallas’. A similar spread, this time favoring Dallas, emerged during 2015 as the energy slump deepened. Employment growth in Fort Worth was uneven in 2015 as well, and through the first 11 months, job gains clocked in at a mere 0.2 percent annual rate. This compares with 4.1 percent for Dallas. Despite the slowdown, Fort Worth unemployment averaged around 4 percent through 2015, compared with 5.3 percent for the U.S.4 Although sometimes viewed as a single economic unit with Dallas, the Fort Worth region has a unique and complementary industry profile, with a greater concentration in energy, transportation and defense. In the near term, those industries’ performance will help set the course for Fort Worth. Federal budget constraints could, over the long term, limit the outlook for the historically powerful defense and security cluster and the 4 percent of the workforce it represents. Continuing price weakness in energy, which makes up 7.7 percent of the region’s employment and is classified as a star among Fort Worth’s clusters, will damp prospects and limit natural gas exploration along the Barnett Shale. Conversely, relatively low fuel prices will support demand for air travel and autos, such as the large SUVs that GM’s Arlington plant builds. 32 Federal Reserve Bank of Dallas Fort Worth—Arlington Growth Outlook Drivers • • • Challenges Manufacturing operations, defense industry installations and transportation facilities provide a strong foundation of wellpaying jobs. The government cluster continues to provide stability as the region’s population expands and the low unemployment rate serves as a lure to new residents. Lower energy prices will continue to drive transportation growth. • Weakness in oil and gas prices will damp growth within the energy sector, which had benefited from its proximity to the Permian Basin and Barnett Shale. A relatively less-well-educated populace may limit the kinds of businesses that select a Fort Worth location over one in Dallas. The defense and security cluster and large military base are vulnerable to federal budget cuts in the future. • • Notes The history of Fort Worth is taken from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hdf01. 2 Individual industry cluster shares add up to more than 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. 1 The 2014 population estimates are from the Census Bureau. The three largest MSAs are New York–Newark–Jersey City, Los Angeles–Long Beach– Anaheim and Chicago–Naperville–Elgin. 4 Data are from the Bureau of Labor Statistics and Texas Workforce Commission and are seasonally adjusted by the Federal Reserve Bank of Dallas. 3 Section 4: Fort Worth—Arlington 33 Population (2014): 6.5 million Population growth (2006–14): 17.1 percent Huntsville Median household income (2014): $60,072 Conroe The Woodlands Hempstead Bellville Beaumont Liberty Katy Anahuac National MSA rank (2014): No. 5* Port Arthur Houston Richmond Kauffman Startup Index rank (2015): Sugar Land No. 8* Angleton El Campo Galveston Freeport Bay City Irving Midland Fort Worth Dallas El Paso At a Glance • • Houston began as a port city, rising to prominence as one of the top three busiest deepwater ports in the U.S. The Texas oil boom began at Spindletop, 75 miles to the east, and the Houston area quickly became the energy capital of the U.S. and home to oil companies, refineries and petrochemical plants. • While the energy industry remains the dominant cluster, Houston has diversified, and the manufacturing, chemicals and health industries have grown in importance. • Falling oil prices and a decline in exports pose a challenge to the Houston economy, and a strongly growing health industry can’t pick up all the slack. Plano Odessa Round Rock Arlington Austin New Braunfels San Antonio The Woodlands Houston Sugar Land Edinburg Mission McAllen *The Houston–The Woodlands–Sugar Land metropolitan statistical area (MSA) encompasses Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller counties. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix. Houston–The Woodlands–Sugar Land: Texas’ Gulf Coast Hub and Nation’s Energy Capital HISTORY: An Energy Complex Emerges from a Port City Texas. Sinclair Oil Co. built the first major oil refinery in Houston in 1918, and many others followed, constructing facilities along the Houston Ship Channel. Forty oil companies had Houston offices by 1929. During World War II, demand for petrochemical products skyrocketed, and Houston quickly developed one of the largest petrochemical plant concentrations in the U.S. Houston was an international energy capital by the 1970s, expanding with the oil boom but also suffering during the 1980s bust.1 Houston was founded in 1836 along Buffalo Bayou, a waterway leading to the Gulf of Mexico. At the time, the city was dependent on agriculture and commerce, and most business involved selling supplies to area farmers. Because Buffalo Bayou was difficult to navigate, trade tended to pass through Galveston, 50 miles away on the coast. Rail lines connected Houston to the countryside, and by 1861, Houston was the rail center of southeast Texas. The U.S. government began widening and deepening Buffalo Bayou in 1881, and when the Houston Ship Channel was finally completed in 1914, Houston became a deepwater port, soon ranking among the top three ports by volume in the U.S. Drillers struck oil in 1901 at Spindletop, 75 miles to the east near Beaumont, catalyzing the oil boom in INDUSTRY CLUSTERS: Energy and Related Industries Dominate Chart 5.1 shows the composition of industry clusters in Houston, organized by location quotient (LQ), a measure of a cluster’s share of local employment relative Chart 5.1: Energy and Related Manufacturing Among Houston’s Dominant Clusters 3 Mature Star Machinery manufacturing 2.5 Mining and energy Advanced materials Location quotient in 2014 Chemicals 2 Construction Fabricated metal manufacturing 1.5 Government 1 Business and financial services Recreation and food services Transportation and logistics Health services Retail Defense and security 0.5 Information technology and telecommunications Transitioning 0 –2 –1.5 Emerging –1 –0.5 0 0.5 1 1.5 2 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 5: Houston—The Woodlands—Sugar Land 35 Similarly, the chemical industry is a major cluster, though its relative size has declined recently. Dow Chemical Co., for example, employs 6,600 workers. Many of the major energy companies, including Exxon Mobil, also manufacture chemicals. Although its share of transportation and logistics employment has declined since 2006, Houston retains its position as a major port city and regional commercial hub. The United Airlines hub, the carrier's largest, is located at George Bush Intercontinental Airport. The airline employs 17,000 people in Houston. The health cluster, accounting for 8 percent of Houston’s workforce, has also grown significantly in recent years. The area’s two largest employers, with more than 19,000 workers each, are Memorial Hermann Health System and the University of Texas MD Anderson Cancer Center. Though Houston’s concentration of health care workers remains below that of the U.S. (with an LQ of 0.92), employment grew 36 percent from 2006 to 2014 (Chart 5.2). The major industry clusters in Houston pay significantly more than other industries (Table 5.1). The average annual wage for mining and energy, for example, is $120,000; the average worker in Houston earns $64,500. Overall, workers employed in the most concentrated clusters—those with LQs greater than 1—earn on average to its share nationally. Each cluster is plotted based on employment share change between 2006 and 2014.2 Clusters in the “star” quadrant, such as mining and energy, have a large share of employment relative to the nation (an LQ exceeding 1) and are fast growing; “emerging” industries, such as health, are smaller relative to the nation (an LQ less than 1) but also fast growing. “Mature” sectors, such as the chemical industry, are more concentrated but slower growing; “transitioning” segments, such as government, are smaller relative to the nation and are slower growing. Energy and related companies by far make up the largest cluster in Houston, employing 14 percent of the workforce. Houston has more Fortune 500 companies than any other Texas city, and out of the 26 local companies on the list in 2015, only four were unrelated to the energy industry. Apart from Fortune 500 firms such as Phillips 66, ConocoPhillips and Marathon Oil Corp.—whose headquarters are in Houston—the city’s largest employers include units of Exxon Mobil Corp. and Shell Oil Co., each employing more than 13,000 workers locally.3 Related oilfield manufacturing and services companies that support the energy extraction firms include National Oilwell Varco, Schlumberger and Halliburton. This network has led to a high concentration of machinery and fabricated metal manufacturers. Chart 5.2: IT and Energy-Related Manufacturing Lead Employment Growth in Houston Information technology & telecom Machinery mfg Education Fabricated metal mfg Health svcs Primary metal mfg Mining & energy Recreation & food svcs Electrical equipment mfg Biomedical Business & financial svcs Retail Advanced materials Construction Transportation & logistics Utilities Government Glass & ceramics Agribusiness Chemicals Computer mfg Publishing & information Wood products Textiles Transportation equipment mfg Defense & security –40 49 30 36 36 27 25 1 –4 –5 –30 7 14 –10 –11 –22 –31 3 9 8 8 11 19 18 16 –20 –10 0 10 20 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 36 33 54 53 Federal Reserve Bank of Dallas 30 40 50 60 Table 5.1: Energy and Related Clusters Drive Houston Workers’ Earnings Cluster Machinery manufacturing Mining and energy Houston U.S. 2006 2008 2010 2012 2014 2014 88,556 88,741 93,793 98,364 98,975 66,715 109,553 113,440 115,480 120,750 120,088 76,815 Fabricated metal manufacturing 59,181 62,989 61,517 65,198 65,436 53,130 Construction 60,914 63,960 63,739 66,701 70,413 55,041 Chemicals 94,390 95,397 97,286 99,784 102,907 69,856 Defense and security 72,245 68,189 69,999 69,372 72,203 59,588 Utilities 119,634 124,107 115,164 120,369 122,414 98,149 Glass and ceramics 52,639 56,232 51,331 54,750 55,285 51,073 Transportation and logistics 64,039 66,232 73,449 81,226 75,998 51,043 Advanced materials 82,363 82,287 82,884 85,188 86,434 79,703 Business and financial services 93,974 97,049 98,450 100,147 102,094 92,957 Clusters with location quotient >1 86,686 89,375 91,422 95,495 95,981 – Clusters with location quotient <1 44,979 45,021 46,064 45,704 46,100 – Average earnings (total) 58,969 60,930 60,876 63,235 64,512 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. more than twice as much as workers in less-concentrated clusters ($96,000 versus $46,100). While real (inflation-adjusted) wages have increased 9.4 percent overall since 2006, pay has grown 10.7 percent in the most concentrated clusters and 2.5 percent in less-concentrated ones. DEMOGRAPHICS: Houston Population More Diverse Demographics in Houston—the state’s most populous metro, with 6.5 million residents—differ from the other major metros. While Austin, Dallas and Fort Worth all have dominant non-Hispanic white populations, Houston’s Hispanic population of 36.3 percent is nearly as large as the white non-Hispanic population of 37.8 percent. The black share, 17.2 percent, and Asian share, 7.3 percent, are higher than in any other Texas metro area in this report (Chart 5.3). Rapid job growth in the high-paying energy industry has made Houston a popular destination for migrants, domestic and foreign. Apart from the Texas border metros, Houston has the largest foreign-born population share, 23.1 percent. Roughly two-thirds of the foreign born are from Latin America, and about a fourth are from Asia. Houston trails Dallas and Austin in share of the population with a bachelor’s degree or higher. This reflects the abundance of energy industry and manufacturing jobs, many of which pay well but do not require a college degree. However, Houston’s population is more educated than Texas’ overall. Thirty-one percent of Houston’s population holds a bachelor’s degree or higher; the Texas average is 27.8 percent. EMPLOYMENT: Impact of Shale Boom and Bust Houston was hard hit by the Great Recession, losing 4.6 percent of its jobs between August 2008 and November 2009. Among the large Texas metros, only DFW lost more. However, Houston bounced back strongly, with employment expanding 18.1 percent from December 2009 to December 2014, or 3.4 percent per year. Among the large metros, only Austin came back faster, up 4 percent per year during the period. Houston’s rapid postrecession growth is largely due to the shale oil boom. With such a high concentration of firms in energy or related industries, shale exploration fueled Houston’s employment prospects, Section 5: Houston—The Woodlands—Sugar Land 37 Chart 5.3: Population More Diverse in Houston than in Other Major Texas Metros Percent of total population 100 90 80 70 60 50 40 30 20 10 0 Austin Dallas White alone El Paso Fort Worth Black alone Houston Asian alone McAllen Midland–Odessa San Antonio Hispanic or Latin alone Other SOURCE: 2014 American Community Survey. driving growth directly and indirectly. Firms that directly participate in fossil fuel production, refining and petrochemicals expanded significantly, as did companies that provide support to energy producers, such as machinery manufacturers, construction and real estate firms, and business and financial services enterprises. However, energy-fueled booms are sensitive to price busts. In response to crashing oil prices in late 2014, the Houston job market wavered in 2015. Between December 2014 and November 2015, employment was nearly flat. Job losses were not only concentrated in goods-producing sectors such as energy and manufacturing, but also in some service sectors. Professional and business services and real estate also experienced labor market declines in 2015. OUTLOOK: No Recession … Yet Houston’s economy is heavily tied to energy, with nearly 16.4 percent of 2014 real gross domestic product attributed to the industry. Thus, an energy price decline negatively affects the area economy, slowing job gains, damping energy-related investment and creating downward pressure on demand for various services and 38 Federal Reserve Bank of Dallas commercial real estate, especially office space. The effects of low oil prices are not expected to be as drastic as those during the 1980s oil bust because Houston is more diversified, largely due to its health care and export sectors. Because Houston is a port city, exports are vital to the economy and support more than 400,000 area jobs, by some estimates.4 However, the export industry faces challenges in the short term as the unusually strong U.S. dollar increases costs for foreign buyers, reducing export demand. Additionally, the International Monetary Fund lowered 2016 global growth projections from 3.6 percent to 3.4 percent, dimming export growth prospects.5 Still, parts of the energy industry will expand over the long term. New petrochemical plants and liquefied natural gas terminals are under contract, with construction expected to start in 2016. These projects will initially provide employment for many construction workers, although the plants will require relatively few operations employees once they’re complete. Additionally, Houston’s large health care industry is expected to grow to support a burgeoning aging population. More than 600,000 Houston residents are over age 65, and this cohort is expected to grow significantly in the coming decades as baby boomers age. Houston—The Woodlands—Sugar Land Growth Outlook Drivers • • • Challenges Refinery operators and petrochemical producers are benefiting from low oil and gas prices. Construction of new petrochemical plants and liquefied natural gas terminals planned in coming years will boost construction employment in the medium term. A strong health care industry will continue to expand along with expected population gains, especially with a projected increase in the 65-and-older population in the next few decades. • Low oil prices negatively impact growth in the upstream energy industry and beyond. Energy-related jobs will decline further given the plunge in rig counts. Demand for commercial real estate may wane further. Apartment and single-family home growth may diminish. Slowing exports due to a stronger dollar and weaker global growth will damp port activity. • • • • Notes The history of Houston is taken from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hdh03. 2 Individual industry cluster shares add up to more than 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.) 1 Data on major Houston employers are taken from the Greater Houston Partnership’s 2015 Houston Facts, www.houston.org/assets/pdf/economy/ Houston%20Facts_web.pdf. 4 See the Greater Houston Partnership’s 2015 Houston Employment Forecast, Dec. 11, 2014, www.houston.org/pdf/research/quickview/Employment-Forecast.pdf. 5 See the International Monetary Fund’s World Economic Outlook, October 2015, www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf. 3 Section 5: Houston—The Woodlands—Sugar Land 39 Population (2014): 831,073 Population growth (2006–14): 18.6 percent Median household income (2014): $34,801 National MSA rank (2014): No. 68* Raymondville Rio Grande City Edinburg Mission Harlingen McAllen South Padre Island Brownsville Irving Midland At a Glance Plano Fort Worth • Health services, government and retail trade are the three largest clusters in McAllen, though transportation and logistics is also an important sector, attributable to the border crossings with Mexico. • In terms of employment, McAllen wasn’t hit as hard as the rest of the state during the Great Recession, and the border metro rebounded to prerecession levels before other major metros. McAllen wasn’t notably affected by slowing elsewhere in the state during 2015. • Talent flight is a challenge for McAllen’s economy, but investments in retail, transportation infrastructure and health care could boost future economic activity. Dallas El Paso Odessa Round Rock Austin New Braunfels Arlington The Woodlands Houston San Antonio Sugar Land Edinburg Mission McAllen *The McAllen–Edinburg–Mission metropolitan statistical area (MSA) encompasses only Hidalgo County. McAllen–Edinburg–Mission: Retail, Medical Hub Draws on Cross-Border Trade HISTORY: From a Private Ranch to a Bridge to Mexico McAllen began as a private ranch in the late 19th century. The city was not officially incorporated until 1911, several years after the St. Louis, Brownsville and Mexico Railway established a depot on ranch-donated land. At the request of President Woodrow Wilson, 20,000 soldiers from New York were deployed to McAllen in 1916 to help quell border disturbances. The area subsequently boomed, with the population growing from 1,200 to 6,000 by 1920. McAllen’s economy was primarily agriculturebased, with some oil exploration, in the early 20th century. In 1941, the city built a suspension bridge across the Rio Grande to Reynosa, Mexico. The McAllen–Hidalgo–Reynosa International Bridge increased tourism and trade, helping establish McAllen as an important port of entry. The discovery of oil in the Reynosa area in 1947 prompted a large in-migration from the Mexican interior, boosting tourism and providing McAllen with an inexpensive labor supply. The McAllen Foreign Trade Zone—the first inland foreign trade zone in the United States—was established in 1973. Foreign trade and tourism remain important to the region’s economy.1 INDUSTRY CLUSTERS: Retail, Health Drive Economy McAllen’s cluster composition is shown in Chart 6.1. Clusters are organized by location quotient (LQ), which represents the share of local employment in each cluster Chart 6.1: Health Care Dominates McAllen Clusters 2.5 Mature Star Health services 2 Location quotient in 2014 Government Retail 1.5 Transportation and logistics Agribusiness 1 Recreation and food services Construction Education 0.5 Business and financial services Mining and energy Transitioning Emerging 0 –2.5 –2 –1.5 –1 –0.5 0 0.5 1 1.5 2 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 6: McAllen—Edinburg—Mission 41 Monterrey, Mexico’s third-largest metro area, which is 150 miles southwest of McAllen. Mexican shoppers account for an estimated 30 to 40 percent of retail activity.4 Overall, retail trade makes up nearly 13 percent of McAllen’s total output.5 In terms of gross sales (overall taxable sales including wholesale trade and services), 56 percent come from retail in McAllen, compared with about 25 percent for the state.6 Government employees figure prominently in border economies, and McAllen is no exception. They make up the largest share of workers in McAllen at nearly 23 percent. While the government sector’s workforce has grown since 2006, other clusters have expanded significantly faster (Chart 6.2). Thus, government’s share of total employment has declined. The city of McAllen has more than 2,000 municipal workers, while border crossings and international trade represent a major federal employment commitment involving U.S. Customs and Border Protection and other federal agencies. Public school systems, however, dominate the government sector. Fifty-eight percent of all government employees work for elementary and secondary schools.7 relative to the nation, and the change in employment share between 2006 and 2014.2 “Star” quadrant clusters, such as health services and retail, have a larger share of employment relative to the nation (an LQ exceeding 1) and are fast growing. “Emerging” industries, such as recreation and food services, are smaller relative to the nation (LQ less than 1) and fast growing. Industries in the “mature” quadrant, such as government, are more concentrated but slower growing, and “transitioning” industries, like business and financial services, are smaller relative to the nation and slower growing. Health care is a key sector in the McAllen economy. While the cluster has grown in importance in most metro areas, it is more concentrated in McAllen (and has the highest LQ) relative to other metros in this report. Nearly 19 percent of McAllen’s workers are in the health cluster. Hospitals and medical centers, including McAllen Medical Center and Edinburg Regional Medical Center, are among the metro’s top employers.3 Retail is typically big in the larger border communities, and this star cluster employs more than 15 percent of McAllen’s workers. The metro area serves as the retail trade center of South Texas and northern Mexico. Retail tourism draws customers from as far as Chart 6.2: Education Sector Grows the Fastest Among McAllen Clusters Education Fabricated metal mfg Defense & security Transportation equipment mfg Primary metal mfg Health svcs Biomedical Recreation & food svcs Retail Transportation & logistics Mining & energy Government Business & financial svcs Utilities Advanced materials Publishing & information Computer mfg Information technology & telecom Construction Wood products Agribusiness Glass & ceramics Textiles Chemicals Machinery mfg 153 –18 –20 –28 –33 –38 –44 –49 0 –6 –8 –9 12 10 39 37 30 25 24 23 23 20 19 61 –84 –100 –50 0 50 100 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 42 Federal Reserve Bank of Dallas 150 200 Table 6.1: Earnings Across Dominant McAllen Clusters Trail U.S. Performance Cluster McAllen U.S. 2006 2008 2010 2012 2014 2014 Health services 32,504 33,058 33,892 30,305 31,235 56,055 Government 39,579 41,356 42,538 41,576 42,311 51,726 Retail 24,671 23,449 24,328 25,013 25,522 28,743 Clusters with location quotient >1 33,496 33,948 35,103 33,394 34,150 – Clusters with location quotient <1 29,136 29,104 29,219 30,492 31,347 – Average earnings (total) 31,368 31,353 32,301 31,586 32,000 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Although public education has not grown significantly, the private education sector, which includes private schools and colleges, has expanded rapidly since 2006. With three international border crossings in the metropolitan statistical area, McAllen is the third-busiest border crossing in Texas (behind Laredo and El Paso) in terms of commercial truck traffic and pedestrians.8 Consequently, transportation and logistics is an important emerging industry. While its concentration (LQ of 0.9) isn’t as significant locally as nationally, the sector has grown since 2006, adding workers and increasing its share of total McAllen employment. The highly concentrated sectors—those with LQs greater than 1—are higher paying in McAllen than their less-concentrated counterparts (Table 6.1). However, real (inflation-adjusted) wages overall remain significantly lower than U.S. industry averages, and wage growth in the star and mature industries, at 2 percent, is slower than in the less-concentrated sectors, at 7.6 percent. Reduced government spending in recent years may have slowed public sector wage growth, while pay in the retail sector remains low. A low-pay environment in the burgeoning health industry is unusual; doctors, nurses and other health workers are generally well-educated and command high wages. However, in McAllen’s health cluster, more than 51 percent of workers are employed in home health care services.9 Many are unlicensed, nonmedical caregivers, and the average salary for these jobs is significantly lower—$13,900 in 2014—than for the entire sector. The rest of the health industry averaged about $49,000 in 2014. DEMOGRAPHICS: Poorer and Younger than the State McAllen’s population is much younger than that of the other metros (Chart 6.3). The median age of 29.2 is almost five years less than the statewide figure. The city has the largest share of under-15-year-olds of all metros in this report at 28 percent. Families in McAllen also tend to have more children—the metro averages more than 4 people per family, compared with 3.4 for Texas. The population is predominantly Hispanic at over 91 percent, and more than 88 percent of the population self-identifies as being of Mexican descent. McAllen has the largest foreign-born population of any metro in the report at nearly 28 percent, illustrating the city’s deep ties with Mexico. McAllen is also home to a large group of seasonal residents who, at an average age of 71, contrast starkly with the younger inhabitants of the metro and the Rio Grande Valley. These “Winter Texans” come primarily from midwestern U.S. states and Canada to find a more temperate climate. In 2014, the approximately 100,000 migrants spent nearly $710 million locally. While their numbers have declined over the past several years, in part due to border violence concerns, their household spending has increased strongly and is up nearly 35 percent since 2006.10 McAllen trails the state in terms of educational outcomes. Nearly 38 percent of the population age 25 and over has no high school diploma—twice the Texas average. Only 18 percent of the population holds a bachelor’s degree or higher, compared with 28 percent in Texas. Section 6: McAllen—Edinburg—Mission 43 Chart 6.3: McAllen Has Youngest Population of Major Metros Age 36 Percent 100 34.8 90 80 34.4 34.3 35 34 34.3 34.0 33.9 70 33 31.8 60 32 31.6 50 31 40 30 30 29 29.2 20 28 10 27 26 0 Austin Dallas Under 15 years El Paso Fort Worth 15–24 years Houston 25–54 years McAllen 55–64 years Midland– Odessa San Antonio Over 64 years Texas Median age SOURCE: 2014 American Community Survey. McAllen has a high poverty rate—34 percent of the population lived below the poverty line in 2014, compared with 17 percent in Texas—and its median household income of $34,801 was two-thirds of the Texas figure, $53,035. overall. Manufacturing employment in McAllen increased at an annual 7.2 percent rate over the same period despite widespread weakness in this sector across the state and nation. Also, trade, transportation and utilities and education and health expanded last year. EMPLOYMENT: Quick Recovery from Recession OUTLOOK: Mixed, Dependent on Ties to Mexico McAllen weathered the Great Recession far better than most metros. While Texas lost 4.1 percent of its jobs from peak to trough, McAllen employment fell only 1.8 percent from its peak in October 2008 to the trough in March 2009. McAllen also was the first metro to recover, reaching prerecession employment levels after only 24 months. Job growth in the postrecession period, however, was significantly slower than in the rest of the state. From December 2009 to December 2014, McAllen employment grew about 12 percent, or an average of 2.3 percent per year—slower than the Texas annual average of 2.8 percent. In 2015, McAllen performed better than the rest of the state—growing at an annualized rate of 2.0 percent through November, compared with 1.3 percent for Texas Many highly educated McAllen residents seek employment elsewhere because of the higher pay offered in the bigger cities. This situation may change in the future; McAllen has greatly improved the quality and availability of education. Nevertheless, the emerging industries that employ highly educated workers are not yet dominant enough to retain much of the young, educated workforce.11 While a strong dollar is hurting retail sales in the near term, cross-border retail trade will continue to provide support to the area’s economy over the long run. A stable outlook for Mexico in 2016, along with energy reforms in that country, may spur new activity that bodes well for growth in this border metro. 44 Federal Reserve Bank of Dallas Recent investments in several sectors in McAllen could bolster the area. Announced expansions to La Plaza Mall, among the largest retail hubs, will add a new wing— space for an 80,000-square-foot, two-level anchor store; two junior anchors; more than 50 smaller specialty stores; and up to eight restaurants.12 The McAllen Miller International Airport announced $26.5 million in improvements that will nearly double the size of the terminal.13 A new toll road, state Highway 365, will facilitate increased cross-border trade.14 Additionally, Doctor’s Hospital at Renaissance announced a $200 million expansion that will double the number of available beds.15 McAllen–Edinburg–Mission Growth Outlook Drivers • • • • Challenges Significant expansion to La Plaza Mall will increase retail sales and attract retail tourists from beyond the region. Investments in transportation infrastructure, including highways and the airport, will provide new opportunities for trade and the transportation industry. An announced $200 million hospital expansion, which would more than double patient capacity, should aid growth in the health care sector. Mexico energy and banking reforms may open up new opportunities for U.S. businesses, stimulating trade through McAllen. • Skill shortages continue to be an issue. It is hard to attract skilled workers—and young, educated people tend to leave the region to find higher-paying jobs elsewhere. A strong dollar will continue to negatively affect retail sales in the short to medium term. A population that is relatively poorer and less-educated than the Texas average may limit area growth. • • Notes The history of McAllen is taken from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hdm01. 2 Individual industry cluster shares add up to more than 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.) 3 Information about McAllen’s top employers is from the McAllen Economic Development Corp., www.mcallenedc.org/info/mcallen-top-employers.php. 4 See “Dollar-Sensitive Mexican Shoppers Boost Texas Border Retail Activity,” by Roberto Coronado and Keith R. Phillips, Southwest Economy, Fourth Quarter, 2012, www.dallasfed.org/assets/documents/research/swe/2012/ swe1204g.pdf. 5 Metropolitan statistical area (MSA) 2014 gross domestic product by industry is from the Bureau of Economic Analysis. 6 See Texas Comptroller gross sales and tax data at mycpa.cpa.state.tx.us/ allocation/HistSales.jsp. 7 See definition in NAICS 6111 (local government only), elementary and secondary schools. 1 Border crossing information is from the Bureau of Transportation Statistics. Data for McAllen are listed under Hidalgo, Texas, which is part of the McAllen–Edinburg–Mission MSA. See transborder.bts.gov/programs/international/transborder/TBDR_BC/TBDR_BCQ.html. 9 See definition of home health care workers in NAICS 6216. 10 See “Winter Texan 2013–2014 Survey,” Business and Tourism Research Center, University of Texas–Pan American, issuu.com/utpa/docs/winter_texan_2014. 11 See McAllen Economic Scan, 2013, mcallen.org/wp-content/uploads/2014/10/market_profile.pdf. 12 See La Plaza Mall’s expansion announcement, May 15, 2015, www. simon.com/mall/la-plaza-mall/stream/major-expansion-planned-for-la-plazamall-3373936. 13 See “McAllen Airport Unveils $26.5M Expansion,” by Kristen Mosbrucker, The Monitor, May 5, 2015, www.themonitor.com/premium/mcallenairport-unveils-m-expansion/article_78f14dda-f38e-11e4-89ec8b2d03de8b92.html. 14 Based on KRGV-TV’s State Highway 365 report, July 7, 2015. 15 See “Doctor’s Hospital Looks to Expand,” by Kristen Mosbrucker, Valley Morning Star, July 18, 2015, www.valleymorningstar.com/news/local_news/ article_0e675c9a-2dbb-11e5-90c0-03ec4e65216f.html. 8 Section 6: McAllen—Edinburg—Mission 45 At a Glance • Midland and Odessa began as railroad towns and together evolved into a cattle shipping center and regional financial hub. The Permian Basin oil boom shifted the economic focus to energy. • After years of decline following the 1980s oil bust, the shale boom spurred economic growth, dominated by the energy industry but supported by manufacturing and transportation. • Household income grew faster in Midland–Odessa than in any other Texas metro in this report between 2006 and 2014. • The oil price bust will likely bring hardship to the area, but new investments in aerospace and alternative energy could buoy growth in the future. Irving Midland El Paso Plano Fort Worth Dallas Odessa Round Rock Arlington The Woodlands Austin New Braunfels Houston San Antonio Lamesa Sugar Land Edinburg Andrews Mission Big Spring McAllen Stanton Odessa Kermit Midland Monahans Population (2014): 317,374 Population growth (2006–14): 26 percent Median household income (2014): $68,215 National MSA rank (2014): Midland, No. 254*; Odessa, No. 265* *The Midland–Odessa combined statistical area is composed of the Midland and Odessa metropolitan statistical areas (MSAs). The MSAs encompass Ector, Martin and Midland counties. Midland–Odessa: Riding the Oil Booms, Seeking Fewer Busts HISTORY: Heart of the Permian Basin booms and contracting with the busts. After years of decline that began with the 1980s oil bust, the Permian Basin and its economic center, Midland–Odessa, were regenerated by the recent shale oil boom. Midland and Odessa are sister cities about 20 miles apart and are jointly promoted as “Two Cities, No Limits.” Like many other Texas communities, Midland and Odessa began as stations along a railroad—halfway points between Dallas and El Paso along the Texas and Pacific Railway. Early on, the area relied primarily on ranching. Midland became a prominent cattle-shipping center for Texas as well as a regional financial hub by 1890.1 The beginnings of the oil boom in the Permian Basin arrived in the 1920s. Scores of investors and oilfield workers moved to the area, and by 1929, 36 oil companies had established offices in Midland. Demand for oil and petrochemicals rose during World War II, helping transform Odessa into the world’s largest inland petrochemical complex. From that point forward, the area’s economy was closely tied to the energy industry, rising with the oil INDUSTRY CLUSTERS: Energy-Driven Economy The composition of industry clusters in Midland– Odessa is shown in Chart 7.1. It is organized by location quotient (LQ), a measure of a cluster’s share of local employment relative to its share nationally, and the change in employment share between 2006 and 2014.2 Clusters in the “star” quadrant, such as mining and energy, have a large share of employment relative to the nation (an LQ far exceeding 1, in this case) and are fast growing. “Emerging” industries are relatively smaller than they are nationally (an LQ less than 1) but are fast Chart 7.1: It’s All About Energy in Midland–Odessa 7 Mature Mining and energy Star 6 Location quotient in 2014 5 4 3 Machinery manufacturing 2 Health services Government Retail Fabricated metal manufacturing Construction Transportation and logistics 1 Recreation and food services Transitioning Emerging 0 –10 –5 0 5 Percentage-point change in employment share, 2006–14 10 15 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 7: Midland—Odessa 47 growing. “Mature” sectors are more concentrated relative to the U.S. (an LQ exceeding 1) but are slower growing; “transitioning” clusters, such as government, are smaller relative to the nation and are slower growing. The Midland–Odessa economy is overwhelmingly energy driven. A third of the workforce is employed by companies in the energy sector, and that cluster has experienced rapid growth. More than twice as many people worked for energy companies in Midland–Odessa in 2014 than in 2006. Among the largest employers are Halliburton and Baker Hughes, oilfield services firms with a combined 3,000 employees in the two cities in 2014. A number of large and small energy production companies also have local offices.3 Midland–Odessa’s other important industries have grown in support of its outsized energy sector. Machinery and fabricated metal manufacturers such as Warren Equipment (with almost 600 workers in Midland) primarily make oilfield equipment. The construction industry is also particularly concentrated. The shale-led boom created demand for many large projects, includ- ing new office buildings, and single-family and multifamily residences. The transportation and logistics cluster employs only 4 percent of the workforce but is the fastest-growing industry cluster in Midland–Odessa, its size nearly tripling since 2006 (Chart 7.2). Growth has been focused in truck transportation and pipeline transportation serving the oil and gas production industry. Additionally, the region remains an important midway point between El Paso and Dallas. Driven by high-paying energy jobs, inflation-adjusted annual wages have grown significantly since 2006 (Table 7.1). The average worker in Midland–Odessa made one-third more in 2014 than in 2006 in real terms. Wages in industries with an LQ greater than 1 have driven the average up significantly; in 2014, workers in the most concentrated industries (star and mature clusters) made $85,000 annually on average, compared with $45,000 in less-concentrated industries. However, wage growth hasn’t been limited to more-concentrated sectors. Even in industries with LQs of less than 1, wages grew 23 percent between 2006 and 2014. Chart 7.2: Employment Growth in Midland–Odessa Driven by Shale Boom Transportation & logistics Mining & energy Chemicals Fabricated metal mfg Defense & security Machinery mfg Education Construction Textiles Advanced materials Utilities Recreation & food services Business & financial svcs Glass & ceramics Retail Information technology & telecom Health svcs Transportation equipment mfg Electrical equipment mfg Agribusiness Government Wood products Publishing & information Computer mfg Biomedical 18 –30 –40 57 71 9 7 6 5 5 4 –11 –13 –17 –20 38 36 35 34 45 45 52 50 66 65 0 20 40 60 80 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 48 Federal Reserve Bank of Dallas 147 115 100 120 140 160 Table 7.1: Annual Earnings in Midland–Odessa Rise Steeply with Shale Oil Boom Cluster Midland–Odessa U.S. 2006 2008 2010 2012 2014 2014 Mining and energy 76,627 83,014 84,235 87,067 93,264 76,815 Machinery manufacturing 67,181 67,898 68,230 70,535 79,774 66,715 Fabricated metal manufacturing 60,727 63,672 62,020 67,078 75,532 53,130 Construction 46,164 57,425 53,865 61,984 65,885 55,041 Chemicals 62,128 72,216 70,884 80,021 76,743 69,856 Transportation and logistics 55,157 57,141 57,814 64,002 67,772 51,043 Clusters with location quotient >1 67,634 74,933 74,929 79,463 85,441 – Clusters with location quotient <1 36,857 39,231 40,370 43,391 45,478 – Average earnings (total) 46,986 52,002 52,202 58,341 63,532 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. DEMOGRAPHICS: Income Rises, Poverty Declines Employment and wage gains attributable to the shale boom have translated into explosive growth in household income in Midland–Odessa. Between 2006 and 2014, nominal median household income grew 59 percent, more than in any other Texas metro area (Chart 7.3). Median household income was $68,215 in 2014—more than $15,000 above the Texas median and the highest among the metros in this report. Midland– Odessa also has the lowest poverty rate among all the metros in the group, 8.9 percent. Despite relative economic success, Midland–Odessa trails the state in educational attainment. About 80 percent of residents age 25 or older are high school graduates—2 percentage points below the state average. Midland–Odessa also has the third-lowest share of population with a bachelor’s degree or higher, 21.4 percent, ahead of only McAllen and El Paso and more than 6 percentage points lower than the Texas average of 27.8 percent. This is likely because many oilfield jobs do not require a college education. Midland–Odessa’s population is predominantly Hispanic (50 percent) and white (42 percent). The area’s importance as the heart of the Permian Basin has boosted domestic migration. From 2010 to 2014, domestic migration accounted for nearly 62 percent of the area’s population increase. While just 1 percent of the Texas population lives in Midland–Odessa, 4 percent of all domestic migrants to Texas moved to Midland or Odessa from 2010 to 2014.4 EMPLOYMENT: A Tale of Boom and Bust Before the shale oil boom, Midland–Odessa was hit hard by the Great Recession, losing more jobs as a share of total employment than any other Texas metro. Between October 2008 and August 2009, employment fell nearly 10 percent. The area’s economy has long been tied to oil prices, and the nearly 77 percent decline in the price of West Texas Intermediate (WTI) crude that accompanied the Great Recession severely affected employment—even more profoundly than in Houston, with its more diverse industry mix. However, Midland– Odessa, like Houston, benefited from the tailwind of the shale boom following the Great Recession. Employment climbed back to prerecession levels by March 2011 and grew at a far faster pace than in other major Texas metros—42 percent between December 2009 and December 2014, or 7.2 percent per year, and 1.8 times faster than in postrecession Austin (4 percent per year over the same period). After every oil boom comes an oil bust. With WTI prices in November 2015 at 62 percent below their 2014 peak, Midland–Odessa lost 3,800 jobs in the first 11 months of 2015, a 2.3 percent annualized rate of decline.5 Of the two cities, low oil prices have hit Odessa the hardest. The unemployment rate has increased Section 7: Midland—Odessa 49 Chart 7.3: Household Income Grows Explosively in Midland–Odessa Percent 70 $68,215 60 50 40 30 $40,133 20 $63,603 $60,072 $34,801 $52,689 $53,035 San Antonio Texas $60,231 $58,132 10 0 Austin Dallas El Paso Fort Worth Houston McAllen Midland– Odessa NOTES: Chart shows nominal median household income growth from 2006 to 2014. Median income figures are from 2014. SOURCES: 2006 and 2014 American Community Surveys. faster in Odessa than Midland. Despite Odessa’s smaller workforce, it accounts for 50 percent of jobs lost in the area since December 2014. OUTLOOK: New Industry Holds Promise The oil price collapse poses a major challenge for Midland–Odessa’s economy, with the energy industry accounting for a third of the area’s employment and nearly half of total wages earned in 2014. Overall employment has already begun to decline, and a new push in the energy industry to cut costs may diminish wage growth. The shale boom drove up demand for housing and commercial development; the bust will impact construction and real estate along with manufacturing and transportation. Despite the seeming pervasiveness of commodity market weakness, the downturn is unlikely to be permanent. The Permian Basin has a long history of ups and downs—drilling and extraction have occurred for more than 90 years—and the industry will eventually recover 50 Federal Reserve Bank of Dallas as prices rebound. Area reserves could likely sustain drilling for another half-century or more.6 The area also has the potential to produce alternative energy sources, such as wind power. The Permian Basin is home to 11 wind farms, with more such projects planned.7 Midland is also attempting to diversify its economic base. The Federal Aviation Administration has granted the Midland International Air and Space Port a commercial space launch site license, making it the first commercial airport in the U.S. designated as a spaceport.8 Aerospace research and development firm XCOR Aerospace and aerospace equipment manufacturer Orbital Outfitters have indicated interest in the area, and plans for a spaceport business park could potentially draw additional related firms, building a new industry that could bring future employment and economic growth. Midland—Odessa Growth Outlook Drivers • • • • Challenges A commercial spaceport may draw aerospace research and development and high-tech manufacturing companies to the area. A long history of drilling in the Permian Basin suggests that the industry will eventually recover along with prices and that production will grow again. Investments in alternative energy could help damp the impact of future oil price busts. Transportation and distribution industries will continue to grow as Midland–Odessa remains an important midway point between Dallas and El Paso. • Low oil prices threaten to slow or reverse growth in energy and related manufacturing and services industries. The energy-related job base will contract as rig counts decline. Industry cost cutting may halt wage growth. A recent real estate boom driven by energy industry expansion may turn to bust and result in increased vacancies in singlefamily, multifamily and commercial properties. • • • Notes The histories of Midland and Odessa are adapted from the Texas State Historical Association online at tshaonline.org/handbook/online/articles/ hdm03 and tshaonline.org/handbook/online/articles/hdo01. 2 The percentage shares of each cluster add up to more than 100 because some industries are counted in multiple clusters and some industries are not counted at all based on cluster definitions. (See the Appendix for more information.) 3 Detail regarding Midland and Odessa’s top employers was compiled from several local websites: www.midlandtexas.gov/ArchiveCenter/ViewFile/ Item/182, odessatex.com/major-employers and www.midlandtxchamber. com/allcategories. 4 The estimates are based on the 2010 census and reflect changes to the April 1, 2010, population due to the Count Question Resolution program and geographic program revisions. 1 Data are from the Texas Workforce Commission and have been seasonally adjusted by the Federal Reserve Bank of Dallas. 6 Data are from the Odessa Chamber of Commerce presentation on Odessa economic development, May 2014, odessatex.com. 7 The city of Midland partnered with Texas Tech University to invest in the National Institute for Renewable Energy, which will research issues for the wind-power industry. 8 The Midland commercial spaceport development detail is from the Midland Development Corp. website, midlandtxedc.com/commercialspaceport-development. 5 Section 7: Midland—Odessa 51 Fredericksburg Kerrville New Braunfels Boerne Bandera Population (2014): San Antonio 2.3 million Population growth (2006–14): Uvalde 19.4 percent Schertz Hondo Seguin Floresville Median household income: (2014): $52,689 Jourdanton National MSA rank (2014): No. 25* Kauffman Startup Index rank (2015): No. 10* At a Glance • San Antonio has a rich heritage and history. It was the largest city in Texas from 1860 to 1930, when it fell behind Houston and Dallas. It has remained Texas’ third-largest city. • Both per capita and median income in San Antonio are lower than in the other four large Texas metros. They are also below state and U.S. figures. • Depressed energy prices have slowed exploration in the nearby Eagle Ford Shale formation while providing support to San Antonio’s transportation manufacturing and tourism sectors. • The area’s diversified economy—due to its three large military bases, numerous business and financial services firms, tourism industry and medical-research complex—will continue to provide economic stability. Irving Midland Plano Fort Worth Dallas El Paso Odessa Round Rock Arlington Austin The Woodlands New Braunfels Houston San Antonio Sugar Land Edinburg Mission McAllen *The San Antonio–New Braunfels metropolitan statistical area (MSA) encompasses Atascosa, Bandera, Bexar, Comal, Guadalupe, Kendall, Medina and Wilson counties. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix. San Antonio–New Braunfels: Home of the Alamo and Cradle of Texas Liberty HISTORY: A Military Service and Health Research Center Emerges Spanish expeditions explored the area of present-day San Antonio in 1691 and 1709. A town grew out of the San Antonio de Béxar Presidio, which was built to defend the San Antonio mission, and the San Fernando de Béxar, which was the first chartered civil settlement in Texas. In 1773, San Antonio de Béxar became the capital of Tejas, Spanish Texas. It was the site of several battles during the Texas Revolution from October 1835 to April 1836, most notably the 13-day siege of the Alamo. Bexar County was established by the Republic of Texas following the departure of Mexican troops, and San Antonio became its seat in 1837. In 1860, San Antonio surpassed Galveston to become the largest city in Texas and, following the Civil War, it thrived as a center for the cattle industry. The 1877 arrival of San Antonio’s first railroad—the Galveston, Harrisburg and San Antonio Railway—fueled the city’s economic growth and spurred additional railroad connections to other parts of the country by 1900.1 However, San Antonio’s population fell behind that of Houston and Dallas by 1930, and San Antonio has remained the third-largest urban area in Texas since then. The First United States Volunteer Cavalry—later known as the Rough Riders—was organized in San Antonio during the Spanish–American War. In World Wars I and II, San Antonio served as an important military center for the Army and Air Force. Today, three large military installations—Fort Sam Houston and Lackland and Randolph Air Force bases—provide stable employment for many of the area’s residents. A 418-bed military hospital began operations in 1938 and expanded during World War II. In 1946, with Chart 8.1: San Antonio’s Industrial Composition Is Diverse 1.6 1.4 Mature Star Biomedical Government Recreation and food services Business and financial services Defense and security 1.2 Location quotient in 2014 Transportation equipment manufacturing 1 Retail 0.8 Health services Education Construction Information technology and telecommunications 0.6 Advanced materials 0.4 0.2 Transitioning Emerging 0 –1.5 –1 –0.5 0 0.5 1 1.5 2 Percentage-point change in employment share, 2006–14 NOTE: Bubble size represents cluster share of metropolitan statistical area employment. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Section 8: San Antonio—New Braunfels 53 than nationally and, hence, have LQs below 1. “Emerging” clusters, such as education, are fast growing; those growing slowly are “transitioning.” The relatively larger LQs of recreation and food services, defense and security, and government reflect their outsized role in the San Antonio area. Government is the largest cluster on the strength of the region’s three large military installations, which together employ more than 80,000 residents.3 The military bases support employment in the defense and security and health clusters. The health and biomedical sectors also have a strong foothold in the area, with a combination of private and government operations. Employment in private health-related institutions accounts for about 10 percent of San Antonio’s workforce, higher than in other major Texas metros, including Houston, and its share grew in the 2006–14 period. Medical research facilities in San Antonio include the Brooke Army Medical Center’s San Antonio Military Medical Center—the nation’s largest military hospital—and Wilford Hall Ambulatory Surgical Center at Lackland Air Force Base, the University of Texas Health Science Center at San Antonio, the Texas Biomedical Research Institute and the 1,200-acre Texas Research Park. Fort Sam Houston chosen as site of the U.S. Army Medical Field Service School, the hospital was renamed Brooke Army Medical Center. It marked the beginning of the area’s ties to medical research. INDUSTRY CLUSTERS: Military, Health and Tourism Dominate Location quotients (LQs), which compare the relative concentration of various industry clusters locally and nationally, can be used to assess key drivers in an economy. An LQ exceeding 1 indicates that a specific industry cluster is more dominant locally than nationally. Industry cluster growth is measured by the percentage-point change in its share of local employment between 2006 and 2014 (Chart 8.1).2 Clusters in the top half of the chart, such as recreation and food services, defense and security, and government have a larger share of employment relative to the nation and, thus, an LQ exceeding 1. These clusters are generally vital to the area’s economy and can be expanding rapidly (“star”) or growing slowly (“mature”). Those in the bottom half, such as information technology and telecommunications, are less dominant locally Chart 8.2: Electrical and Transportation Manufacturing Jobs Fastest Growing in San Antonio Electrical equipment mfg Transportation equipment mfg Education Utilities Computer mfg Machinery mfg Health svcs Recreation & food svcs Business & financial svcs Mining & energy Information technology & telecom Retail Transportation & logistics Government Defense & security Glass & ceramics Chemicals Agribusiness Construction Advanced materials Primary metal mfg Fabricated metal mfg Biomedical Publishing & information Wood products Textiles –55 –80 –60 –33 –40 –24 –14 –16 –20 3 3 1 –5 –6 –6 0 13 13 10 8 7 36 34 33 29 26 22 19 20 40 Percent change in employment, 2006–14 SOURCES: Texas Workforce Commission; authors’ calculations. 54 Federal Reserve Bank of Dallas 99 47 45 60 80 100 120 Table 8.1: Pay in San Antonio’s Dominant Clusters Lags U.S. Cluster San Antonio U.S. 2006 2008 2010 2012 2014 2014 Biomedical 65,526 71,371 70,047 65,948 70,291 91,463 Defense and security 52,859 43,852 45,621 56,526 57,278 59,588 Recreation and food services 22,266 21,193 21,609 21,002 21,501 23,870 Government 46,459 48,473 51,600 50,647 51,786 51,726 Construction 46,438 46,614 47,506 49,066 50,854 55,041 Health services 46,058 46,192 48,098 47,314 47,027 56,055 Transportation equipment manufacturing 59,817 51,767 56,579 56,573 60,535 71,570 Business and financial services 68,651 67,033 71,303 74,267 73,708 92,957 Retail 30,128 28,570 29,254 29,824 30,065 28,743 Clusters with location quotient >1 42,816 42,364 44,407 44,645 45,017 – Clusters with location quotient <1 57,006 55,462 55,814 57,433 58,132 – Average earnings (total) 43,172 42,850 44,176 44,288 44,868 51,361 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars. SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations. Electrical equipment manufacturing—which includes household appliance, electrical lighting equipment and electrical component manufacturers—was the fastest-growing cluster from 2006 to 2014 as employment increased 99 percent (Chart 8.2). Transportation equipment manufacturing grew 47 percent during the period, thanks to a Toyota USA plant that began operations in 2006. It produces the Toyota Tundra, a full-size pickup, and added the Tacoma truck in 2010. Toyota employs 2,900 workers in its facility and relies on a host of area suppliers. Tourism is one of the area’s most important industries—local attractions draw millions of visitors annually —and, along with the travel industry, generated $13.4 billion in economic impact in 2013.4 San Antonio is also a top U.S. convention city. Employment in recreation and food services, the second-largest cluster, expanded 26 percent (26,100 jobs) from 2006 to 2014. San Antonio is home to two of the region’s premier theme parks— SeaWorld, the largest of three such parks in the U.S., and Fiesta Texas, a 200-acre amusement park. Other notable attractions include the River Walk and the Alamo. Business and financial services, the metro’s fifth-largest cluster, accounts for 9 percent of the local workforce—roughly equivalent to its national presence. San Antonio is headquarters of Cullen/Frost Bankers Inc. and USAA (United Services Automobile Association), a Fortune 500 financial services group. Employment in the business and financial services cluster expanded 22 percent from 2006 to 2014. On average, clusters with a greater employment concentration in San Antonio than in the U.S. paid less, about $45,000 annually, than those with a relatively smaller presence, $58,100 (Table 8.1). The average wage is lower because San Antonio’s dominant clusters are in industries that typically command less pay. These include recreation and food services at $21,500 annually and retail at $31,000. Still, some locally concentrated clusters—biomedical and business and financial services—are among the highest paying at $70,300 and $73,700 annually, respectively. A low-pay environment in the health industry is unusual; doctors, nurses and other health care workers are mostly well-educated and command high wages. However, in San Antonio’s health cluster, 24,000 people work in home health care services.5 Many are unlicensed, nonmedical caregivers, and the average salary for these jobs—$19,600 in 2014—is significantly lower than for others in the sector. With home health workers removed, the rest of the health cluster averaged approximately $56,800 in 2014, on par with the U.S. at $56,100. Section 8: San Antonio—New Braunfels 55 Chart 8.3: San Antonio’s Senior Population Share Is Highest Among Large Texas Cities Percent 14 12.0 12 10 11.3 9.5 11.0 9.9 9.9 10.4 9.6 8 6 4 2 0 Austin Dallas El Paso Fort Worth Houston McAllen Midland–Odessa San Antonio NOTE: Data reflect share of population over 64 years old. SOURCE: 2014 American Community Survey. DEMOGRAPHICS: More Seniors, Low Incomes San Antonio has the largest share of seniors among metros in this report at 12 percent (Chart 8.3). Still, the median age is 34.4 years, in line with the Texas median of 34.3. The area’s age distribution reflects the significant military presence and a tendency for many armed forces personnel to retire in the area after completing their service. The population is predominantly Hispanic, 55 percent—the highest share among the five large Texas metros and well above the Texas share of 38.6 percent.6 Despite the higher proportion of Hispanics, the metro area has the lowest foreign-born population among the metros in this report at 12 percent. This compares with the foreign-born share of 16.8 percent in Texas and 13.3 percent in the U.S. San Antonio trails the state in educational outcomes. Twenty-six percent of the population age 25 and over holds a bachelor’s degree or higher, compared with the Texas average of 28 percent. The metro’s less-educated populace relative to other large Texas metros, combined with its high concentration of low-paying service jobs in sectors such as recreation and retail, has restrained per 56 Federal Reserve Bank of Dallas capita and median incomes. San Antonio trails other large Texas metros as well as state and national averages in both measures of income. EMPLOYMENT: Steady As She Goes Its large government presence (an LQ of 1.1), along with somewhat less-dominant business and financial services and manufacturing sectors, likely helped San Antonio weather the Great Recession better than other major Texas metros. San Antonio lost 2.6 percent of its jobs between the prerecession peak in August 2008 and the recession trough in September 2009, while Texas lost 4.1 percent of its jobs. The Alamo City regained prerecession levels of employment faster than any of the major metros except Austin. Despite its proximity to the Eagle Ford Shale formation—a prolific source of energy deposits—San Antonio did not experience much of a boost in job growth from the shale boom. Employment at year-end 2014 was 11.7 percent above its 2008 high, just a tad higher than Texas’ overall increase of 10.4 percent from its 2008 peak. Thanks in part to San Antonio’s relatively limited dependence on the slumping mining and energy sector— the cluster accounts for 5.6 percent of its workforce—the metro’s annualized job growth in the first 11 months of 2015 was vigorous at 3.6 percent, compared with the state rate of 1.3 percent. Unemployment at year-end 2014 fell below 4 percent, where it remained through 2015.7 ranked ninth in 2012 among metro areas with the largest concentrations of government and military workers.9 Depressed oil prices have hurt drilling in the nearby Eagle Ford, where in November 2015 the total rig count was 68 percent below prior-year levels. However, relatively low fuel prices have been beneficial for oil refiners such as San Antonio-based Valero Energy Corp. and for the sale of large vehicles such as the trucks Toyota’s San Antonio plant builds. Low fuel prices have also given consumers greater disposable income, boosting tourism and supporting growth in the recreation and food services cluster and the 13.8 percent of the workforce it represents. The metro’s proximity to several state-of-the art military medical facilities, as well as large private research and health institutes, should continue to propel health sector growth and enable San Antonio to meet the needs of South Texas, including the Rio Grande Valley. OUTLOOK: Employment Stability Lifts Economy San Antonio’s industry profile is as unique as its history, with a concentration in biomedical, defense and security, government, health, and recreation and food services. In the near term, those industries’ performance will set the course for the area’s economy. San Antonio’s dependence on military and government jobs—government accounted for nearly 17 percent of the area’s 2014 output—provides stability, though federal budget constraints will likely limit growth.8 San Antonio San Antonio—New Braunfels Growth Outlook Drivers • • • Challenges The government cluster continues to provide stability as the region’s population expands and the low unemployment rate attracts new residents. Low energy prices will aid transportation equipment manufacturing and tourism growth. Biomedical and health services should support job growth in the area. • Weakness in energy prices has dampened growth in the nearby Eagle Ford Shale formation, which may adversely impact the area’s economy. A relatively short supply of skilled workers may constrain growth in high-paying sectors and limit the area’s ability to attract firms and investment. The three large military installations and the defense and security cluster are vulnerable to federal budget cuts in the future. • • Notes The history of San Antonio is taken from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hds02, and from the Brooke Army Medical Center website, www.bamc.amedd.army.mil/ history.asp. 2 Individual industry cluster shares add up to more than 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. 3 Data on the largest employers in San Antonio were obtained from the San Antonio Economic Development Foundation, www.sanantonioedf.com/ business-profile/major-employers. 1 See “The Economic Impact of San Antonio’s Hospitality Industry,” www.sanantoniotourism.com/downloads/research/TourismReport.pdf. 5 See definition of home health care workers in NAICS 6216. 6 Texas’ major metros are Austin, Dallas, Fort Worth, Houston and San Antonio. 7 Employment data are from the Texas Workforce Commission and are seasonally adjusted by the Federal Reserve Bank of Dallas. 8 Output data are from the Bureau of Economic Analysis. 9 See “Relying on a Federal Paycheck During the Shutdown,” Washington Post, March 7, 2013 (updated Oct. 1, 2013), www.washingtonpost.com/ wp-srv/special/business/diversify-economy. 4 Section 8: San Antonio—New Braunfels 57 Appendix A.1. Methodology This report uses industry cluster definitions developed by the StatsAmerica Innovation Project, funded by the U.S. Commerce Department’s Economic Development Administration and assembled by the Purdue Center for Regional Development and the Indiana Business Research Center.1 The original 17 clusters and six manufacturing subclusters provide a comprehensive view of the interconnected upstream and downstream industries.2 While clusters based on this definition are defined by their North American Industrial Classification System identifier (or NAICS code), they do not necessarily correspond to a specific broad NAICS sector. Rather, the clusters are made up of interrelated subsectors or industries (from the three-digit level down to the six-digit level) that are part of different NAICS supersectors (two-digit level). In some instances, individual NAICS industries may be found in multiple clusters, and not all existing industries are included in a cluster. The StatsAmerica analysis focuses only on “traded” clusters, or industries that are export oriented; thus, some large and important industries were omitted. We altered some of the cluster definitions to create a more complete view of the industry mix in Texas metro areas.3 We included the Retail, Construction and Utilities NAICS supersectors and added a Government sector that includes federal, state and local government workers. We took hospitals and health and personal care stores out of the Biomedical StatsAmerica cluster and created a separate Health cluster that includes personal care stores, hospitals and ambulatory health care services. We combined the StatsAmerica Mining and Energy clusters, and aggregated all of the mining and support activities subsectors up to the three-digit level. We modified StatsAmerica’s Education and Knowledge Creation cluster to include only educational services. We also added food services back into Arts, Entertainment and Recreation (called Recreation and Food Services) by including all the Accommodation and Food Services supersector. Additionally, to look at the manufacturing sector in more detail, we broke up the Manufacturing grouping into its six subcluster components as defined by StatsAmerica. For purposes of our cities analysis, we used Census Bureau definitions of metropolitan statistical areas 58 Federal Reserve Bank of Dallas (MSAs) for Austin, Houston, San Antonio, El Paso and McAllen. For Dallas and Fort Worth, we used the Census Bureau’s definitions of metropolitan divisions. For Midland–Odessa, we combined the two MSAs into one. (See A.3 for the list of counties included in each metro.) We used data from the Quarterly Census of Employment and Wages, which contains employment, wage and firm information by industry down to the six-digit NAICS level. Data for each metro and for Texas overall were retrieved from the Texas Workforce Commission (TWC), while data for the U.S. came from the Bureau of Labor Statistics (BLS). TWC and BLS data may be suppressed at some levels of detail when the number of firms does not reach a certain threshold and the confidentiality of individual firms may be at risk. Data from the TWC are suppressed to a lesser degree than those from the BLS. TWC data are only available quarterly, so annual employment data were calculated by taking the average of quarterly employment, and annual total wages were calculated by summing quarterly wages. Thus, some discrepancies may exist in the wage data because some industries may be unsuppressed in one quarter and suppressed in another, leaving annual wage data incomplete. Additionally, because of suppression issues, employment in some industries with fewer firms is potentially understated. The detailed employment and wage data were aggregated into clusters based on the StatsAmerica cluster definitions, using NAICS codes to match the raw data with the cluster definitions. For each cluster, the component industry annual employment and wage data were summed, and excluded industries were subtracted. Average wage data for each cluster were calculated by taking total wages for the aggregated cluster and dividing by total employment in the cluster. Location quotients (LQs) were calculated by taking cluster employment in each metro divided by total metro employment, over cluster employment in the U.S. divided by total U.S. employment.4 An LQ greater than 1, therefore, means that the cluster’s share of total employment in the metro is greater than its share of total U.S. employment, indicating that the cluster is more concentrated in the metro than in the U.S. overall. Demographic data are from the Census Bureau’s American Community Survey. The most recent available data are from 2014; we compared those with data from the 2006 survey. In both years, only one-year estimates were used for analysis. The Kauffman Startup Activity Index measures business creation in the 40 largest metropolitan areas in the U.S. The index is based on three indicators: the rate of new entrepreneurs starting businesses, the percentage of new entrepreneurs not unemployed before starting a business and the number of startup firms per 100,000 residents. A.2. Changes to StatsAmerica Cluster Definitions • Split Manufacturing grouping into individual subcluster components. • Changed Education and Knowledge Creation to include just Educational Services (NAICS 61). Removed NAICS 51111 (Newspaper Publishers), NAICS 51112 (Periodical Publishers), NAICS 51113 (Book Publishers) and NAICS 516 (Internet Publishing and Broadcasting, which are already counted in Printing and Publishing). Moved NAICS 519 (Other Information Services) to Printing and Publishing cluster. • Removed NAICS 51911 and NAICS 51919 from Printing and Publishing to avoid double counting. • Combined the Mining and Energy clusters. • Aggregated all subsectors in NAICS 212 and 213. • Removed NAICS 621 and NAICS 446 from Biomedical cluster and created a Health sector that includes NAICS 621, NAICS 622 and NAICS 446, with no exclusions. NAICS 623 was not included. • Added Retail (NAICS 44–45), Construction (NAICS 23) and Utilities supersectors (NAICS 22). • Added a Government sector, which includes total federal, state and local government workers. • Aggregated the individual NAICS subsectors 7211 and 7212 up to the NAICS 72 sector level in the Recreation cluster. All other industries in the original Stats America cluster Arts, Entertainment, Recreation and Visitor Industries were included as is. A.3. Metropolitan Statistical Area (MSA) County Definitions5 Fort Worth–Arlington Metropolitan Division: Hood, Johnson, Parker, Somervell, Tarrant, Wise Houston–The Woodlands–Sugar Land MSA: Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, Waller McAllen–Edinburg–Mission MSA: Hidalgo Midland–Odessa Combined Statistical Area: Ector, Martin, Midland San Antonio–New Braunfels MSA: Atascosa, Bandera, Bexar, Comal, Guadalupe, Kendall, Medina, Wilson A.4. Location Quotient and Average Wage Equations 1. Cluster location quotient = ∑� ∑ �� ∑� ∑ �� , where 𝑒�=metro’s cluster employment, 𝑒=metro’s total employment, ��=U.S. cluster employment and �=U.S. total employment. ∑ 2. Cluster average wage = ∑ �� , � � where 𝑥�=total wages paid in each cluster and 𝑒�=employees in each cluster. A.5. Additional Data Detailed cluster location quotient, employment, wage and demographic data are available at www.dallasfed.org/research/heart. Notes As used by Diane F. Primont and Bruce Domazlicky in “Industry Cluster Analysis for the Southeast Missouri Region,” Center for Economic and Business Research, September 2008. 2 Detailed cluster definitions can be found on the StatsAmerica website, www.statsamerica.org/innovation/about.html. 3 See A.3 for the full list of metro areas and their definitions. 4 See A.4 for the full equations. 5 See Office of Management and Budget Bulletin 13-01, Feb. 28, 2013, www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. 1 Austin–Round Rock MSA: Bastrop, Caldwell, Hays, Travis, Williamson Dallas–Plano–Irving Metropolitan Division: Collin, Dallas, Denton, Ellis, Hunt, Kaufman, Rockwall El Paso MSA: El Paso, Hudspeth Appendix 59