Facts Matter

The latest issue of Fortune magazine declares that Texas just surpassed New York as home to the most Fortune 500 companies. Texas now can boast that it has 58 corporate headquarters in the Lone Star State compared to 55 in New York and 52 in California. In our column last week, we talked about the fundamental strength of the office markets comparing the rising markets of Dallas and Houston to those of New York and Los Angeles. We discussed the underlying economic stability of the Texas market in Commercial Real Estate. This week, we want to drill down and provide additional data to support our analyses.

The Federal Reserve’s Beige Book is a summary commentary from businesses and contacts outside the Fed. It’s worth noting that there are significant regional differences and the impact of the recent slowdown has affected markets differently. According to the April 2008 report, the Dallas Fed reported that although “economic expansion softened further in March and early April, numerous contacts who do business nationally say growth in Texas is outperforming the rest of the country.”

One reason for the resilience in the Texas economy is the stability of its workforce. Employment in Texas continues to demonstrate underlying strength in comparison to the nation. Texas employers added 13,500 jobs in March, according to the Texas Workforce Commission. The state’s unemployment rate rose to 4.3 percent in March but this compares favorably to the U.S. as a whole, which reported an unemployment rate of 5.1 percent. Unemployment rates remain near record lows, and the annual job growth rate remains a strong 2.1 percent, well above the U.S. job growth rate of 0.4 percent.

The Texas economy has become significantly more diversified over the past decade and this plays out in all sectors with growth in manufacturing, financial, logistics and distribution, service and professional, leisure and hospitality and energy-related jobs. The Texas economy is no longer significantly dependent on the oil and gas industries (10 years ago Houston’s oil and gas industry was 52% of GRP; today it accounts for only 25% of GRP).

Consumer confidence in Texas mirrors its positive growth statistics. The Conference Board’s Consumer Confidence Index recently reported that the West-South-Central area (Texas, Arkansas, Louisiana and Oklahoma) sat at 95.6 percent versus the U.S., where the index has dropped to 64.5 percent in consumer confidence. Statewide, the Texas Employee Confidence Index rose 7.4 points in March, the second straight monthly increase while we noticed a decrease in the rest of the country. In fact, 77 percent of workers believe it is not likely that they will lose their jobs, compared to 69 percent who reported in the previous month, and the numbers of workers who believe more jobs are available increased 9 percent to 20 percent in March.

So, the question is, do confident workers drive the strength of a regional economy or does the strength of the economy create confident workers? Regardless of your opinion, Texas continues to demonstrate that all eyes should remain on the Lone Star State.