INSIGHTS IN ACTION

Read More

Austin most economically segregated major metro area in U.S.

This article was written by Dan Zehr and appeared in the Austin American-Statesman on 02/24/15.

Report: Austin most economically segregated major metro area in U.S.

No large metro area in the country is more economically segregated than Austin, according to a new report that underscores growing concerns about the divides in Central Texas and the impact they could have on the region’s economic prosperity.

Previous research found high levels of income and education segregation in the Austin area, but a new study released Monday by the Martin Prosperity Institute found that the region also suffers from a distinct separation between workers in knowledge, service and working-class occupations.

The metro area’s elevated levels of income, education and occupational segregation combined make Austin the most economically segregated large metro and the third-most segregated among metros of all sizes, the study said.

“It is not just that the economic divide in America has grown wider,” the report said. “It’s that the rich and poor effectively occupy different worlds, even when they live in the same cities and metros.”

Denser and more populous metro areas tended to post higher rates of economic segregation, the authors said. Yet a series of studies by the Martin Prosperity Institute, an economic think tank based at the University of Toronto, suggest that a large creative class also tends to exacerbate those divides.

Other metro areas in Texas didn’t fare much better than Austin did: San Antonio ranked third, Houston fourth and Dallas seventh among the 10 most economically segregated large metros in the country, according to the report.

Among metro areas of all sizes, college towns tended to show greater levels of economic segregation. Tallahassee, Fla., home to Florida State University, ranked as the most economically segregated of all metro areas, regardless of size.

The results reinforced a growing body of research that has found high levels of income and educational segregation in Austin and other Texas metros – as well as the impact these separations could have on economic opportunity in these cities.

“These advantages are being compounded by where we live,” said Richard Florida, a director at the institute and co-author of the report.

Economic segregation has gained such an intense research focus in part because studies indicate that where someone lives or grows up can have significant influence on their life prospects. An impoverished neighborhood “almost reproduces disadvantage,” Florida said, while the benefits of an affluent neighborhood tend to compound the advantages of those born there.

A 2013 study by the Equality of Opportunity project found that metro areas with lower levels of racial and income segregation tend to see their young residents climb higher up the income ladder than less-integrated cities.

By one of that study’s key measures, Austin’s upward mobility rate trailed only three other Texas metro areas — Dallas, Killeen and Waco — and it lagged well behind the tech-savvy hubs in Silicon Valley, Seattle and Portland, Ore.

A separate study found that Austin posted the ninth-highest rate of income segregation among the country’s 100 largest metro areas — with divides between Austin’s low-income and affluent residents jumping during the 1990s, when the region’s tech economy and population boomed.

Yet this new study by the Martin Prosperity Institute found that Austin is now equally divided – and perhaps in some cases, even more divided – when viewed in terms of occupational class and educational attainment.

Residents in knowledge-based jobs, service-oriented jobs and working-class jobs — such as manufacturing — tend to live separately, the study found. Austin ranked among the 10 most-segregated metro areas by each of those three measures. Meanwhile, workers without a high school degree were more separated in Austin than in any other large metro area, according to the report.

Those divides have sparked a rising level of anxiety in low-income neighborhoods, Florida said. However, he said, because many of the most economically segregated metros have also posted some of the country’s most rapid economic growth rates in recent years, they have the resources to address the issues — if they choose to deploy them.

“The more I look at this, the more I’m coming to conclude that economic segregation and persistent poverty … are bigger problems than gentrification and housing affordability,” Florida said.

Inequality isn’t new to Austin or anywhere else, but questions of housing affordability in a booming city have made the issues more acute here, said economist Brian Kelsey, principal at Austin-based Civic Analytics.

“The gap hasn’t grown much wider in Austin in the last 15 years, as even the most highly educated have faced stagnant wages,” Kelsey said. “But the effect is cumulative in an environment of rising housing costs.”

Rising home prices and rents have created conditions where only well-educated and skilled workers can keep up, he said, especially in neighborhoods closest to the downtown core.

“While this isn’t unique to Austin, economic segregation is magnified here along race (and) ethnicity lines,” Kelsey said. “Our severe disparities in educational attainment according to race (and) ethnicity give our economic segregation in Austin a particularly pernicious quality.”


 

Apple’s Expansion in Austin

This article was written by Brian Gaar and appeared in the Austin American-Statesman on 02/22/15.

Apple’s Austin expansion moving swiftly, documents show

While Apple Inc. has been tight-lipped about its local presence, city and county documents obtained by the American-Statesman paint a picture of a company that’s moving full speed ahead with its expansion plans in Austin.

The technology giant has already created more than 900 full-time jobs in its Austin operation as of the end of 2013, the most recent year for which data is available, according to a report the company filed with Travis County. That’s on top of 3,100 local positions the company agreed to retain. As of the end of 2013, Apple reported 4,091 full-time employees in Austin.

What’s more, in a report last month to the city of Austin, Apple said it is about 67 percent completed with its Americas Operations Center, which it has valued at more than $348 million.

Taken in total, the documents suggest that Apple is outpacing its agreed-upon performance metrics, for which it is scheduled to receive millions in incentive payments from the city, county and state.

“All in all, I think the Apple deal has been good for Austin, especially since Apple is delivering ahead of schedule,” said tech industry analyst Patrick Moorhead of Moor Insights & Strategy.

In 2012, the Austin City Council approved $8.6 million in tax breaks for Apple in exchange for the Cupertino, Calif.-based company establishing its Americas Operations Center here. Apple also is in line for $21 million in state incentives for the project, along with between $5 million and $6 million from Travis County.

Apple, in turn, agreed to create more than 3,600 new full-time jobs in Austin while retaining at least 3,100 existing full-time jobs. The company also agreed to spend $282 million on new buildings and equipment in Austin over the next decade.

In its agreement with the city, Apple agreed to create 300 new full-time jobs in the first “employment year” of the contract. That year will be the first full calendar year after the issuance of the final certificate of occupancy for phase one of its Americas Operation Center. That hasn’t been issued yet, officials said.

From the city’s perspective, Apple is not required to submit a progress report until 2016, said Rodney Gonzales, deputy director of the city’s economic development department. The company would not receive city payments in the form of property tax rebates until after 2016, he said. Apple has so far received a $5.25 million incentives payment from the Texas Enterprise Fund, state records show.

For Apple as a whole, these are good times. Last month, the company reported another strong quarter thanks to its new plus-size iPhones, which helped the company smash sales records for the holiday season.

Apple said that it sold 74.5 million iPhones during the three months that ended Dec. 31, beating analysts’ expectations for the latest models of Apple’s most popular gadget, introduced in September. The surge in iPhone sales drove the company’s total revenue to $74.6 billion, up 30 percent from a year earlier.

Apple’s local project is planned to be built in two phases in Northwest Austin, near its current customer support center.

While the company agreed to spend $282 million on new buildings and equipment in Austin over the next decade, the total value of the project is estimated at more than $348 million, according to documents it provided to the city.

The company’s local investment is expected to include seven new office buildings with a combined 1 million or more square feet of space. Those buildings will house an estimated 3,600 new workers needed to support Apple’s continued growth. The average wage for those new jobs will be $54,000 a year in the first year of the expansion and will expand to $73,500 in the 10th year, according to the incentives agreement.

Apple’s local incentive deals were controversial, as critics argued that the technology giant didn’t need additional millions in incentives from taxpayer dollars.

However, Apple’s presence in Austin benefits the regional economy, said Brian Kelsey, principal of Civic Analytics, an Austin-based economic development firm.

“Given the company’s performance over the last few years, Apple shouldn’t have any trouble meeting their obligations under the tax incentive agreement with the city, so, from that perspective, it’s probably a ‘good’ deal,” he said. “Assuming the city’s cost-benefit analysis is reasonably accurate, Austin’s tax base is better off today with Apple’s larger presence here than it otherwise would have been.”

Incentives, he said, are the price cities pay for economic development projects on the scale of Apple. Kelsey called them a “calculated gamble.”

“Of course, you’re never likely to know what would have happened if the city of Austin refused to offer tax incentives,” Kelsey said. “Personally, I think economic development would be much improved if we didn’t have to give up revenue in the form of tax abatement that would go to fund schools, and especially perhaps career and technical education that would go a long way toward training future workers for tech firms.”

Others said that Apple’s presence will help further bolster Austin’s credentials as a tech hub.

“The Apple brand has the ability to attract other companies to Austin as well, because they trust that Apple has done their due diligence and chose Austin,” Moorhead said.

Jon Roberts, principal of Austin economic development firm TIP Strategies, said Apple’s presence helps create an ecosystem of innovative tech companies, which helps retain talent.

“We shouldn’t be playing this game,” said Roberts, referring to incentives. “But, given the fact that we are, are we using them in right way? And I’d say we’re using them as well as anyone is using them.”

Additional material from the Associated Press.

 

America Needs The Texas Economy To Keep On Rolling

This article was written by Joel Kotkin and appeared on Forbes.com on 02/11/15.

America Needs The Texas Economy To Keep On Rolling

In the last decade, Texas emerged as America’s new land of opportunity — if you will, America’s America. Since the start of the recession, the Lone Star State has been responsible for the majority of employment growth in the country. Between November  2007 and November 2014, the United States gained  a net 2.1 million jobs, with 1.2 million alone in Texas.

Yet with the recent steep drop in oil prices, the Texas economy faces extreme headwinds that could even spark something of a downturn. A repeat of the 1980s oil bust isn’t likely, says Comerica Bank economist Robert Dye, but he expects much slower growth, particularly for formerly red-hot Houston, an easing of home prices and, likely, a slowdown of in-migration.

Some blue state commentators might view Texas’ prospective decline as good news. Some, like Paul Krugman, have spent years arguing that the state’s success has little to do with its much-touted business-friendly climate of light regulation and low taxes, but rather, simply mass in-migration by people seeking cheaper housing. Schadenfreude is palpable in the writings of progressive journalists like the Los Angeles Times’ Michael Hiltzik, whorecently crowed that falling energy prices may finally “snuff out” the detested “Texas miracle.”

Such attitudes are short-sighted. It is unlikely that the American economy can sustain a healthy rate of growth without the kind of production-based strength that has powered Texas, as well as Ohio, North Dakota and Louisiana. De-industrializing states like California or New York may enjoy asset bubbles that benefit the wealthy and generate “knowledge workers” jobs for the well-educated (nationwide, professional and business services employment rose by 196,000 from October 2007 through October 2014), but they cannot do much to provide opportunities for the majority of the population.

By their nature, industries like manufacturing, energy, and housing have been primary creators of opportunities for the middle and working classes. Up until now, energy  has been a consistent job-gainer since the recession, adding  199,000 positions from October 2007 through October 2014, says Dan Hamilton, an economist at California Lutheran University. Manufacturing has not recovered all the jobs lost in the recession, but last year it added 170,000 new positions through October. Construction, another sector that was hard-hit in the recession, grew by 213,000 jobs last year through October. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes.

Reducing the price of gas will not change the structure of the long-stagnant economies of the coastal states; job growth rates in these places have been meager for decades. Lower oil prices may help many families pay their bills in the short run. But there’s also pain in low prices for a country that was rapidly becoming an energy superpower, largely due to the efforts of Texans.

Already the decline in the energy economy, which supports almost 1.3 million manufacturing jobs, is hurting manufacturers of steel, construction materials and drilling equipment, such as Caterpillar. Separately, the strengthening of the dollar promises harder times ahead for exporters  in the industrial sector, and greater price competition from abroad, amid weakening overseas demand. Factory activity is slowing, though key indicators like the ISM PMI are still signaling that output is expanding.

Right now in Texas, of course, the pain is mounting in the energy sector. Growth seems certain to slow in places such as Houston, which Comerica’s Dye says is “ground zero in the down-draft.” Also vulnerable will be San Antonio, the major beneficiary of the nearby Eagle Ford shale. The impacts may be worst in West Texas oil patch towns like Midland, where energy is essentially the economy.

Yet there remain reasons for optimism. Cheaper energy prices will be a boon for the petrochemical and refining industries, which are thick on the ground around Houston and other parts of the Gulf Coast. The Houston area is not seeing anything like the madcap office and housing construction that occurred during the oil boom of the 1980s. Between 1982 and 1986 the metro area added 71 million square feet of office space; including what is now being built, the area has added just 28 million square feet since 2010. Compared to the 1980s, the residential market is also relatively tight, with relatively little speculative building.

The local and state economies have also become far more diversified. Houston is now the nation’s largest export hub. The city also is home to the Texas Medical Center, often described as the world’s largest. Dallas has become a major corporate hub and Austin is developing into a serious rival to Northern California’s tech sector.

Texas needs to increase this diversification given that oil prices could remain low for quite a while, and even drop further after their recent recovery.

This is not to deny that the state is facing hard times. Energy accounts for411,372 jobs in Texas, about 3.2% of the statewide total, according to figures from Austin economist Brian Kelsey quoted in the Austin American-Statesman. If oil and gas industry earnings in Texas fall 20%, Kelsey estimates the state could lose half of those jobs and $13.5 billion in total earnings.

Low prices also could also devastate the state budget, which is heavily reliant on energy industry revenues. A reduction in state spending could havedamaging consequences in a place that has tended to prefer low taxes to investing in critical infrastructure, and is already struggling to accommodate break-neck growth. The only good news here is that slower population growth might mitigate some of the turndown in spending, if it indeed occurs.

But in my mind, the biggest asset of Texas is Texans. Having spent a great deal a time there, the contrasts with my adopted home state of California are remarkable. No businessperson I spoke to in Houston or Dallas is even remotely contemplating a move elsewhere; Houstonians often brag about how they survived the ‘80s bust, wearing those hard times as a badge of honor.

To be sure, Texans can be obnoxiously arrogant about their state, and have a peculiar talent for a kind of braggadocio that drives other Americans a bit crazy. But they are also our greatest regional asset, the one big state where America remains America, if only more so.

State of Human Capital in Austin 2015: Growth, Prosperity, & Inequality

Now that inequality appears to be politically palatable enough for polite conversation at the national level–despite certain notable people saying so for years–we’re left with the question of what to do about it.

Austin is struggling to find a path forward, as well, even though the debate here occurs primarily under the headline of “affordability.” But we’re really talking about the same core issue: inclusive participation in economic development.

But first, some data. Here are a few slides from an upcoming talk on the state of human capital in Austin. Click on the images to make them larger.

Austin’s economic development scorecard since 2000:

austin_scorecard

Including the astounding growth of Austin’s well-educated population:

austin_winning_war_for_talent

Which has done very little to raise average wages lately:

austin_wage_growth_flat

But transformed Austin’s economy in the 1990s, as average earnings for bachelor’s+ workers nearly doubled:

austin_wage_inequality_education

Giving rise to the “Two Austins” narrative that defined many city council races last year and, in my view at least, is the single biggest threat to Austin’s economic development:

austin_wage_inequality_race

Now, what to do about it. Seems to me there are four related and very complicated questions that we need to wrestle with:

1. Austin is adding bachelor’s+ people at a much faster pace than jobs are being created for them. What is the ripple effect on the labor market and how is underemployment impacting affordability?

2. Being The Human Capital cuts both ways. It’s the foundation of Austin’s economic development success. But is our success in attracting and retaining highly educated and skilled workers undermining the need for a sense of urgency and more investment in human capital development to ensure inclusive participation?

3. Austin is among the U.S. leaders in growth of so-called “middle-wage” jobs, which the National Employment Law Project and others have identified as jobs that pay in the range of $13.84 to $21.13 per hour. However, there’s a popular narrative that I hear regularly that suggests Austin is creating a lot of high-wage jobs and plenty of low-wage jobs but middle-wage jobs are lagging. Both of these things can’t be true. Either the research on middle-wage jobs in Austin is wrong, or there is something else going on that is shaping perceptions of Austin’s labor market in a way that does not conform with reality. Perhaps being among the U.S. leaders in middle-wage jobs is not enough–i.e. even at middle-wages people are struggling to keep up with rising costs of living in Austin? Or, even though we’re among the U.S. leaders according to growth rates, perhaps the middle-wage share of total employment has declined in a way that’s forced middle-wage workers to compete for lower-wage jobs.

We should sort this out and secondary data alone isn’t going to be sufficient.

And perhaps the thorniest question of them all:

4. What is the proper role for economic development policy–and the public sector in general–in addressing the inequality that’s fueling concerns about affordability, gentrification, and so many other challenges facing Austin?

What, if anything, can a city or a region do about it?

I understand we’re in the middle of transforming city government in Austin. These questions would be a good place for an economic development committee to start.

Report: Austin’s advanced-industry growth fastest in U.S. since 1980

This article was written by Dan Zehr and appeared in the Austin American-Statesman on 02/03/15.

Report: Austin’s advanced-industry growth fastest in U.S. since 1980

The rapid growth of high-tech and other advanced industries transformed many of the country’s metro-area economies over the past three decades, but no metro changed as quickly as Austin, according to a new study from the Brookings Institution.

Since 1980, when Central Texas featured a staid economy based primarily on higher education and state government, the area’s high-tech and other research-intensive industries have boomed, adding jobs and expanding their output at rates faster than any of the country’s 100 largest metro areas, according to the Brookings Institution study of 50 advanced industries.

Austin maintained its momentum in recent years as well, the report said, with the area’s 2010-2013 job and output growth rates both ranking among the top 10 nationally.

“Austin wasn’t built primarily on firm attraction. That’s what’s interesting,” said Mark Muro, a policy director and fellow at the organization’s Metropolitan Policy Program.

Instead, a leading research university, a strong workforce, an entrepreneurial ecosystem and an attractive quality of life helped drive the area’s rapid transformation, Muro said.

“Austin strikes me as a product of some good fundamentals, some luck and then synergies,” he said. “You’re now seeing the interrelationships of manufacturing, energy and services activities.”

As for 2013, local employers in Brookings’ 50 advanced industries provided more than 106,000 jobs – roughly 12 percent of all the jobs in the metro area, the report said. Those workers brought in average earnings of $103,950, almost double the average earnings in all industries.

Those workers helped produce $24.1 billion of output in 2013, the report said, accounting for almost a quarter of the regional economy and good for the eighth-highest share in the country.

The current figures were consistent with previous analyses of the Central Texas tech economy. In a 2013 study for the Austin Technology Council, local economic development consultant Brian Kelsey found that the area’s tech-specific industries accounted for roughly 21 percent of the region’s economic output and 9 percent of its job base.

At the time, Kelsey said Austin had maintained a strong advantage in its existing tech industries while starting to develop new areas of expertise.

The Brookings report underscored that point. Muro and his colleagues looked at location quotients—essentially, the concentration of industry activity in an area versus the country as a whole —and found that Austin had a very high measure in 11 different industries.

“The depth and breadth of the Austin advanced industries economy has become really compelling,” Muro said, “and it includes manufacturing industries, which I think nationally is less known.”

Such diversity could help shield Austin from the disruptions that can sweep through advanced industries, he said. However, the report urged both the public and private sector to heighten its investments in science, technology, engineering and math (STEM) education to insure a sufficient pool of talent to fill these high- and middle-skill jobs – an issue consistently raised by many of the area’s tech companies and the Greater Austin Chamber of Commerce.

In its most recent monthly analysis of online job openings, the chamber again found that many of the 10 most common openings required computer and programming skills. Six of the 10 occupations in highest demand fell into the advanced industries studied by the Brookings report.

“These are fast industries with a lot of disruptive trends in them,” Muro said. “You can be disrupted, but that likely won’t happen if you maintain the good … innovation system inputs (and) a STEM workforce. Clearly, training and skills of enough people, and the right people with the right skills, is a challenge everywhere.”

Abbott: Time to kill state’s Emerging Technology Fund

This article was written by Laylan Copelin, Brian Gaar, and Lori Hawkins and appeared in the Austin American-Statesman on 01/30/15.

Abbott: Time to kill state’s Emerging Technology Fund

Moving to stop using state money to fund startup businesses, Gov. Greg Abbott on Thursday proposed killing the Texas Emerging Technology Fund and using part of the fund’s unspent balance to bolster research at Texas universities.

Abbott’s proposal — which would need approval from the Legislature — comes after an audit that criticized some of the technology fund’s operations and some high-profile bankruptcies of startups it had helped. That combination has soured state leaders on using taxpayers’ dollars to underwrite risky ventures.

The plan would create the Governor’s University Research Initiative, which would provide matching funds to help Texas institutions of higher education recruit prestigious, nationally recognized researchers to their faculties — which would both elevate Texas’ public universities and serve as catalysts for economic development. A portion of the Emerging Technology Fund is already used to recruit top researchers and faculty to universities.

The other half of the tech fund’s balances would go to the Texas Enterprise Fund, a deal-closing fund used to encourage companies to relocate or expand in Texas.

Abbott’s office says there is slightly more than $100 million available in the fund.

While acknowledging the Emerging Technology Fund’s impact on the state’s — and Austin’s — high-tech sectors, industry experts and economists said that with venture capital once again flowing to early-stage companies, it makes sense to reconsider how the state supports research and innovation.

“The ETF generated a lot of controversy, and there was a lot of politics involved,” said Bernard Weinstein, an economist at Southern Methodist University’s Cox School of Business. “On the surface, this proposal sounds like a sensible policy change. I’m always pleased to see more resources going into universities, particularly in research. Hopefully this eventually leads to technological change, inventions and commercial applications.”

Austin economist Brian Kelsey, principal of economic development firm Civic Analytics, called the move unfortunate, but said it’s not surprising “given Abbott’s skepticism about the state’s role in economic development under Perry.”

“Even critics of incentives in general viewed the ETF in a more positive light than some of the other tools, especially the Enterprise Fund,” Kelsey said. “Not every firm wants the state as an equity partner, but overall the ETF has been a valuable tool for supporting innovation-based economic development in Austin.”

State Sen. Troy Fraser, R-Horseshoe Bay, said he has agreed to sponsor legislation to make Abbott’s proposal a reality.

“The criticism was that we were investing in some startups without knowing what we were getting,” said Fraser, whose district includes part of Travis County. “We tried to remove some of the risk.”

Jenny LaCoste-Caputo, a University of Texas System spokeswoman, said, “We appreciate Gov. Abbott’s recognition of the value of the state helping universities recruit faculty to advance learning, research and the state’s economy, and look forward to working with him and the Legislature as his proposal works its way through the process.”

The Legislature created the Emerging Technology Fund in 2005 at former Gov. Rick Perry’s request. The fund was intended to expand and diversify the Texas economy by assisting startups and encouraging commercialization of university research.

As of September, the fund had awarded more than $442 million to companies, state universities, foundations and research consortia, according to the fund’s most recent report from the governor’s office.

Of the 144 companies receiving taxpayer investments, nine have been purchased or had other successful exits from the tech program while 18 have ceased operations, often failing to repay the state, according to the Emerging Technology Fund’s 2013 annual report. The jury is out on the others. Nationally, about 40 percent of venture-backed companies fail, 40 percent return moderate amounts of capital and 20 percent or fewer produce high returns, according to the National Venture Capital Association.

Isaac Barchas, Austin Technology Incubator executive director, said the Emerging Technology Fund played a crucial role in providing seed stage money to Texas startups following the financial downturn that began in 2008.

“It was a nuclear winter in 2009, and the only funder actually up and running was the Emerging Technology Fund,” Barchas said. “The fact that we had that was extraordinarily important because it helped a bunch of promising companies that wouldn’t have otherwise been funded.”

Austin entrepreneur Brendan Coffey said his company, HeatGenie, wouldn’t have gotten off the ground without the $250,000 it received from the fund in 2008.

The company, which received a total of $1 million, has developed technology that allows prepared foods to be heated in their containers without using a stove or microwave. HeatGenie is now partnering with two major brands to commercialize its product.

“We didn’t have a prototype or a model, so we needed someone who could buy into the concept,” Coffey said. “ETF had a good system for analyzing the business opportunity and the technology. We wouldn’t be here without that seed funding.”

Barchas said that while Abbott’s plan would change how the state involves itself in technology, he’s encouraged that the proposal would continue to invest millions in university research.

“The state of Texas is effectively renewing its commitment to innovation. We’re just going to bet on innovation in a slightly different way,” Barchas said. “No other state can afford to do this — not California, not New York, Michigan or Illinois. And that gives us a big advantage.”

2014 was boom year for Austin auto sales

This article was written by Claudia Grisales and appeared in the Austin American-Statesman on 01/25/15.

2014 was boom year for Austin auto sales

For new car dealers in Austin, 2014 was a very good year.

The area’s auto sales industry continued its rebound from the economic downturn, as new car sales in the Austin area hit record numbers last year.

Sales of new vehicles in the Central Texas area surged to 130,021, up almost 8 percent from a year earlier, according to data from Dallas-based Freeman Auto Report, which tracks new auto registrations in Travis, Williamson, Hays, Bastrop, Burnet, Blanco and Caldwell counties. The 2014 sales total was an 80 percent increase from 2009, the region’s low point during the recession.

It was the region’s highest sales figure in more than a decade, with the rebound fueled by healthy local economy, strong population growth and lower gasoline prices, experts say.

The past year “was marked by continued low interest rates, falling gas prices and improving consumer confidence,” said Austin economist Brian Kelsey, founder and principal at economics research firm Civic Analytics. “We’ve even seen a bit of positive movement in wages and household income, which probably helped fuel the increase in auto sales.”

Sales of new vehicles are a key indicator of an area’s consumer confidence, as purchases of big-ticket items such as a new car tend to indicate consumers aren’t worried about their job status or economic stability.

“It was a really, really good year for us,” said Alan Cirota, general manager at Jaguar Land Rover of Austin located in the downtown area. “Sales were strong, so strong, it was a good year. And I look forward to 2015 to build on that.”

New car sales in the region reached 100,090 in 2007 before falling dramatically during the downtown. In 2009, the low point of the downturn, new vehicle sales in the Austin area fell 18 percent from a year earlier to 72,277.

However, since 2010, new car sales have increased annually 8 percent or more.

In 2014, Austin area auto dealers saw an upward sales trend for most of the year, posting their biggest monthly gain in July when sales rose 11.4 percent compared to the same month a year earlier.

Last year also was a busy one for Austin area dealership completing expansions and upgrades.

Eager to stand out in a competitive market, a number of Austin-area dealers transformed their facilities into high-end showplaces complete with expansive event spaces, gourmet coffee, designer furniture, Wi-Fi, flat-panel TVs and kid-friendly play zones.

About a dozen Central Texas auto dealerships either have undergone or announced plans for extreme makeovers in the past year, pumping millions of dollars into the Austin economy as they added larger showrooms with a slew of guest perks.

Dealerships are increasingly fighting for customers who are doing more shopping online rather than visit bricks-and-mortar stores.

For example, AutoNation Toyota South Austin completed an $18 million, four-year renovation project last summer, adding an air-conditioned “indoor delivery zone” for newly purchased vehicles, a service center with 75 stalls and a quick-lube center.

Meanwhile, Fiat/Alfa Romeo of Austin, moved from a 6,000-square foot Domain location to a 29,000-square foot former Lincoln dealership on U.S. 183. There, it modernized the facility with a contemporary look featuring Italian floor tiles, music, snacks and coffee along with Wi-Fi, Keurig stations, children’s play center and an Internet café.

And at Cirota’s dealership, Jaguar Land Rover of Austin, the company added the Jaguar brand and more than doubled its indoor facility to 10,000-plus square feet. The 17-year-old dealership now has a seating area with a 70-inch flat-panel TV, two iPads for customer use, eight kinds of coffee, tea and hot chocolate, and a daily selection of Sweetish Hill Bakery treats. The dealership also sells a clothing collection for both brands.

“Basically you come into the showroom, you got Jaguar and Land Rover, both British brands all under one roof,” Cirota said. “We have more capacity, we have a really nice waiting area and a bigger service department. We have more service, more capacity, more loaner cars and take care of customer when they come in. It’s all about taking care of the customer.”

Overall for 2014, the top sellers in the Austin area for new vehicles was Ford, which saw 19,169 in sales of cars, trucks and sport-utility vehicles, according to the Freeman Auto Report.

Ford was followed by Chevrolet, which saw 17,318 sales, and Toyota with 13,377. Nissan posted the next top sales figure with 11,120, followed by Honda, Hyundai and Kia, which all posted at least 5,000 in sales each last year.

Greg Kimball, general manager at Town North Nissan, says he isn’t surprised by the sales surge in the Austin area last year. At his dealership, sales were up about 23.5 percent for the year, Kimball said.

Among their popular models, the Altima, Rogue, Leaf and Sentra, were among their top sellers, Kimball said. And today, Town North Nissan is now the largest seller of the Nissan Leaf in at least four states: Texas, Oklahoma, New Mexico and Louisiana, Kimball said.

“We had some record breaking Leaf sales this time,” Kimball said of last year’s sales.

Part of what fueled the gains, Kimball said, was an aggressive push by Nissan to capture a larger share of the overall market. Also, Kimball said, lower gasoline sales played a role in fueling the purchases.

This month, average gasoline prices reached below $2 a gallon in Austin and Texas for the first time in more than five years.

Prices have continued to fall in January, and reached $1.85 in Austin, driven by a continued dramatic slide in global crude prices.

“We had a very big year and Nissan in general made a big push,” Kimball said. “The recovering economy, the new car market, is in a much better spot now. So it was just good, healthy growth. We had a bunch of people not buying cars in the recession years.”

And Kimball is betting strong sales will continue, especially as gasoline prices look to remain low again this year.

“We should see this kind of performance for the next couple of years,” Kimball said of new car sales for Nissan. “I think especially with gas prices where they are and in the foreseeable future.”

Austin’s economy in 2015: Momentum likely to continue

This article was written by Dan Zehr and appeared in the Austin American-Statesman on 01/03/15.

Austin’s economy in 2015: Momentum likely to continue

Austin’s economic growth moderated over the past couple years, and most projections suggest the same general trend for 2015.

But consider the context.

For years, Central Texas had been “punching above (its) weight,” said Brian Kelsey, principle of Civic Analytics in Austin. And yes, he told 350-plus people at the Greater Austin Chamber of Commerce’s recent economic outlook luncheon, the area’s rapid growth has eased a bit.

“But you always have to keep in mind,” he added, “that moderation for us is explosive growth for the rest of the country.”

Austin averaged 5.7 percent annual economic growth from 2002 to 2013, Kelsey said. Only twice in that span, in 2002 and 2007, did the national gross domestic product fare better than Austin’s.

So a year of moderate growth in 2015 shouldn’t sound all that bad. A compilation of forecasts for the metro area suggests that 2014’s employment growth should come in around 3.8 percent this year. That will slow slightly to 3.1 percent in 2015, the projections say.

In an area gaining better-educated people — and adding enough jobs to absorb all those new residents — there’s plenty of room for upside. A June report from IHS Global Insight estimated 3.9 percent economic growth this year, followed by a jump to 4.7 percent growth in 2015. At that rate, the report said, the Central Texas GDP would hit $117.5 billion.

Barring another world-shaking event, not much should threaten that expansion in the near future. But as Austin’s economic progress picks up speed, so also do the headwinds it faces.

Soaring property taxes and a higher cost of living might make the region less attractive to some companies and workers, particularly when combined with Austin’s tepid wage growth in recent years. And although Austin has less exposure to the oil and gas industry, the sharp drop in oil prices as 2014 closes could drag on the local and state economies.

But those factors will do little to slow the metro economy in 2015. Growth might be moderate, but as the following forecasts for the area’s business sectors suggest, Austin’s version of moderate will still look awfully good.

Here’s a sector-by-sector look at what we might be able to expect for Austin’s economy in 2015:

TECHNOLOGY

Prognosticating the technology business is always tough, and analysts say the fortunes of Austin’s tech sector will be tied to the larger economy.

But analysts say 2015 could be a good year for Dell Inc., the Austin area’s largest private employer. Many of Dell’s rivals are going through transitional phases, and that could open up opportunities for Dell to gain market share in both its client hardware and enterprise solutions businesses, said Roger Kay, an analyst with Endpoint Technologies Associates.

On the client hardware side, Hewlett-Packard Co. announced a breakup of the company this year, and Kay said that could allow competitors such as Dell and Lenovo to pounce.

As for enterprise solutions, Dell has been putting together its portfolio, acquiring software businesses and growing others organically. Meanwhile, rivals like IBM have strategies that are “a bit up in the air,” Kay said, and that again creates an opening for Dell.

“(Dell) can gather momentum while their rivals are still trying to put their stuff together,” he said.

Overall, the success or failure of commercial technology markets is tied to the wider economy, which is also true of most Austin tech companies, said analyst Patrick Moorhead of Moor Insights & Strategy.

“The U.S. and Europe will more than likely improve, but could be pulled down by troubles in Brazil, Russia and a flat China,” he said. “So net-net, it’ll probably be flat, but there’s still a possibility that we could get into another global recession.”

One potentially risky situation could be South Korea-based Samsung Electronics Co., which has a huge Austin presence and is very tied to the consumer market. Samsung is losing mobile market share to both Apple Inc. and Chinese competitors like Xiaomi and Coolpad, Moorhead said.

“It will be a defining year for Samsung, as they need to show they can muscle through this difficult time in mobility,” Moorhead said.

— Brian Gaar

RETAIL

New shops and restaurants popped up across Central Texas at a rapid pace in 2014, and industry experts expect more of the same in the coming year.

With occupancy approaching 95.5 percent – the highest rate in nearly a decade – developers have been busy adding space to meet demand, according to Michele Gary, vice president at Austin-based Endeavor Real Estate Group.

Work is in varying stages on several major retail projects, Gary said, including the Plaza Saltillo mixed-use development near downtown, a 250,000-square-foot shopping center near Cedar Park’s new Costco store and a third phase of the Domain in North Austin that will include a Nordstrom store set to open in 2016.

“This is a very exciting time in Austin; Austin is shining,” she said. “We’re in communications with several exciting retailers that aren’t just new to Austin, but new to Texas. Phase 3 of the Domain, in particular, has attracted numerous retailers and restaurants that Austin hasn’t seen or experienced yet.”

The city’s restaurant scene has been an especially bright spot in recent years, Gary said, with local restaurateurs driving much of the growth.

“One obvious trend is the coast-to-coast recognition that Austin restaurants and chefs are receiving,” she said. “Austin’s culinary talent level is off the charts and I predict our local chef-owned restaurants will continue to experience national recognition.”

— Gary Dinges

REAL ESTATE

The Austin-area housing market has been on a hot streak the past few years, with monthly sales volumes and median prices heading in one direction: up. Fueled by the region’s job and population growth, housing demand has outpaced supply, driving prices higher.

Those rising prices will likely continue in 2015 as well, as Austin continues add people and jobs, but the pace of home-price escalation should ease somewhat, said Eldon Rude, a local housing market expert.

“A likely increase in the number of homes for sale in 2015, as well as some level of increasing buyer resistance to higher prices, will combine to slow the pace of price increases in most areas,” said Rude, principal of 360 Real Estate Analytics.

If so, it would be welcome news for prospective buyers, including renters who are hoping to become home owners. The median price of single family home in the Austin region is up over 34 percent in the last four years, Rude said, with citywide apartment rents up 31 percent.

With apartment rents up so sharply in recent years, Rude said, more prospective first-time home buyers are looking to take advantage of low mortgage interest rates and lock in their housing costs. And while builders will continue to focus on the high-demand $300,000 to $700,000 range they’ve filled in recent years, some of shifted their focus to include more lower-cost options.

But like the Austin economy as a whole, the biggest threats to the metro’s housing market would likely be “outside our control,” Rude said.

“With the price of oil down nearly 50 percent in the last six months, it is becoming increasingly evident that the State’s economy will be negatively impacted,” he said. “While the greatest impacts will likely be in Houston and South Texas, it is not out of the question that if Houston catches the flu, Austin may catch a cold.”

— Shonda Novak

VENTURE CAPITAL

With venture capital flowing into established companies and angel investors continuing to back early-stage entrepreneurs, 2015 promises to be a strong year for Austin’s software industry.

Austin’s strength in hot investment areas — such as e-commerce, mobile technology, cyber security and cloud computing — should continue to draw investment dollars from both coasts as well from Austin-based venture firms that are putting new funds to work.

S3 Ventures and Silverton Partners, which each raised $75 million funds last year, are expected to be actively pursuing Austin deals in the new year. And LiveOak Venture Partners, which closed on its first fund of $100 million this year, will also be looking for new opportunities in Austin and the Southwest.

“The balance of investors we have now, both outside of Austin and those based here, is good for everybody,” said Kirk Walden, an adjunct business professor at Texas State University and principal of Austin-based Walden Consulting, which follows the venture capital industry. “When you can go to more than one door, it’s always better for the entrepreneur, and that’s what we’re seeing now.”

Meanwhile, the Austin startup ecosystem will feel the ripple effects from this year’s robust investment activity. In the fourth quarter alone, five companies each received $25 million or more for expansion.

The companies, which include e-commerce software firm Bigcommerce and cloud-computing software makers Gravitant and Transverse, will use the new funding to add more workers, invest in new equipment, hire service providers, such as accounting and law firms, and ramp up product development and marketing.

Also look for more out-of-state software companies to open development offices here to leverage the region’s software industry workforce. In 2014, more than a half a dozen software companies including Veraction of Tennessee, Taulia of San Francisco and ProjectManager.com of New Zealand, announced plans to ramp up in Austin in 2015.

— Lori Hawkins

WHOLE FOODS

Whole Foods Market might finally be steadying itself after a rollercoaster ride in 2014. After launching a turnaround initiative in the fall, the Austin-based organic foods giant has seen its stock rally back nearly 30 percent since one of its worst days as a public company.

The retailer started out the year facing high expectations. But by May, after tighter competition took a bigger bite out of their robust earnings and forced their profit below expectations, Whole Foods shares fell 20 percent to $38.93.

“It was difficult. The competition took them a bit by surprise,” said Brian Yarbrough, an industry analyst for Edward Jones. “But it seems like in the later part of the year, things started to improve.”

Expectations moderated, and in the fall Whole Foods launched an aggressive new gameplan, which included the company’s first national ad campaign, a new national grocery delivery and pickup service and a customer rewards program, among other moves.

In November, it passed a critical earnings test, regaining confidence from Wall Street, boosting its stock and putting a positive cap on an otherwise tough fiscal year. By mid-December, the stock was back to the $48 mark.

Analysts now are watching to see whether Whole Foods can hold on to those gains — and find a way to build on them — in the new year.

“We still see a great story long term,” Yarbrough said. This year “was difficult. But hopefully we will continue to see improvement.”

— Claudia Grisales

TAX INCENTIVES

The debate over taxpayer incentives for businesses will reach from the state Capitol to City Hall next year.

The Austin economy has a stake in the debate. Since 2005, the Texas Emerging Technology Fund sent a quarter of the tech fund’s first $200 million to Central Texas startups,

The state also used the Texas Enterprise Fund to help local officials close deals to bring Apple, eBay, Facebook and Visa to Austin, as well as persuading Charles Schwab and Samsung to expand their local operations.

State leaders are not abandoning the two funds, though the technology money may be targeted only for universities and to recruit top researchers. Money for startups may be out.

Also some lawmakers favor a share-the-wealth approach to incentives, directing more of the money to rural areas or regions that are lagging the overall state economy.

Locally, city council and county candidates raised questions during the campaign whether locals still need to juice the economy with incentives. The Greater Austin Chamber of Commerce has left no doubt where it stands: Among its top legislative priorities is continued support for the state’s major incentives, which require local participation.

— Laylan Copelin

Herman: Low gas prices are good. Low gas prices are bad.

This column was written by Ken Herman and appeared in the Austin American-Statesman on 12/24/14.

Herman: Low gas prices are good. Low gas prices are bad.

This is the holiday season of our consternation. Many of us are deeply consternated. (That sounds uncomfortable.)

The source of our consternation is gas. (This is getting worse.) Specifically, it’s the price of gas.

I don’t know about you, but I grow downright giddy while pumping $2.059-a-gallon gas. Maybe it’s the fumes. But who doesn’t like paying less for anything?

And then I read, in my very own newspaper and written by one of my very own colleagues, that low gas prices might be bad for us — us being Texans, all of whom have an oil well out back, right next to our cattle and the shack where we store our firearms.

Remember when high gas prices were bad for us?

Let’s review: High gas prices, bad. Low gas prices, bad. This makes it kind of difficult to know what to root for, kind of like when OU plays A&M.

The benefits of low gas prices are obvious. If I remember my advanced economics, when gas prices are low it costs less. Less, of course, is relative. It’s still too high. The lowest I ever paid for a gas was back in the early 1970s as a high school kid in North Miami. The benchmark price was 29.9 cents a gallon. One price war chopped the price to 19.9 cents.

Back to today, or, actually, Dec. 19 when American-Statesman business writer Claudia “The Grinch” Grisales inflicted reality upon us in a story explaining that low gas prices are bad for us. Thanks a lot, Claudia, way to screw up the festive holiday season.

The headline: “Experts: Lower oil prices a threat to Texas economy.” Experts. They think they’re such experts. Who needs ‘em?

The experts Grisales quoted reminded us Texas, despite recent diversification (largely the proliferation of Buc-ee’s stores), remains linked to oil.

Local economist Brian Kelsey did some math. Economists are like that. Always showing off by doing math. His math says if oil and gas industry earnings fall 20 percent in Texas, the state could lose 212,000 jobs and $13.5 billion in earnings.

“Earnings in the oil and gas sector drive a significant portion of overall economic activity in Texas,” Kelsey said in Grisales’ story. “So consumers may enjoy seeing lower gas prices, but falling oil prices can hurt more in other ways.”

I get it. I was around the Capitol in 1986 when plummeting oil prices caused significant fiscal heartburn for the state. Nevertheless, I’m still feeling that pleasant, light-headed feeling when I’m paying a dollar less per gallon than I did not that long ago. Does that make me a bad man?

So I called Michael Webber, deputy director of the Energy Institute at the University of Texas. Mr. Webber, am I a bad man for enjoying declining gas prices?

“If you are a person who consumes energy, which is everybody, then you should be happy about the lower energy prices,” Webber said, making me feel better about myself.

“If you are a producer of energy — the guy who pulls oil out of the ground or an investor or employee of those companies — you should be unhappy,” Webber said.

I produce no energy, and remain sufficiently immature to chuckle when a legislator lists his occupation as “gas producer.”

But what of the indirect economic impact on me, the bad stuff predicted by the expert sayers of doom?

Yes, Webber said, if oil prices drop too far too quickly, “the economy could collapse.”

I’m no expert, but I think that would not be good for me.

Webber talked about 1986 and falling oil prices and failed real estate investments and savings and loans scandals and bailouts and all manner of economic mayhem. (On the positive side, my New York Mets won the World Series in ‘86.)

Webber seems to think everything will be fine. In general, he made me feel OK about feeling great about paying $2.05.9 a gallon at Costco (where — and I hate to brag — I’m a Gold Star Member, and where the price dropped another penny this week).

Webber summed up thusly: “Even a dead cat will bounce if you drop it.”