Texas continues growth into auto industry powerhouse

This story was written by Claudia Grisales and appeared in the Austin American-Statesman.

Texas continues growth into auto industry powerhouse

Toyota’s major operations helping drive thousands of auto industry jobs in the state.

The plant came to Texas when the state’s major auto industry operations were mostly limited to a General Motors plant in Arlington. That’s changed dramatically since.

In addition to growth at its San Antonio plant, Toyota is now centralizing its North American headquarters and other operations in Plano. The news came on the heels of a GM announcement last year it would infuse its Arlington plant with a $1.4 billion expansion.

Put it all together, economics experts say, and Texas is a becoming a key player in the auto industry.

“During what has been a very challenging period overall for the auto industry, Texas has fared pretty well,” said Austin economist Brian Kelsey, founder and principal at economic research firm Civic Analytics. “The industry’s future here appears to be bright.”

The state’s manufacturing sector is seeing a nice bump from the growth of Texas auto industry operations as the tally of related executive jobs grow, experts say.

Austin economist Angelos Angelou, who says the Toyota plant’s economic impact has been “phenomenal,” estimates that the automaker’s manufacturing facility and its new Texas headquarters could generate more than $3 billion to $4 billion in personal income totals for the state.

Angelou predicts more job growth in the North Texas area such as the Dallas-Forth Worth metroplex or somewhere along the Interstate 35 corridor between North and Central Texas.

At this rate, “I think the state could possibly attract another (auto) manufacturer,” said Angelou, founder and principal executive officer of Angelou Economics. “It will be more on the way I would say.”

Texas currently has about 38,000 jobs in motor vehicles and parts manufacturing, Kelsey said. That ranks seventh among all states for such jobs, up from 10th in 2003, Kelsey said.

As of 2014, the auto industry added an estimated $4.8 billion to state gross domestic product, he said. While that figure is dwarfed by larger sectors such as energy, it is becoming an increasingly viable source for jobs.

Only two states have fared better when it comes to adding jobs in the sector since 2003.

“We’re still a relatively small player in the market compared to the industrial Midwest, but, among southern states, only Tennessee and Alabama have added more jobs than Texas in motor vehicles and parts manufacturing since the Toyota announcement in 2003,” Kelsey said.

In terms of states with a larger share of auto industry jobs, only Alabama has seen a faster job growth rate than Texas, Kelsey said.

Since 2003, “only Alabama has grown faster” than Texas in terms of states with at least 25,000 such jobs, he said.

‘An auto-producing state’

By next year, Toyota could bring the combined number of Texas workers at its San Antonio plant and workers for its new North American headquarters in Plano to more than 11,000.

Of that, the Toyota Texas plant has about 7,000 workers, which includes 3,200 direct Toyota employees. The rest are employees who work for 23 on-site suppliers located on the campus, said Mario Lozoya, Toyota director of government relations and external affairs.

“Texas sells a lot of trucks, so it was the right decision to build trucks in Texas,” Lozoya said reflecting on the plan during a recent media tour of the plant.

Angelou estimates Toyota has created as many as 15,000 to 20,000 direct and indirect jobs jobs in Texas.

“They have basically solidified Texas as an auto-producing state,” he said. “Toyota has been a savior of the auto industry in Texas and single-handedly transformed the state as a place for auto manufacturing.”

When Toyota made its 2003 announcement it would build a truck plant in San Antonio, the automaker said it had plans to employ 2,000. In November 2006, its first Toyota Tundra rolled off the line, followed by the Toyota Tacoma in 2010.

The plant’s progress in Texas has not been without its setbacks.

The 2008 recession forced the plant to shut down for three months. The Japanese earthquake and subsequent tsunami in 2011 triggered new challenges for operations.

And a storm in May blew a hole larger than a football field in the plant’s roof that required significant repairs.

Still, the facility is on track to make up for that lost production and bulking up on worker hours to boost output. The plant, which is capable of cranking out 200,000 trucks or more, added a third shift of workers and is now on track to produce 250,000 trucks this year, said David Crouch, vice president of administration and production control for the facility.

“Basically the parking lot empties and then the parking lot starts to fill back up,” he said of the plant’s employee lots now. “And actually we’ve had to build a new parking lot on the east side of the plant because we ran out of parking space.”

‘Doing very well right now’

Toyota is also in the midst of moving 4,000 workers to its new North American headquarters to Plano by the first quarter of 2017 — consolidating workers from at least four U.S. cities. Those who decide not to relocate will be replaced by newly hired workers, Lozoya said.

“The philosophy is we will be able to work together in a better way,” he said of the new headquarters.

Angelou said the state has also navigated many challenges in its pursuit of the auto industry, such as when GM has entertained a closure of their Texas facility. But economic development efforts, in the end, appear to be paying off, he said.

“With the GM facility in Arlington, there were times when they were thinking of closing it,” he said. “We’re not Alabama or Indiana, but you know it’s a huge industry. It’s doing very well right now. And I think we have two of the greatest auto manufacturers in GM and Toyota.”

Governor, business groups at odds on Texas Enterprise Fund

This story was written by Marty Toohey at the Austin American-Statesman.

Governor, business groups at odds on Texas Enterprise Fund

At a recent round table session with reporters, Gov. Greg Abbott talked of his plans to travel abroad and lure businesses to Texas. He mentioned a cut in the state’s franchise tax, emphasized a new program to lure academics whose research could spur economic activity and concluded that “Texas is an easier sell today … than it has ever been.”

He talked relatively little about the Texas Enterprise Fund, the largest tax-incentive program of its type in the nation, which former Gov. Rick Perry persuaded the Texas Legislature to create as the state’s deal-closing program. When asked about the enterprise fund at the round table, Abbott said, “I don’t like this specter of picking winners and losers,” and he went on to emphasize that it will only “be used for purposes of closing a deal.”

It’s not as if the Texas Enterprise Fund is about to disappear. It didn’t suffer the fate of the state’s Emerging Technology Fund, which was abolished this year as part of a plan to emphasize attracting high-powered academic research to Texas. And Abbott did get the $90 million over two years he requested for the enterprise fund – from a Legislature that had floated proposals of as little as $30 million.

Still, the final amounts were far less than much of the state’s business lobby had sought.

“We’re going to lose out to other states and countries” in attracting business, said Tony Bennett, president of the Texas Association of Manufacturers. “What we’re seeing is an assault on economic development tools.”

The enterprise fund was established in 2003 at the behest of Perry, who said that Texas, despite a low tax burden overall, was up against states that would offer rich packages to lure big businesses and jobs. The Legislature put $285 million into the program for its first two years, in 2004 and 2005. Since then, appropriations have risen and fallen, depending on how much had gone unspent and various political considerations. In the first two years, Perry struck nearly $280 million in deals; in 2008-09, the program resulted in $33 million in new deals; and in the 2014-15 biennium there have been $82 million in deals,according to the state.

Since its inception, the program has resulted in a total of $575 million in deals. That averages to roughly $52 million spent per year, compared with the $45 million the Legislature just agreed to award the fund annually over the next two years. Criticism of the program led to a new oversight board, but one that only analyzes deals after the fact, as many business-promotion groups wanted, and isn’t involved with the negotiations, which remain with the governor’s office.

But the funding in this year’s session fell well short of the $200 million that business lobbyists say the state should be putting into the program.

“Despite tremendous job creation in the last six years, we are mindful that Texas lost 25,000 net jobs in March 2015,” according to a letter from 77 chambers of commerce, think tanks and other business groups. “As Texas’ economic growth moderates, the importance of recruiting blue chip company relocations and expansions grows.”

The letter goes on to note that a single deal can cost $40 million, as one agreement Texas reached with the Sematech semiconductor consortium in 2004 did, and as the one the state struck to lure Toyota’s corporate headquarters to Plano did. The Enterprise Fund also promised about $30 million to Apple Inc. in 2012 to help lure the technology giant to build its Americas Operations Center in Austin. Apple promised to create 3,600 new jobs in Austin over 10 years as part of that deal.

Even the perception that the fund is flagging could hurt the state, said Drew Scheberle, a Greater Austin Chamber of Commerce senior vice president.

“How many deals do you lose out on, if people don’t even think to pick up the phone and call you?” Scheberle said.

Some other states, including North Carolina, have also grown increasingly skeptical of incentive packages, said Brian Kelsey, an economist who runs the Austin-based firm Civic Analytics.

“We’ve outgunned every other state in the incentive war, and there’s no question that the enterprise fund has made a difference in some location decisions,” Kelsey said. “The enterprise fund can swing a deal, but it can’t make it. Any deal contingent on the enterprise fund to ‘make the numbers work’ for the company is not one you want to be on the other side of a contract with.”

Though the highest-profile of the state’s incentive programs, the enterprise fund wasn’t the only program that was funded below where business groups wanted. The Moving Image Industry Incentive Fund was cut by two-thirds, to $32 million, according to the Austin chamber. That level of funding led Bill Hammond, CEO of the Texas Association of Business, to say: “We’ve diminished our ability to compete … you have other states that give away the house.”

Dallas Fed lowers Texas job growth forecast

This article was written by Dan Zehr and appeared in the Austin American-Statesman on 03/19/15.

Dallas Fed lowers Texas job growth forecast

The Federal Reserve Bank of Dallas scaled back its forecast for Texas job growth this year, saying that continued weakness in the energy sector, a tighter labor market and slowing exports would result in fewer new jobs than initially expected.

The Dallas Fed said it now expects Texas employers to expand payrolls by 1 percent to 2 percent in 2015, according to a report in its latest edition of “Southwest Economy.” That would result in about 117,000 to 235,000 new jobs statewide.

In January, the bank’s economists had projected state job growth of 2 percent to 2.5 percent.

“Last year, job growth nationally was 2.3 percent,” the report said. “If the national figure remains constant or picks up slightly in 2015, there is a good chance that Texas will trail the nation in job growth for the first time in 12 years.”

In January, Dallas Fed senior economist Keith Phillips said sharply lower oil and gas prices would slow job growth in the state, but not send Texas into contraction. At that point, he said, the state could add as many as 295,000 jobs in 2015.

Phillips had based his projection on oil prices of about $50 a barrel. On Wednesday, West Texas Intermediate Crude was trading just below $45 a barrel.

The low price alone didn’t prompt the revision. Rather, the report noted, the energy sector’s ripple effects on the Texas economy has been exacerbated by a tighter labor market and weakening exports.

To a point, lower energy prices deliver a boost to the national economy. But the current depth of prices and the state’s widespread exposure to the industry offsets the benefit Texas consumers get at the gas pump and Texas industry gets from lower energy costs.

“Even a 5 percent loss in oil and gas extraction jobs moves us down into the 2 percent employment growth range overall for 2015, and I think most analysts would say 5 percent is probably conservative,” said Austin economist Brian Kelsey, principal of Civic Analytics. “Growth in other sectors, especially the anticipated 6 percent growth in health care employment, will soften the blow, but a lot hinges on how lower earnings in the energy sector will translate to layoffs.”

For many manufacturers, the stronger U.S. dollar has had a bigger impact, slowing their exports as products become more expensive abroad.

The break-even point for most oil drilling in Texas is below $80 a barrel, the bank’s report said, so last year’s initial price declines helped spark an increase in consumer spending.

“The further decline to between $45 and $50 (a barrel) is likely to more greatly affect the oil and gas sector,” Phillips and Dallas Fed economic analyst Christopher Slijk said in their report. “The rig count is off 41 percent, from a high of 906 in late November to 538 at the beginning of March. Further reductions are expected.”

In January, Phillips said the chilling effect from lower oil prices would show up in the oil fields and in Houston during the first quarter of this year, with the effects rippling throughout the state later in the year.

The Dallas Fed’s Beige Book report released earlier this month provided evidence of that. Some staffing firms said they had seen demand shift away from Houston, the report said, while some energy companies there said they were scaling back and looking to sublet office space.

As for the potential impact on Austin, Kelsey said that while job growth in Austin would likely slow a bit, “I’d be surprised if we didn’t outpace Texas as a whole.”

“As of now, we’re still on track to reach 1 million jobs in the Austin region by the end of 2015, including self-employment. But we will still feel the downturn in the energy industry in Austin, even though we don’t rely on it much for jobs,” Kelsey said. “Lower earnings for Austin residents with oil and gas holdings means lower discretionary spending, and that could drag down Austin’s growth rate.”

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.

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.”

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.”

Job growth remains strong, but slowdown could be ahead

This article was written by L.M. Sixel and Collin Eaton and appeared in the Houston Chronicle on 12/19/14.

Job growth remains strong, but slowdown could be ahead

Houston-area employers added a record-setting 125,300 jobs over the last 12 months, state officials reported Friday, even as two other reports pointed to the potential for pain in the coming year due to slumping oil prices.

The monthly jobs numbers released by the Texas Workforce Commission show a healthy year-over-year growth rate of 4.4 percent – evidence that crude’s dramatic fall has yet to shake the local economy.

But the bellwether U.S. rig count was down for the second consecutive week, and an analysis from JPMorgan Chase raised the possibility the state could slide into a regional recession should oil remain as cheap as it is today. Despite the rise of health care, high technology and other industries in Texas, the state still has about 11 percent of its gross state product tied up in oil and gas, the banking giant said.

Barton Smith, professor emeritus of economics at the University of Houston and a longtime observer of the local economy, said oil prices would have to remain low for about six months before the energy industry takes a hit. He said it would be even longer before sectors such as construction, which is still trying to catch up with the surge in Houston’s population, feel the pinch.

“I’m confident we’re growing at 4 percent or better,” he said, echoing the Workforce Commission estimates.

‘A lot of momentum’

The future depends largely on the price of oil, which has fallen by about 45 percent since this summer as excess crude supply has intersected with weakening demand and a sputtering global economy. The U.S. benchmark oil price closed Friday at $56.52, up $2.41 for the day but still far below the $100-plus highs common in the first half of the year.

“I think we have a lot of momentum heading into 2015,” said Ross Harvison, chairman of the Institute for Supply Management-Houston Business Survey Committee.

He said he expects solid employment growth the first few months. But after that, he said, lower oil prices could cause job growth to dip below the current estimates of 50,000 to 60,000 next year.

Another local economist said he’s already found troubling signs of economic stress in Friday’s jobs report. Some of Houston’s most important job-creating industries are slicing their payrolls, said Patrick Jankowski, vice president of research for the Greater Houston Partnership.

Between October and November, oil and gas exploration and production firms cut 700 local jobs, including 400 in support activities for drilling.

The construction industry, which has been on a tear putting up office buildings, single-family homes and multifamily apartments, trimmed 700 jobs from its payrolls. And the high-paying, revenue-generating manufacturing industry eliminated 800 jobs between October and November.

Jankowski said he wasn’t expecting to see those job losses until next year. Though relatively small, he said, they could signal that Houston’s much-envied economy is starting to downshift.

“Is this the turning point?” he asked.

Jankowski said the next few months could show whether the trend plays out. He’s also keeping his eye on the rig count.

The number of rigs searching and drilling for oil and gas across the United States fell by 18 this week to 1,875, according to data from oil service company Baker Hughes. Last week, the count fell by 27. Texas’ rig count fell this week by four, to 868, bringing the two-week total slide for the state to 28.

The weekly rig count is a closely watched indicator of how much oil will be extracted in the future. The tally often tracks the price of crude oil, as most companies choose to drill fewer wells if the resource is less valuable.

But because drilling rigs are contracted out for long periods of time, falling oil prices can take months to translate into a lower rig count.

Meanwhile, the head U.S. economist for JPMorgan Chase, the nation’s biggest bank, uttered a word this week that Texans haven’t heard in years: Recession.

Chain reaction?

The report also raised troubling comparisons with the painful bust that began in the mid-1980s.

After a surge in shale energy, the state now bears 40 percent of the nation’s oil production, the highest share of any state. And 2.7 percent of Texas jobs are in oil and gas.

Compare that to 1986, the bank report said, when sliding oil prices set off a painful chain reaction that extended from the oil industry to real estate and finally to the financial sector, which saw hundreds of banks fail in the late ’80s.

Back then, 11 percent of the state’s economic output and 3.7 percent of its workers were in oil and gas. Though fewer of the state’s jobs are now in that industry, “we’re not talking about night and day,” JPMorgan chief U.S. economist Michael Feroli wrote.

“There are some reasons to think that it may not be as bad this time around, but there are better reasons not to be complacent about the risk of a regional recession in Texas,” Feroli said.

The U.S. benchmark oil price fell 60 percent in the first half of 1986, while in the second half of 2015 it has fallen by a smidgen under 50 percent. In 1986, Texas’ jobless rate rose 2.6 percentage points higher than the national rate, to about 9 percent.

It’s not yet clear how long oil will stay this cheap, but if it’s for an extended period, it could “be a big danger for the banks” that lend money to homeowners, for automobiles and small businesses, said Gil Baker, district deputy comptroller in the southern district for the Office of the Comptroller for the Currency.

Barker said Texas bank examiners are already starting to see financial problems with less stable bank borrowers “on the margins,” as well as layoffs and cutbacks among smaller banking customers.

“When there’s a price drop this significant and this quick, it’s definitely going to have an impact,” Barker said.

That impact could take the form of 212,000 job losses across Texas, if oil and gas production companies see earnings fall by 20 percent, or $13.5 billion, said Brian Kelsey, economist and founder of Austin-based Civic Analytics.

Those job losses would wipe out two-thirds of the projected gains expected in Texas next year, Kelsey said. That could translate into 79,500 jobs lost in the Houston metropolitan area, he said.

Oil companies’ plans

Drillers and oil field service companies projected more pain this week as oil producers slash their spending budgets for next year. On Friday, the world’s biggest offshore rig contractor said it would scrap seven of its older drilling vessels and expects a $140 million charge in the fourth quarter as it puts the rigs on the sales block.

That’s after Transocean’s string of announced rig retirements in November and a projected loss of $2.76 billion in value for its drilling business, as oil companies place fewer orders for big rigs.

Earlier this week, Houston oil producer Rosetta Resources said it expects to cut its budget to $700 million to $800 million in 2015, from $1.1 billion this year. So far, a handful of other oil companies, including Houston-based Conoco-Phillips, have reported they’ll cut spending next year.

Robert Grattan contributed to this story.

Texas banks already seeing some problem borrowers as oil slides

This article was written by Collin Eaton and appeared in Fuel Fix on 12/19/14.

Texas banks already seeing some problem borrowers as oil slides, regulator says

HOUSTON – One of the top federal regulators for Texas community banks says examiners are already catching some problems with less financially stable bank borrowers, and if oil remains cheap for long, it could get a lot worse.

“If we get into an extended period of lower prices, it’s going to be a big danger for the banks,” said Gil Barker, Office of the Comptroller of the Currency’s district deputy comptroller for the Southern District, which includes Texas and a few surrounding states.

The oil-price crash of the 1980s still brings back painful memories for Texas bankers, who saw hundreds of financial institutions fail in the late 1980s during an economic dry spell after crude slid 50 percent in the first half of 1986. U.S. benchmark crude has fallen almost that much in the second half of this year.

The community banks that Barker follows have $10 billion in assets or less, so they don’t typically lend money to U.S. independent producers – but they can feel it when big companies in the Permian Basin and in the Eagle Ford Shale suddenly cut costs or lose money.

These banks make retail loans to homeowners, for automobiles and small businesses, like the apartments and restaurants that have cropped up in oil-producing Texas regions. The OCC is starting to see layoffs and cutbacks among those smaller banking customers, and “on the margins,” some financially weak borrowers are seeing more problems, Barker said.

“When there’s a price drop this significant and this quick, it’s definitely going to have an impact,” he said.

Texas bankers, Barker said, should start taking borrowers’ financial information with a grain of salt, because past income statements were probably based on revenue gains when oil prices were higher.

From OCC exams, it appears banks are well-prepared for a cyclical downturn, but if it’s for an extended period of time, it could cause a lot of financial problems for borrowers and lenders, Barker said.

“There’s no question that if there’s a longer duration in downturned prices, the chance for a regional decline here in economic activity is very real,” he said.

Brian Kelsey, economist and founder of Austin-based Civic Analytics, said Texas could lose 212,000 jobs next year if oil and gas producers see a 20 percent, or $13.5 billion, drop in earnings – defined as wages, salaries, benefits and business profits. Those job losses would wipe out around two-thirds of the state’s projected 2015 job growth, Kelsey said.

The Houston metropolitan statistical area, Kelsey estimates, could see 79,500 jobs lose if the oil extraction earnings fall by $6.6 billion.

Lower oil prices a threat to Texas economy

This story was written by Claudia Grisales and appeared in the Austin American-Statesman on 12/19/14.

Experts: Lower oil prices a threat to Texas economy

These days, Texas consumers are celebrating the lowest gasoline prices in more than five years.

But lower oil prices are also a risk factor for the overall Texas economy, which depends heavily on the energy industry. In fact, some experts say Texas is in danger of losing billions in revenues and hundreds of thousands of jobs due to the declining price of oil.

Thanks to booms in the Eagle Ford Shale and the Permian Basin, oil production in Texas has soared to more than 3 million barrels per day. Oil and gas extraction accounted for 11.9 percent of Texas’ nongovernment gross domestic product in 2012, according to the federal Bureau of Economic Analysis.

Austin economist Brian Kelsey, concerned about the potential impact of falling oil prices on the state’s economy, is examining what could happen to the state’s revenue and jobs under a continued decline for the energy industry.

If oil and gas industry earnings in Texas fall 20 percent, Kelsey estimates, the state could lose 212,000 jobs and $13.5 billion in total earnings. In turn, the Austin metro area could see a loss of 4,200 jobs and $210 million in earnings.

A significant decline for the energy industry, Kelsey said, would ripple throughout the state’s economy.

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

Michael Feroli, J.P. Morgan Chase’s chief U.S. economist, made an even more dire prediction in a Thursday note to clients. He compared the current situation in Texas to the 1986 state recession, which happened after oil prices dropped by about 50 percent in a six-month period.

“As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession,” Feroli wrote.

The oil and gas sector, which includes a dozen related industries, accounts for 411,372 jobs throughout Texas, about 3.2 percent of jobs statewide, according to Kelsey’s analysis of workforce data from EMSI. The core oil and gas extraction industry on its own accounted for 111,422 jobs, about 0.9 percent of Texas payrolls.

Robert “Bill” Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s C. T. Bauer College of Business, has warned that oil prices below $60 a barrel could lead to significant cuts in domestic oil exploration and drilling. Brent crude prices fell to $59.27 per barrel Thursday, while West Texas Intermediate crude oil has dropped below $54 a barrel, marking a five-year low.

Gilmer, who has called the scenario of low gasoline prices versus low oil prices a “strange mix of good news and bad news,” said the lower oil prices could be felt in a range of Texas businesses, from machine shops and factories to office towers.

Texas lawmakers and some economists, however, say the state’s economy has become diversified enough to weather a downturn in the oil and gas sector.

“The good thing for Texas is we are in a pretty good position,” said Michael Seman, senior research associate with the University of North Texas Center for Economic Development and Research. “Texas is now a much more diverse economy.”

State Rep. Jim Keffer, R-Eastland, chairman of the House Energy Committee, said he doesn’t see “any doom and gloom.”

“But I see the obvious realities of an economy, and we are world player now,” Keffer said. “We’ve been here before. We are positioned to ride the storm very well. I think we can blunt some of the sharp edges of an oil and gas downturn.”

However, Keffer said a decline in oil and gas industry revenues could impact the state’s rainy day fund and other areas of the state’s budget.

Budget surpluses driven by oil and gas revenues “may be slimmed up for the next session,” Keffer said. So “we have to be judicious in how we look at the future.”

“It’s good to be reminded that this is a commodity,” Keffer said. “We are being reminded it’s not always such a rosy picture, and we have to make our decisions based on a cycle or a trend, not just what we are doing now.”

Meanwhile, Texas consumers continue to bask in the glow of the lowest prices at the pump since May 2009. On Thursday, the statewide average for a gallon of gasoline reached $2.26, while Austin was at $2.31, down 37 percent in the past six months, according to AAA Texas.

The lower prices, AAA Texas estimates, are translating into savings of $400 million each day compared with higher prices earlier this year. It’s also forecasting 8.1 million Texans will travel this holiday season, marking the highest growth rate since 2009.

“Lower oil prices mean lower prices at the pump and translates into more money for consumer spending,” said Seman, the University of North Texas researcher. “It’s also at the time when we are buying gifts, and there’s more money for that.”

So while the current energy price declines “are not without some belt-tightening and some uncomfortable economic situations,” Seman said he doesn’t see reason to panic.

“If history is a guide,” he said, “this is just a dip in a long series of ups and downs.”

Staff writer Dan Zehr contributed to this report.

Women-owned businesses in Texas

This story was written by Claudia Grisales and appeared in the Austin American-Statesman on August 15, 2014.

Business leaders: Texas can do more to help women-owned businesses

More can be done to boost the number of women-owned businesses in Texas, female business leaders told U.S. Sen. John Cornyn and Texas Comptroller Susan Combs during a roundtable discussion in Austin on Thursday.

About 29 percent of businesses in Texas are owned by woman, but with additional intervention that number could be higher, business leaders said.

“These are great stories, some of which I will never forget,” Cornyn, R-Texas, said after hearing female business owners share stories on how they got their starts.

The discussion, held at Chez Zee restaurant in North Austin, started off with discussion of an American Express study that found the number of women-owned businesses in Texas grew by nearly 100 percent from 1997 to 2014. That ranked Texas was second in the nation behind Georgia, which posted a 118 percent growth rate, according to the study.

The study didn’t include specifics on whether that growth rate included women-owned businesses that failed. An American Express spokesperson could not immediately be reached Thursday.

Brian Kelsey, principal of Civic Analytics, an Austin-based economic development firm, said Texas doesn’t appear to stand out from other states in terms of the share of total businesses that are owned by women.

As of 2007, there were more than 600,000 women-owned businesses in Texas, which was about 28 percent of all businesses in Texas, Kelsey said, citing the latest available data from the U.S. Census Bureau. If you look at women-owned businesses as a share of all businesses, Texas ranked 18th, well behind places like Washington D.C., Maryland and New Mexico, he said.

“The important point is to ensure that we do everything we can to lower any barriers that may exist for women to start and grow businesses,” Kelsey said.

Still, Combs said, the growth figures are positive and point to a determined set of female business owners.

“It’s a really big deal,” Combs said, adding later, “we are feisty, we are not afraid to kick anybody in the shins and that’s why we are successful.”

Several area female business leaders, including the founder of Triton Ventures, Sugar Mamas Bakeshop and others, shared how they started their operations, lauded some of the resources that helped aid those starts and also laid out concerns that can hold back such entrepreneurship efforts.

For example, Sugar Mamas Bakeshop owner Olivia Guerra O’Neal, who said she had learned the ropes of starting a business from her father by the age of 10, said that while Austin has been welcoming she’s also faced challenges with her business location and working with the city’s health department.

“We do believe there could be more done to help women-owned business in Texas,” O’Neal said.

Laura Kilcrease, founder and managing director of Triton Ventures, said she has also seen the challenges facing female business owners.

Kilcrease said improving the size of state and federal contracts for small businesses, improving access to capital, boosting education could help grow the number of female-owned businesses in Texas.

“I think education through our universities in our is going to be key,” she said.