State of the Economy in Austin, Texas

I gave an update on the Austin economy today at the Austin CPA Chapter CFO/Controllers Conference. It was good timing, as last week the U.S. Census Bureau published new data from the 2015 American Community Survey to round out the other usual sources.

My slides are available on the CA website. Here are a few highlights:

  • 44 consecutive months of 4.0%+ total nonfarm job growth on a year-over-year basis came to an end in April. So we’ve come out of ludicrous speed and are now cruising at a comfortable ridiculous speed, more or less where we’ve been in non-recession years since 2004. Austin has become so accustomed to this level of growth that we often take it for granted–no other major metro in the country has come close to 44 consecutive months at 4.0% or better.
  • Total real personal income in the Austin metro grew 22.5% during 2010-2014, ranking third behind Houston (24.2%) and San Jose (22.5%) among large metros. That’s equivalent to adding $15.6 billion in real income to the regional economy–quite a bit of fuel for our housing market and increasingly pricey foodie scene.
  • Austin is attracting and retaining so many well-educated and highly-paid people that we almost have to stop measuring in terms of bachelor’s degrees and start counting the advanced degrees. Austin (city) added nearly 30,000 residents with graduate degrees during 2010-2015, with median earnings of $70,000 per year.
  • Austin’s tech sector continues to lead nationally, with total employment growing 31% during 2010-2015, fourth highest among major metros with at least 50,000 tech jobs. Travis County ranked fifth among counties. Mobile, apps, and SaaS companies are driving a significant portion of the growth, with employment in Travis County up 115% during that five-year period (#2 nationally behind SF).

We also touched on the usual three challenges:

  1. Inclusive economic development. 45% of primary working age (25-64) residents in Austin do not have a completed postsecondary degree. 67% of Black residents and 75% of Hispanic or Latino residents age 25+ do not have a completed postsecondary degree, compared to 22% of Asians and 31% of Whites. Median gross rent for a 2BR in Austin (city) is up to $1,243 per month, exceeding what is considered affordable for the housing budgets of Hispanic or Latino and Black families with median family income, as well as the budget at median earnings for all workers age 25+ who have less than a bachelor’s degree. This is how you become one of the most economically segregated places in the country.
  2. When will housing costs in the urban core start to erode Austin’s competitive advantage relative to the expensive coastal markets? Affordability–relative to pricey markets with comparable economies–has long been one of Austin’s key selling points. There is still a considerable gap relative to California, but are we approaching a point on the curve where some people will opt for smaller markets with growing tech centers in North Carolina, Tennessee, or Utah?
  3. Trying to tackle big-city/regional issues with a small-city/local toolkit, and, at times, mindset. $6 billion transit plan in Nashville. Multi-billion dollar investment in Denver approved by voters in eight counties. Meanwhile, we are squabbling about seats on our MPO and protesting $720 million in relatively small-scale upgrades–in one city.

Austin is great at many things, but you would think with all those graduate degrees we’d be able to show more progress on regional collaboration.

Austin, TX: State of the Economy 2016

Thanks to the Home Builders Association of Greater Austin and Eldon Rude of 360 Real Estate Analytics for inviting me to participate in the 2016 Housing Forecast today. Slides are now posted: HBA 2016 Housing Forecast.

2016 will be an interesting year. We’ve reached some major milestones in Austin:

  • Austin-Round Rock MSA likely surpassed one million jobs and two million in population in 2015. We’ll know more when the Census Bureau publishes the 07/01/15 estimate in March.
  • Unemployment in Austin (city and MSA) is down to its lowest level since the dot-com era. With job growth of 3.0%+ annually and historically low unemployment, we’re finally seeing some upward movement in wages, at the average at least. In fact, it took fifteen years, but average wages in Austin are finally back to pre-dot-com recession levels.
  • Total employment in the tech sector in Austin has surpassed peak employment of the dot-com era. Tech companies in Austin added more than 23,000 jobs between 2010 and 2015, a 27% growth rate that was nearly double the growth rate of other leading Texas markets and well above most peer markets around the country, with the exception of San Francisco (42%) and San Jose (31%). Manufacturing employment in the tech sector appears to have stabilized for now, and Austin’s IT Services and Applications industry (NAICS 5415, for data wonks), is among the highest performing markets nationally, doubling in employment since 2010.

A few other thoughts from today:

  • There is still a great deal of uncertainty about how sustained lower oil prices will impact Austin, relative to what’s going on in the rest of Texas. Eldon brought up a good point today about underperforming assets in Houston and what that might do to availability of capital and real estate investment in Austin. Discretionary spending in Austin could also take a hit, since oil and gas holdings have generated a lot of income for Austin residents holding them over the last few years; same goes for the pricier end of the housing market, I suppose.
  • But I still think Austin’s biggest exposure is how the state budget may be impacted. State government accounts for about 7.5% of total employment in Austin, more than 70,000 jobs. If sustained lower oil prices start to translate to budget cuts and staff reductions, then we’re going to feel it. So while lease holders, investors, and people working for oil and gas related firms in Austin may be having a different experience, there’s no evidence that lower oil prices are having much of an impact on the Austin labor market, at least not yet.
  • EMSI projection for job growth in 2016 is 3.1%, with tech at 2.4% (3.1% services, 0.4% manufacturing). The consensus forecast for Austin at this time last year was in the 2.0%-2.5% range, with most forecasting firms expressing a great deal of uncertainty about how the oil and gas market would impact Austin. With a year of data now available in the context of lower oil prices and slower statewide growth, perhaps the forecasters are a bit more confident of Austin’s resilience in the face of what’s happening in the rest of Texas. We’ll see.

Finally, what would a forecast be without a new year’s resolution? If you look at only one slide from my presentation today, please make it Slide 13. It’s about as plain as I can make it in terms of how educational attainment, income disparity, and housing costs are painting a discouraging portrait of economic segregation and inequality of opportunity in Austin.

We hear a lot about traffic these days from our elected leaders in Austin and around the region. Yet, it’s the one issue we can do the least about. Traffic is an inevitable consequence of economic growth, and until people make different decisions about where and how they want to live–contingent on having more affordable housing and better transit available to give people that choice of living differently–traffic is going to get worse. Dispensing with the calls for “fixing” traffic or employing an “all of the above” approach to transportation would be a great way to start 2016. I realize it’s good politics, but it distracts from the real trade-offs we need to grapple with.

Instead, let’s focus on something we can do something about: empowering more people with education and training they need to fully participate in Austin’s dynamic, growing economy. Increasing the number of high schools offering dual credit so students have the opportunity to earn a postsecondary degree–the prerequisite for having a chance to keep up with rising cost of living in Austin–before graduating and leaving home. Taking a close look at the positive impact of family resource centers (disclosure: I’m on the TAP board) and the community school model as stabilizing factors in areas undergoing rapid change.

Investing in neighborhoods willing to innovate, something we profess to love so much in this town.

Austin isn’t alone, of course, in facing challenges related to economic segregation. However, the astounding influx of wealth (Slide 11), high-wage job creation (Slide 7), and rapidly increasing housing costs are putting a finer point on it here, especially compared to peer markets like my hometown area, Raleigh-Durham. Given the limited tools and resources at the disposable of cities and counties in Texas, we’re not going to “fix” any of these challenges, at least not locally. But we can make progress toward measurable goals, if we’re willing to be serious about it.

Inclusive prosperity would make a great 2016 resolution.