Local economy bucks national trend

Local economy bucks national trend

Written by Amy Stansbury Thursday, 03 April 2008

Local retailers doing well, some even having best year to date

“We have been around 18 years, and we’re up 18 percent over last year.” — Terry Myers, owner, Kaleidoscope Toys

“Right now, there are five existing businesses we’re working with, who are experiencing huge growth, and they’re having to expand their building space or manufacturing space.” — Charley Ayres, Round Rock Chamber of Commerce

“The residential real estate market in Central Texas is not in the same condition as the rest of the country. We are still in a thriving market and a force to be reckoned with.” — Nicole Boynton, realtor, Coldwell Banker

The national economy may be showing signs of slowing, with diesel gasoline at more than $4 per gallon and mortgage foreclosures up across the country. But many local retailers are not feeling the pinch and reports indicate the real estate market is relatively strong.

Retail

Most of the retailers in the area are reporting strong sales and the retail sector overall has fairly steady growth across the board, said Charley Ayres, Round Rock Chamber of Commerce senior vice president of business retention and expansion. However, the number of new stores coming to the area may be slowing in Round Rock, but not necessarily because of the economy.

“I have seen some of the large retail development slowing,” Ayres said. “There seems to be a concern about market saturation.”

More stores are coming to the University Oaks shopping center where IKEA and JC Penney have opened. Office Depot, REI, PetSmart and Ross Dress for Less are also scheduled to open this fall at the 625,000 sq. ft. shopping center. But Ayres said he thinks the retail developers are starting to be a little cautious. He expects retail to continue to grow, but the stores that come to the area will be more unique. Retail developers are playing their cards close to their vests so the same stores are not on every corner, he said.

“The Domain in Austin is a good example,” he said. “You will find a very different product there. Diversity and choices are what will bring people into the centers.”

Employment

The unemployment rate in January for the Austin/Round Rock metropolitan area was lower than the rates for the state overall and the nation, at 3.9 percent compared to 4.3 percent in Texas and 4.9 percent in the U.S.

Round Rock’s largest employer, Dell Inc., reported a stronger fourth quarter.

“We have more work to do on cost to restore our competitiveness so that we can deliver long-term profitable growth,” said Dell spokeswoman Caroline Dietz. “We have evaluated all areas of our business and have identified multi-billion dollar opportunities to improve efficiency and lower costs.”

One of those initiatives is to reduce operating costs, which includes workforce reduction. As announced in May 2007, Dell is targeting a 10 percent reduction in headcount, or 8,800 people. Approximately 3,300 have already been let go, and another 5,500 will be laid off by the end of April. It is not yet known how many will be based in Round Rock.

“Whether it is a process, a tool or an individual, we are looking to bring back discipline and eliminate redundancies and improve efficiencies,” Dietz said.

However, University of Texas finance professor and distinguished lecturer Jim Nolen said there is still job growth in Central Texas because the region has a diverse economic base.

“[Central Texas is] not tied to the auto industry, so we’re not seeing the problems there,” Nolen said. “We aren’t really tied to the really big financial services sector, so we’re okay there.”

Nolen also said that most economists are forecasting continued job and population growth in the region, but the rate will likely slow from the 4 percent growth in the past few years to 1 or 2 percent.

“But relative to the rest of the economy, we’re in relatively good shape thus far,” he said.

Population typically follows job growth because if there are no jobs, people don’t move into the area, he said.

Local business

Many locally owned businesses seem to be doing well despite the slowing national economy, especially those that are well established. Gaddy’s Hardware, Feed and Garden in Pflugerville has been in business for approximately 35 years. Owner Mark Gaddy said so far, sales this year have been flat.

A new Home Depot is opening in May at Stone Hill Town Center, which could be competition to Gaddy’s. However, Gaddy doesn’t think his business will be seriously affected. In fact, he says it gives people another reason to drive by his store on FM 685.

“Any sale you miss is going to hurt, but the pinch is not going to take us down,” he said. “We have an advantage over other businesses. One, we’re established and we’ve got that clientele. Daddy also owns the property, so he’s not charging me what he probably could get out of it from someone else. If another independent hardware store popped up across the street from us, they’re going to have such high overhead [because of the cost of real estate], any economic downturn would have a much larger effect on them than on me.”

Gaddy is hoping customers will continue shopping at his store because of customer service and convenience.

“Who wants to walk half a mile just to buy a flapper for their toilet?” said Gaddy. “We see the same people again and again. A lot of times our cashiers, if they don’t know the customer’s name, they know what they buy, and people like that.”

Many children’s toys are likely purchased with disposable income dollars, and business at Kaleidoscope Toys is booming. Myers attributes the strong sales to good customer service, too.

“I’m seeing that people are really looking for more — kind of a back-to-basics store where they can walk in, meet the owner, and the people working there are going to know the products,” Myers said. “They like that special feeling of a locally owned business and not having to deal with a corporation.”

Customers who shop at Kaleidoscope Toys are often looking for something unique, Myers said.

“There has been a coming back and pulling away from the big stores because you just see the same thing over and over,” she said. “The quality people are looking for is a little bit better. In my case, people want something that will last longer than 30 minutes of play, and it isn’t going to be just junk.”

Real estate

Houses in Round Rock and Pflugerville are selling at the same rate as they were two years ago. The most notable change in the local real estate market over the past year is the difference between the list price and the sold price. Generally, the selling price of a home is lower than the asking price. In January, the variable between the asking and selling price increased significantly from 1.5 to 2 percent, Boynton said. She attributes this to two main reasons.

“First, sellers are not being realistic about where they are pricing their homes based on the current market and instead pricing their home high at first, and then dropping it in price a few weeks or months later,” Boynton said. “Second, we are now in a ‘buyers’ market’, which allows the buyer more negotiating power so sellers are continuing to lower their prices during negotiation of a contract.”

According to Boynton, the “sweet spot” for this area for the past three years continues to be homes priced between $100,000 and $150,00, followed closely by those between $150,000 and $199,999. This means that these houses sell the most quickly and make up the highest percentage of the total homes sold.

Commercial real estate is busier than residential, Ayres said.

“[Commercial construction companies] are still having to pick and choose which projects they want to bid on because they just don’t have the manpower to do them all,” Ayres said.

Economic forecast

Nolen is cautiously optimistic about the Central Texas economy.

“Overall, I think the positive news is that people want to come [to Central Texas],” he said. “There’s reasonable job growth and that bodes well for us surviving this downturn better than most communities. We’ve got good infrastructure, we’ve got good roads, we’ve got fairly healthy municipalities that haven’t overspent, and we have an environment that people want to move to,” Nolen said. “The economy is more psychological than real. If people believe we’re in a recession, we’ll be in a recession,” he said. “If people believe this is a correction, and we’ll come out of it, then you’ll be okay.”

2007 Local, State and National Economics at a glance

• Median Price of Homes Sold
  • Round Rock - $180,000
  • Pflugerville - $152,000
• New Jobs
  • Austin Metro - 29,100
  • Texas - 230,400
  • U.S. - 1,788,000
• Employment
  • Austin Metro - 749,100
  • Texas - 10,267,000
  • U.S. - 137,930,000
• Retail Sales
  • Austin Metro - $26.5 billion
  • Texas - $382 billion
  • U.S. - $4.53 trillion
• Population
  • Austin Metro - 1,580,000
  • Texas - 24,000,000
  • U.S. - 301,800,000

Source: Bureau of Labor Statistics

“If another independent hardware store popped up across the street from us, they’re going to have such high overhead [because of the cost of real estate], any economic downturn would have a much larger effect on them than on me.” — Mark Gaddy, owner, Gaddy’s Hardware, Feed and Garden

Residential Real Estate
	Pflugerville			Round Rock
	Jan '06	Jan '07	Jan '08	Jan '06	Jan '07	Jan '08
Days on market	61	75	60	71	71	77
Number sold	65	103	87	177	194	168
Difference between list & sold price	1.623%	1.753%	2.995%	2.619%	2.638%	4.427%
Number sold $100K-$149.9K (all months)	793	646	na	1001	814	na
Number sold $150K-$199.9K (all months)	586	570	na	814	803	na
Source: Nicole Boynton, Coldwell Banker