Economist says NE Texas weathering downturn
Published or Revised December 04, 2009
The annual North East Texas Economic Outlook Conference held Wednesday in Sulphur Springs was well attended by several hundred people from the surrounding region eager to hear the economic prognosis for Hopkins, Hunt, Delta, Lamar, Franklin and Titus counties. The program included a repeat performance by economics expert Dr. Ray Perryman, president and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. "This area did better than most other places in the country," Perryman assured the group, "due to the diversity of the economy. There was no boom-bust cycle." Starting with the Gross Domestic Product, Perryman said the last quarterly report initially showed it as increasing 3.5 percent, and then it was revised downward to reflect a growth of 2.8 percent. The reported number reflects four groups – consumers, accounting for 70 percent of spending, business, government, and foreign sector. Much of the increased spending came from consumers with growth in confidence and cash for clunkers. "When I was here last year," Perryman said, "things were a mess with the financial system, but it's a lot better. People are spending more, but there's still a national unemployment rate of 10.2 percent, and counting underemployed or those who've given up hunting for jobs, it's around 17 percent. Also, credit is tighter, so that GDP growth won't be sustained in the short term. Housing was in the tank but is improving and that seems to have staying power." He said Texas added nearly 400,000 people to its population last year, or 1,000 new people a day. Only 85,000 housing units were built though, so demand will continue to grow. Another positive economic sign was to be found in business spending, especially for equipment. Equipment purchases are on the rise, meaning businesses expect to sell what they make. Government spending was up 8 percent. In the previous quarter it was up 15 percent. The foreign sector, exports minus imports, caused part of the growth in consumer spending, but the report comes out later than other numbers, so this caused the GDP number to be revised downward to 2.4 percent. Exports increased 15 percent, but imports were up 17 percent. Perryman went on to address the jobless recovery. There are fewer people working, a net loss of jobs, and growth in unemployment. Unemployment is the first number reported every month. "Actually, every recovery is jobless at first," Perryman explained. "There must be recovery before people start hiring. In a downturn, people are laid off or have their hours reduced. Right now the average work week is 32 hours. This means you can continue to produce more with the people you have by increasing their hours, instead of needing to hire more people now. I predict it will be five to six months before you see job growth." Turning to the atate's economy, Perryman said Texas was one of the last states to feel the downturn's effects. Though 300,000 jobs were lost, it was five to six months later than elsewhere, and oil and gas prices gave Texas a cushion. In the same time period, the nation lost 7-8 million jobs. "We're 8 percent of the economy, but we lost only 4 percent of the jobs," Perryman said. "We're also one of the first areas emerging from the downturn. Oil prices are up, as is the gas futures market. Technology is one of the lead sectors emerging from this recession, and Texas builds a lot of the gadgets people are buying now." Northeast Texas, Perryman said, has large manufacturing concerns that make products that are always needed. The 6 percent unemployment rate for the area is good compared to many other areas of the country. The region's economy won't grow as fast as other areas in Texas, but didn't experience the same plunge as those areas, either. "It's a very diverse, stable economy, and I predict renewed growth for the area," Perryman said. After concluding his comments, Perryman took questions from the crowd. The first was whether manufacturing jobs would return from China. "Maybe not jobs," he responded, "but manufacturing will return. With the minimum wage, we emphasized higher paying manufacturing jobs. We're still a manufacturing country. In 2008 we made more stuff with fewer people than ever before. More will again be produced by 2011. We'll get apparel back when our robots are cheaper than their unskilled laborers. It means our labor force needs skills." Next he was asked what industries are growing in North Texas and how could they be encouraged to come to this region. "Those moving out of the Metroplex," Perryman answered. "Technology-based, information industries are a big one. They come for quality of life programs and a trained workforce. Local and state incentive programs are already excellent and competitive. They look at roads, schools, etc." On the effect of commercial real estate's downturn, Perryman said that next year $1 trillion in commercial mortgages will come due, and many will go unpaid. This will have some effect on the economy, but nothing like housing. Perryman said one mode of dealing with it is "pretend and extend," that is, ignore the drop in value and defer calling for the loan to be paid. There are no hidden problems though, as there was with the housing bubble. A bailout of the FHA could happen, but while there were losses, some ground is being made up now. A lot of the economic infrastructure is built around people getting homes. Asked about an increase in the gas tax, Perryman commented: "That might be the best thing we can do. The Texas Poll found that 80 percent of the people want new roads now, but no toll or foreign-owned roads and no gas tax. "But a gas tax is the only way to build those roads. There hasn't been an increase in the gas tax since the early 1990s. Cars are more efficient in using gas, and the cost of road building is up exponentially. Today you must sell 40 percent more gas to fund the same amount of roads. "TXDOT is basically at a standstill for new roads and mostly paying for maintenance. But remember the 1,000 people moving here a day. New roads must come, and there's not much economic effect from a gas price overall." When asked to calculate interest rates in the next year, Perryman said (to laughter): "They're going to go up and down." He said there would be some inflation and rates will go up, but he doesn't see a huge increase. Other responses to questions included:- In the commodities' market, futures will be more volatile than in the past. This is due to minute-by-minute reporting leading to wilder swings.
- There is some concern about student loans and education debt, but there must be an educated workforce.
- Asked whether the credit default rate was constricting credit to business, Perryman said that in the short term it had, but that was also caused by less regulatory flexibility. "It will take a longer term for loosening of credit," he explained. "There is money to be made lending money to businesses, but perhaps more of this will take place outside the traditional banking community."
- Asked about the bailout, Perryman responded, "We had to do it. The largest insurance company in the world couldn't be allowed to fail because there needs to be a safety valve for shifting risk in the global market. We could have done it better, but cut Republicans and Democrats some slack. They didn't sign on for this crisis, and because they had to move quickly they couldn't negotiate a better package. They had 12 hours versus six months, and the safeguards were lost. Red tape and regulations are frustrating and time-consuming but needed. Some aspects of the bailout need to be undone, but they need to be undone very well, and hopefully we'll do a better job."