Wednesday, Jul. 09, 2008

Despite appearances to the contrary, economy is growing

The headlines are full of bad economic news ranging from high gasoline and food prices to housing market woes. Pundits debate the best way to fix problems and deal with uncertainty. You might think we are in for a deep, dark recession. However, the U.S. economy is actually growing, albeit at a pace a bit anemic when compared to years past. The future is not nearly as bleak as some prognosticators suggest and, if you consider expectations for the long term, the picture is one of continued health with moderate prosperity.

I have just finished my annual long-term economic outlook for the United States, Texas, and the state’s major metropolitan areas and regions. It covers projections for the years from 2007 to 2030 with particular focus on vital economic generators as well as industrial sectors. By virtually every measure, the Lone Star State is forecast to achieve compound annual growth rates (CAGR) that exceed those of the U.S.

With regard to real gross product (RGP), commonly referred to as output or the final value of all goods and services produced in an economy during a given period of time, the U.S. is likely to experience a per annum growth rate of 3.27 percent for the long term. Texas RGP is anticipated to expand at a 3.77 percent annual pace. This expectation follows the general historic pattern that has seen the Texas economy growing faster than the nation as a whole.

More than half of the RGP growth projected for Texas will likely be generated by services—22.84 percent; finance, insurance, and real estate (FIRE) – 16.53 percent; and trade – 13.65 percent. These industrial sectors are predicted to contribute $674.51 billion of the expansion in the Texas economy through 2030. Other leading sectors anticipated to achieve significant expansion over the long term include durable manufacturing; transportation, warehousing, and utilities (TWU); information; and nondurable manufacturing.

In 2030, the population of Texas is forecast to be approximately 36.3 million, an increase of nearly 13 million people from 2007 (a 1.82 percent yearly growth rate). During this same period, the U.S. will likely see an additional 68.5 million residents, which represents 0.89 percent annual expansion.

The U.S. employment growth rate from 2007 to 2030 is expected to be 1.19 percent per annum. The Texas employment CAGR for these years is forecast to be 1.52 percent and will be noted by the 4.5 million new workers across the state, more than half of which will be in the services sector. The government and trade industries combined should account for an additional 1.2 million workers over the 23-year period.

The industrial sector predicted to experience the fastest growth in wage and salary employment in Texas during the long term is services, with a 2.03 percent CAGR. The yearly growth rates for the other sectors are projected to range from 0.45 percent (mining) to 1.52 percent (achieved by both FIRE and TWU).

Real personal income (RPI), which is the total income accruing to households, is expected to expand in Texas at 4.39 percent annually over the 2007-2030 horizon, while the U.S. should see 3.51 percent per year gains. The Texas RPI (in 2000$ and by place of residence) is anticipated to grow from $745.11 billion in 2007 to more than $2 trillion by 2030.

The total volume of retail goods sold in Texas is anticipated to surpass $2.06 trillion in 2030, a significant increase from the $435.62 billion in 2007 and representative of a 7 percent per annum growth rate (which includes some component of inflation).

Of course, in making long-term economic projections, it is recognized that numerous salient factors can affect the ultimate outcomes. Depending on patterns in these underlying forces, the forecast for the long term could undergo some changes. Included in these key issues are high energy costs, health care affordability concerns, and the ongoing housing market difficulties. We have no idea where technology will take us during this time, but we know it will be an interesting ride.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group ( www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.