Roger Baker on Austin’s Economy : Big Picture Not So Pretty?

Austin: as pretty as a picture. But what about the economy? Image from Nerd Fighters.

Filling in the big picture:
Wither Austin’s economy?

By Roger Baker / The Rag Blog / June 9, 2010

The Bureau of Labor Statistics (BLS) just released its latest jobs report which shows that almost all the jobs being created nationally were due to temporary census hires. Very few were created by private business, which would indicate a solid economic recovery. With most state budgets seriously stressed, it now seems to be largely federal stimulus money that is preventing contraction of the overall U.S. economy.

How is this big picture situation likely to affect Austin, Texas, with the current 7 percent reported unemployment rate?

Let us begin by cautioning against putting a lot of credibility in this rosy economic picture painted by the Greater Austin Chamber of Commerce.

The goal of the chamber site is largely to try to recruit new low-wage industry to Central Texas by bragging about things like low private sector unionization and the low Texas unemployment insurance payouts. One way the chamber misleads is by looking backwards: it uses old 2007 data from the housing boom era, rather than using the new data from the Bureau of Labor Statistics.

In fact, one major value of the chamber site, for purposes of analysis, is that it retains old jobs data, useful for comparison in the same jobs categories used by the BLS site below (i.e., see the chamber chart labeled “Employment by Industry, Austin MSA” to see the comparable numbers for the jobs categories below for 2004-2008).

The basic Austin jobs numbers

We will go on to the more useful and revealing information. Fortunately there are much better sources than the Austin chamber and the local business press.

The best way to drill down is to go to the Texas Workforce Commission website. Their “Tracer” page lets us do a custom search for jobs under the “non-farm employment” category in the Austin Metropolitan Statistical Area (MSA) 2000 area.

This BLS link is really derived from Texas Workforce Commission (TWC) data, but it displays an excellent chart summarizing the employment structures and trends underlying the Austin economy. This allows us to see the growth and shrinkage of jobs in the various Austin area job categories during the last year.

Below are the basic employment numbers reported for April 2010 within the the sprawling Austin/Round Rock/San Marcos MSA, covering the most concentrated area of Austin metropolitan development:

  • Total non-farm employment = 763,200 | up .1% = 763 jobs added
  • Mining, logging, and construction (mostly construction around here) = 38,500 | down 5.6% = 2,156 jobs lost
  • Manufacturing = 46,500 | down 6.3 % = 2,929 jobs lost
  • Trade, transportation, and utilities = 130,000 | down .8% = 1,048 jobs lost
  • Information (software side of IT) = 19,000 | down 4% = 764 jobs lost
  • Financial activities = 43,800 | growth flat = no jobs added or lost
  • Professional and business services (high paying jobs) = 104,700 | down 2.4% = 2,513 jobs lost
  • Education and health services (typically relying on government funds) = 85,900 | up 2.9% = 2,491 jobs added
  • Leisure and hospitality (travel to SXSW, tourism, etc.) = 88,200 | up 6.1% = 5,383 jobs added
  • Other services = 33,800 | up 2.4% = 811 jobs added
  • Government = 172,700 | up 1.4% = 2,417 jobs added

Let us mine this data for economic insights. Overall, we see that the Austin area economic growth is nearly flat, and those seeking work have continued to increase to a currently reported 64,400, which equals 7.0 % unemployment. Such unemployment numbers are notoriously inaccurate; the number of people seeking jobs is uncertain and is almost always higher than what gets reported. Even so, this number seeking jobs clearly overwhelms in scale the total of 763 jobs actually added to the Austin MSA area in the past year.

A better way to understand the jobs situation is to focus on the actual reported employment numbers.

One Important insight that Austin’s highly paid private sector jobs — like manufacturing, information technology, and the high-paying professional jobs — are shrinking. These high-paying private jobs are being replaced by other private — but lower pay — jobs related to tourism and the largely private health care industry (though, in the final analysis, many health care jobs are actually supported through state and federal pensions, Social Security, Medicare, etc.).

The leisure and hospitality job increase of 5,300 jobs is the one bright spot in the Austin area jobs trend picture. It is possible that an increase in mostly tourism-based jobs during the last year is partly due to lower travel costs recovering from the very high energy costs of 2008. Or it could be due to recent hotel expansions started during boom times. This is a good area for further analysis.

A deep budget deficit on the Texas state level

We should know that the biennial Texas state budget is about $180 billion and that it faces what the Sunshine Review website describes as a looming budget deficit:

Texas has weathered the economic downturns better than most states with the Texas State Legislature passing and Gov. Rick Perry signing on June 19, 2009 a 2-year budget (Sept.1, 2009 to Aug. 31, 2011) with a projected $9 billion Rainy Day Fund. The FY 2010-2011 biennium budget of $182.3 billion spends $1.6 billion less in general revenue than the previous biennium…

The state is likely to face severe budget constraints, not just today, but for a long time into tomorrow,” said Dale Craymer, chief economist for the business-backed Texas Taxpayers and Research Association. Stimulus money “allowed us to buy time and to push the problem a little farther out,” said Craymer, who served as budget chief for the late Gov. Ann Richards. “Next session (2011), we’re going to have severe challenges.”Indeed, lawmakers are spending slightly less in state money than they did in the budget they wrote two years ago, but the federal money staved off drastic cuts. “We made a sound budget based on the fact that the economy won’t get worse but it won’t get a lot better in the near future,” he said.

Former House Appropriations Committee chief Talmadge Heflin, R-Houston, said taking $12 billion in stimulus funds “could come back to bite” if lawmakers aren’t willing to cut spending next session. “We could have as much as a $15 billion gap to fill,” said Heflin, now with the conservative Texas Public Policy Foundation. Craymer of the business research group guesses the gap will be $13 billion. While most could be filled by draining the rainy day fund, the politics could be tricky, he said, because two-thirds of both the House and the Senate have to vote to spend it…

This unhappy situation has since gotten worse. The latest shortfall number, according to Texas House appropriations chair Jim Pitts, R-Waxahachie, with concurrence by Lt. Gov. David Dewhurst, is actually about $18 billion, or about 10% of the total Texas budget.

The Austin economy is highly dependent on state jobs

With Austin’s private sector moribund and its wages shrinking, what is the likelihood that new government jobs can be created to fill the gap? It is revealing to analyze the likely trends in Austin government jobs, including local, state, and federal jobs.

What if this looming Texas revenue shortfall caused the various local agencies to lay off 10% of the Austin area workers employed by Texas? How many would that be? These are the basic TWC numbers, non-seasonally adjusted, and for the three main categories of government employees in the Austin MSA, as reported by the TWC for April 1010: Federal jobs = 13,700; Texas state jobs = 74,600; Local government jobs = 84,400.

The thing that stands out from this data is that the Austin MSA area is very highly dependent on state government jobs supported by decades of constant growth of the Texas economy, much as it has been in the past.

The Austin economy depends on Texas state jobs in much the same way that San Antonio as a military city is dependent on federal government jobs. Here is the San Antonio MSA for comparison: Federal jobs = 33,900; Texas state jobs = 19,500; Local government jobs = 109,500.

Of course, the big Austin-area local government jobs category is derived from local taxes. Over time local tax collections reflect the health of the local economy — which, in turn, depends on the state and national economies. (For comparison, the somewhat typical metro government jobs breakdown for the Dallas MSA is roughly 75 percent local government jobs and about an equal split for the remaining 25 percent of state and federal jobs.)

If Austin, reflecting the looming 10% state budget shortfall, should lose 10% of its Texas state jobs — or 7,500 jobs — this loss would equal nearly 10 times the total new jobs created in the whole Austin MSA during the last year.

Bottom line

With Austin’s private jobs and its professional job sector shrinking and the state funding also trending toward deep deficit, what is left to secure Austin’s future job growth? Maybe lots of retirees with good pensions, one might hope?

For now, the Austin economy, by default, seems increasingly reliant on direct and indirect federal funds to fill the widening gap left by the shrinking private and state jobs sectors. If we look at Texas as a whole, the Texas Workforce Commission data shows that the total federal jobs in Texas have been nearly flat over the last year, even as state jobs have increased slightly. Given this lack of total federal jobs growth in Texas and a federal deficit running more than 10%, it seems unlikely that new federal level jobs could increase fast enough to compensate for the worsening state level funding gap.

If the various kinds of federal stimulus funds, like the census jobs that appear to be propping up the national and Austin area economy should shrink much, we would expect the Austin economy also to be hard hit.

This might happen because the Federal Reserve is forced to raise interest rates due to decreased foreign lending. A special concern to those who look at the big picture is the long-range local implications regarding federal support of the programs funded through traditional federal funds, such as Medicare and Social Security.

For example, Austin business and political leaders have been actively promoting an economic development vision of jobs growth based on heath care — as a health and health education center — with training hospitals, etc. This future vision may implicitly be based on an assumption that the past inefficiencies of the current “health care industry” will be supported at past levels. The unsustainable entitlement trends suggest that the federal sector of the U.S. economy may be forced to decrease in relative terms its medical support for an aging U.S. population.

In a similar fashion, if we look at the big picture, the apparently solid growth of the Austin “hospitality industry” in the last year may well be threatened by rising fuel prices and a long-term trend toward a decreased affordability of discretionary tourist travel.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog.]

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5 Responses to Roger Baker on Austin’s Economy : Big Picture Not So Pretty?

  1. Tom Davis says:

    The amazing thing is that, even given the insightful analysis shown here – and, as Roger says, several other places – the folks developing the new Comprehensive Plan still assume Austin is going to get 750,000 new people (doubling our size), with 300,000 new jobs … uh, make that job seekers.

    ‘Scuse the run-on sentence, but you you get the point: the people making assumptions about our population and job growth have their head in the ground. Those of us who can see the real future need to be doing all we can to insert the kind of reality we see here into the Comprehensive Plan process.

  2. Robert says:

    I agree. This is the type of planning that leaves half-finished skyscrapers downtown and thousands of empty condos across the city. It is not sustainable.

  3. RBaker says:

    Additionally, and just in the last few days, there has been a lot of Austin boomtown hype. Like the notice in the Austin political/business press about how the new Samsung expansion will bring 400-500 new skilled semiconductor jobs (enough to more than balance their recent layoffs), plus about 1000 temporary construction jobs. Here are some details:

    Also we see how Austin recently gave tax breaks to bring about 1000 more jobs from three other companies (probably much lower wage jobs in these cases).

    What this boosterism doesn’t say is that even if we manage to net these 1500 new jobs, the TWC numbers say we will still have lost about 3000 manufacturing jobs plus about 1000 professional jobs from April 2008 to April 2009. These newly recruited jobs may come in slow, but even if they arrive fast, they would not do much to balance the possible losses in state jobs due a looming state budget deficit.

    Lets now turn to a celebrated article in Kiplinger’s, praising Austin’s red hot economic potential:

    It describes how small business start-ups tend to flourish around Austin because of our financial support network of Venture Capital and Angels. Which sounds good, but when you look closer at Kiplinger’s evidence, it turns out they use the old data from the recent boom up to 2007.

    “Meet the Lender is but one of a dozen Austin programs that form a neural network of business brainpower to help entrepreneurs. Now overlay that net with a dozen venture-capital funds and 20 or so business associations (Refresh Austin and Bootstrap Austin, to name just two), plus incubators, educational opportunities and networking events. Mix all these elements in what many call a classless society, where hippie communalism coexists with no-nonsense capitalism, and you’ve got a breeding ground for start-ups. “People act in a loose confederation with each other,” says Bijoy Goswami, who heads Bootstrap Austin. No wonder Austin topped’s small-business-vitality charts in 2010. Between 2004 and 2009, when employment nationwide dropped a bit, Austin’s employment increased by almost 16%. Plus, the number of small businesses jumped by 6% between 2006 and 2007 — far more than in any other market, according to”

    When we dig further into the private business network numbers, we get a different story. The small category of angel investments did increase by a few million, but the much larger Austin venture capital finance market took a huge nosedive last year:^2691381

    “For example, during the first six months of 2009, the amount of venture capital raised by Central Texas companies declined nearly 60 percent to $172 million compared with $419.4 million by midyear 2008. Investments in local VC-backed companies declined 33 percent during the second quarter compared with the same period last year, according to Dow Jones VentureSource.”

    Lesson: We should always be skeptical of the prevailing business hype. When they talk about Austin being a “classless society”, you know they are lying; that alone should be enough to trigger your BS detector.

    We need to look at broad job creation factors like job creation timetable, job pay, and job security to know how well our region is faring — and whether current Austin industrial recruitment policy really benefits our current residents enough to compensate for the public burden of the business tax incentives being granted by Austin.

    — Roger

  4. Charley says:

    As always, Roger is right on!


  5. atxrider says:

    Great report. Just add a couple of points. The census in Austin hire over 2000 and that is almost over so we are already in the negative even with the Samsung jobs.
    The boomtown propoganda leaves us with two problems one it brings in more folks from elsewhere looking for the boom jobs increasing the compitition for what jobs that do come up. It leaves those hunting for jobs with the stigma of some how its their fault-this is Austin you should be able to get a job by now-I keep hearing some variation on this about those searching for jobs in Austin.

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