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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

Section 1: Austin—Round Rock

Section 2: Dallas—Plano—Irving

Section 3: El Paso

Section 4: Fort Worth—Arlington

Section 5: Houston—The Woodlands—Sugar Land

Section 6: McAllen—Edinburg—Mission

Section 7: Midland—Odessa

Section 8: San Antonio—New Braunfels

Appendix

At the Heart of Texas:

Cities’ Industry Clusters Drive Growth

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

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

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

0.5

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.

Federal Reserve Bank of Dallas

1.5

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

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

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

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.

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

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

Defense and security
Information technology
and telecommunications

3
Recreation and
food services
Mining and
energy

Government

Business and
financial services
Biomedical

Publishing and
information

Advanced
materials

Transitioning

Retail

Construction

Education

Emerging

Health services

0
–4

–3

–2

–1

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

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

Percent change in employment, 2006–14
SOURCES: Texas Workforce Commission; authors’ calculations.

Federal Reserve Bank of Dallas

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

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

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

Chart 1.3: Austin Has the Most Highly Educated Population Among Texas Metros
Percent
45

Bachelor’s degree or higher

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

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

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

Location quotient in 2014

2.5
Computer manufacturing

Business and
financial services

Construction

1.5

Information technology
and telecommunications

Transportation and
logistics

Health services
Recreation and
food services

Advanced
materials
Mining and
energy

0.5

Education
Government

Transitioning

Emerging

0
–2

–1.5

–1

–0.5

0.5

1.5

2.5

Section 2: Dallas—Plano—Irving

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

Percent change in employment, 2006–14
SOURCES: Texas Workforce Commission; authors’ calculations.

Federal Reserve Bank of Dallas

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

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

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.

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

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

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

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

0.5

1.5

2.5

Section 3: El Paso

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

–61

–54
–56

–41
–45
–46

–60

–40

–31

–24

–17

–20

–4
–7
–8
–9
–9

4
3

19
18
14
13
10
9

Percent change in employment, 2006–14

SOURCES: Texas Workforce Commission; authors’ calculations.

Federal Reserve Bank of Dallas

Table 3.1: Low-Paying Sectors Depress Annual Average Earnings in El Paso
Cluster

El Paso

U.S.

2006

2008

2010

2012

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

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

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

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

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

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

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

8
7
7
7

Percent change in employment, 2006–14
SOURCES: Texas Workforce Commission; authors’ calculations.

Federal Reserve Bank of Dallas

18
18
17

Table 4.1: Transportation and Defense Sectors Pace Earnings
Cluster

Fort Worth

U.S.

2006

2008

2010

2012

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

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

Chart 4.3: Share of College Graduates Lower in Fort Worth Relative to Dallas
Percent
40
Dallas
34.5

Fort Worth

31.6

27.6

28.4

25.1

25
21.8
20
16.1
15

14.9

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.

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

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

0.5

1.5

Section 5: Houston—The Woodlands—Sugar Land

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

36
36

27
25

–4
–5

–30

–10
–11

–22

–31

9
8
8

19
18
16

–20

–10

Percent change in employment, 2006–14

SOURCES: Texas Workforce Commission; authors’ calculations.

54
53

Federal Reserve Bank of Dallas

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

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

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

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

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

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

0.5

1.5

Section 6: McAllen—Edinburg—Mission

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

–6
–8
–9

12
10

39
37
30
25
24
23
23
20
19

–84

–100

–50

100

Percent change in employment, 2006–14
SOURCES: Texas Workforce Commission; authors’ calculations.

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

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

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

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

32
31.6

29.2

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.

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

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

Location quotient in 2014

Machinery
manufacturing

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

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

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

–30

–40

9
7
6
5
5
4

–11
–13
–17
–20

38
36
35
34

45
45

52
50

66
65

Percent change in employment, 2006–14

SOURCES: Texas Workforce Commission; authors’ calculations.

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

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

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

Chart 7.3: Household Income Grows Explosively in Midland–Odessa
Percent
70

$68,215

30
$40,133
20

$63,603

$60,072

$34,801
$52,689

$53,035

San Antonio

Texas

$60,231
$58,132

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

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

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

0.5

1.5

Section 8: San Antonio—New Braunfels

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

13
13
10
8
7

36
34
33
29
26
22
19

Percent change in employment, 2006–14

SOURCES: Texas Workforce Commission; authors’ calculations.

Federal Reserve Bank of Dallas

47
45

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

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

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

Chart 8.3: San Antonio’s Senior Population Share Is Highest Among Large Texas Cities
Percent
14
12.0

11.3

9.5

11.0

9.9

10.4
9.6

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

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

Full text of At the Heart of Texas : Cities' Industry Clusters Drive Growth (2016)

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