Have we recovered yet?

We all know that Texas has weathered the Great Recession better than the rest of the nation. This recession was minor when compared to past Texas recessions, such as the Savings & Loans crisis of the late 1980s. We have led the nation in job creation, and many business and individuals have relocated to Texas. Still, we have quite a bit of growth to catch up on.

Nationally, June of 2009 was when the recession “officially ended”. 2011 was when the economy began to heal, and 2013 was the year that most can point to as the year they “felt” the economy turn. Still, the national employment situation has remained grim since June 2009. Job creation is barely keeping ahead of population and household growth, and national GDP growth continues to stutter.

In their latest official forecasts, Federal Reserve officials concluded that 2013 U.S. economic growth was on track to be only 2 to 2.3 percent. But they forecast that would rise to the 3 percent ballpark in 2014 and as high as 3.5 percent in 2015. The consistent pattern for the last four years has been to project improving growth in the year ahead, and then to mark down those projections when the rosier future does not arrive. None of this is to pick on the economists, analysts or the Federal Reserve. Anybody who has been in the business of trying to predict the economy has had a difficult job, from the Congressional Budget Office to the coffee shop prognosticators.

The persistence of the trend of overestimation of growth, followed by revised downward projection, raises an important question. Has our economy been on track to recover, and just hit pockets of bad luck – like budget ceiling debates, credit downgrades, the Eurozone crisis, etc? Or, is there something fundamentally broken with our system?

This uncertainty affects all of us as evidenced by the consumer confidence index. Confidence is determined by a formula that takes into account people’s actual financial activities (earning, saving, and spending). The confidence index has averaged 73.3 this last year, the highest since 2007. In 2009, when the economy was in recession for half the year, it averaged 45.2.

But confidence remains below the five-year high of 82.1 reached in June of last year. And that’s still below the reading of 90 that is consistent with a healthy economy. So where are we?

The latest reports suggests Americans are willing to spend more on large purchases. The percentage of Americans planning to buy a home in the next six months rose to the highest level since July 2013. And the proportion of Americans planning to purchase a major appliance in the next six months rose in December from the previous month, another great sign for American businesses.

Large purchases usually bring complimentary purchases, which helps keep the economy humming.

For the last few years, businesses and some analysts have been complaining about “uncertainty” in the public policy area. Next year, some of those unknowns will finally be resolved. U.S. government spending cuts and tax hikes took place, and there aren’t likely to be additional ones next year. Emerging markets continue on their moderate growth path, and there doesn’t seem to be a collapse in activity. Europe’s problems may have finally bottomed out, and its sense of acute crisis has long passed.

Home building

Home building is recovering faster in some cities than in others, just as home prices are. Texas metros are leading the way back in single-family home construction, while the sand state (California, Arizona, Nevada, Florida) cities hit hard by foreclosures still lag. Our four Texas metros are back to 30-year average levels of single-family home construction.

In Austin, home starts ended the year at just over 9,400. At the top of the bubble, Austin home starts were over 17,000. San Antonio had just over 9,000 home starts, yet at the top of the market in 2005-6 they were over 18,000 annually. DFW will end up somewhere around 22,000 home starts, stronger than the previous 5 years but still over 60% less than during the boom. Houston should close the year at 28,000 home starts. They have remained strong even during the downturn, yet they are not back at their peak of close to 60,000+ starts. So home starts are at 50% or better than the boom years in our Texas metros.

If multifamily construction is counted, Texas metros are back to or beyond their historic building levels. The cities that are bouncing back the strongest tend to have land available for building, pent-up demand for housing, generally strong economies and good job growth.

Texas also has land suitable for home building and development, and compared to other markets, a much more forgiving regulatory environment. That attractive formula is what has brought equity sources. That’s not true for many other areas nationally, given the slowness of land development following the housing bust and recession. Some cities, such as Phoenix, have experienced a shortage of lots. Builders developers have yet to return to outlying areas because they got burned there so badly in the housing bust. There is not a builder in Texas that is not scrambling for developed lots. Lots that most development analysts did not think would ever be touched in Austin, San Antonio, Houston and DFW, not only are under contract, but have been built on with homes selling rapidly.

The Texas economy, while slowing slightly late last year, grew 3.7%, vs. 1.9% for the national economy. Single-family home building in the state leveled off late in the year but should pick up, given low inventories and good job and population gains.

Texas employment

The number of Texas workers reached an all-time high of 10.65 million in December 2011 and has continued that strength through 2013, a sign that most regional employers are looking at the recession through a rear-view mirror. The Texas Workforce Commission reported this last December, between November 2012 and November 2013, Texas total non-farm employment increased by 274,200 jobs, or 2.5 percent. As stated earlier, the state by 2011 was to its pre-recession employment levels by replacing the remainder of the 427,600 jobs lost during late 2008 and throughout 2009. The two-year recovery put Texas well ahead of the national job market, which is finding it difficult to regain jobs at the rate of Texas: just 30 percent of jobs shed nationally during the recession have been restored. But full recovery would mean more than a few years of healthy job growth. I would like to see five years of growth before saying we are fully recovered.

The future

Most economists’ projections are realistic, putting America’s economic growth next year at 2.7%. Most of us think that the Federal Reserve will raise interest rates by the end of 2014, which causes concerns for the construction industry. A continued improved national economy needs to see unemployment fall to 6.5% from its current 7.6% rate — a feat that would require job growth to accelerate to 300,000 new positions per month for a sustained period of years.

The biggest lesson of the last six years of crisis and weak recovery is this: Just because a pickup looks like it is right around the corner doesn’t mean it will actually arrive. But after all this hand wringing and negativity, we should feel blessed to live and work in Texas.

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