Austin economy fares better than nation

Austin economy fares better than nation

Written by Tiffany Young Thursday, 07 February 2008

With the national economy showing signs of slowing with oil over $90 a barrel and a high amount of subprime mortgage foreclosures across the country, Austin is likely to see some effects. However, the Austin area is expected to outperform most metropolitan areas during a slowing economy, even in the housing market where northwest Austin realtor Jim Morelli of RE/MAX Capital City said business is great.

“It’s slowed down a little here but it’s not impacting Central Texas like it is in other parts of the country,” said Dave Porter, senior vice president of economic development of The Greater Austin Chamber of Commerce. “Austin is pretty insulated in that our economic base is pretty diversified.”

Employment

The unemployment rate in November for the Austin/Round Rock metropolitan area was at 3.5 percent compared with 4.1 percent for Texas and 4.7 percent for the U.S.

One reason Austin’s economy fares well is its constant supply of an educated workforce from local colleges.

“Austin has a relatively highly qualified, highly educated workforce in terms of number of college degrees … and that puts us in a good position,” said Susan Dawson, executive director of education equals economics alliance, or E3. “That’s one of the main reasons we come out very high in most ratings and ranking systems about where economic development is hot and best cities to live in.”

Still, job growth is expected to be lower than it has been in recent years.

“While we may not experience the phenomenal job growth we’ve had the last four years, we’ll still have probably over two percent job growth for 2008,” Porter said.

Preparing a workforce

However, studies show that the fastest growing demographic is limited-English proficient and the economically disadvantaged, making it important for Austin’s education system to ensure graduates are ready for the workforce.

While Austin attracts many employees to the area, it’s more expensive to bring workers to Austin than to train people already in the area.

“It is very, very expensive to import a workforce,” Dawson said. “It’s a lot cheaper in the long run to grow our own workforce through getting more and more qualified employees and qualified citizens.”

E3 Alliance was formed as a collaborative effort to initiate a regional effort to increase global competitiveness, economic vitality and overall quality of life for Central Texas by aligning education systems to better fulfill the potential of every citizen.

“Any economist will tell you we’re essentially employed, which is good for everyone except for businesses wanting to hire,” Sen. Kirk Watson said at the recent Central Texas Growth Summit meeting. “We need a lot of people to keep this economic engine going, and this can be traced to our education system.”

Real estate

According to the Federal Reserve Bank of Dallas, Austin single-family housing permits were down 30 percent in 2007. A report by Foreclosure Listing Service Inc. shows foreclosures in Austin are up from a year ago.

Still, realtor Jim Morelli of RE/MAX Capital City said last year’s sales were great and he expects the same this year.

“The credit crunch has hurt a little bit for subprime and low-end buyers, but it really hasn’t affected the market here that much,” said Morelli, who does about 99 percent of his business in north Austin. “The interest rates are still favorable. The local economy is still very strong. There are a lot of people still moving here. Jobs are being created and (people) buying houses.”

Emerging technology

Another way Austin hopes to spur economic growth is through its emerging technology initiative, which plans to target industries such as clean energy, digital media, wireless, biotechnology, life sciences and technology commercialization. The emerging technology subcommittee of the city council has approved the initiative and is awaiting approval from the council.

Through this initiative, the city works with the Greater Austin Chamber of Commerce to keep and attract technology companies, according to Bryan Hamilton, the city of Austin’s economic development manager for the Economic Growth and Redevelopment Services.

“What we’re looking for are companies that have venture capital and they’re coming right out of venture capital into production,” said Hamilton. “We want to partner with those companies and make sure they remain here.”

Recently, the city worked with Samsung Electronics, offering incentives to the company to build its advanced chip factory in north Austin. Samsung Electronics invested $3.5 billion for the project, making it the largest single foreign investment in Texas.

Local support

Local organizations believe Austin’s economy will thrive with local support from consumers and government.

“What can the average citizen do to help? Shop locally,” said Austin Independent Business Alliance Executive Director Amy Wright. “That’s the biggest thing.”

A national survey of independent retailers conducted by the Independent Business Forum showed a larger increase in sales during the holidays for independent businesses in cities where “buy local” campaigns existed. While major chains overall reported a decline in sales from the 2006 to 2007 holiday season, locally-owned businesses reported gains. According to AIBA, Austin retailers reported average sales gains of 6.3 percent this past holiday over 2006.

Country Keepers owner Donna Munson said December sales were significantly improved, but that January sales had slipped.

“If the money gets tighter, they’re going to get what they need, but they’re going to think about their discretionary spending,” Munson said. “If they only have a certain amount of money to use, they may really think about going to the unique stores and supporting local business people.”

While the City of Austin has initiatives to increase economic growth in the area, local economist John Hockenyos, managing director of Texas Perspectives, said it is hard in the short-term to have a large impact on the economy at the local level.

2007 local, state and national economics at a glance

• Employment
  • U.S. 137,930,000
  • Texas 10,267,000
  • Austin 749,100
• Venture Capital
  • U.S. $29.4 billion
  • Texas $1.41 billion
  • Austin $673 million
• Retail Sales
  • U.S. $4.53 trillion
  • Texas $382 billion
  • Austin $26.5 billion
• New Jobs
  • U.S. 1,788,000
  • Texas 230,400
  • Austin 29,100
• Annual Growth
  • U.S. 1.3%
  • Texas 2.3%
  • Austin 4%
• Population
  • U.S. 301,800,000
  • Texas 24,000,000
  • Austin 1,580,000
• Gross Domestic Product
  • U.S. $13.13 trillion
  • Texas $1.06 trillion
  • Austin $74.6 billion

Source: Bureau of Labor Statistics

Nationally, the government is taking steps to increase economic growth, as well.

Tax rebate

• Congress passed a tax rebate Feb. 7 that will give most taxpaying single households $600, couples $1,200 and disabled veterans $300 as early as May.
• Supporters believe lower income households are more likely to spend a tax rebate than save it, meaning money will quickly be pumped into the economy, giving it a boost.
• Those that oppose the rebate believe this attempt at boosting the economy could weaken the dollar, causing inflation.

Federal rate cuts

The Federal Reserve also cut the federal funds rate, which impacts how much consumers pay on credit card debt, home equity lines of credit and auto loans, from 4.25 to 3.5 percent last month citing a weakening economic outlook as its reason.

What is a recession?

While there is no strict definition for the term recession, there are two main ways recessions are determined.

Unofficial recession

Some professionals consider the economy in recession when there are two consecutive financial quarters when the gross domestic product decreases.

Official recession

However, in the U.S., the official determiner of a recession is the Business Cycle Dating Committee at the National Bureau of Economic Research. One way NBER determines if there is a recession is by following business cycles. NBER economists give more weight to personal income, the national employment rate, sales in manufacturing and trade, and industrial production than the GDP. Often a recession is not officially labeled as such until long after it begins. Recessions are a natural economic reaction to periods of economic growth.

Terms to know:

• Business cycles: the courses of expansion and contraction in the economy
• Financial quarter: three-month financial periods in the year
• Gross domestic product (GDP): the value of all the reported goods and services produced by people and institutions operating in a country.