The Texas economy continues to recover from the COVID-19 pandemic and the measures necessary to slow the spread of the virus during the spring. Recent Texas jobs reports have been somewhat encouraging, even though the overall pace of recovery has slowed and is presently threatened by a surge in the virus, which has led to pullbacks in some areas and inadequate support from the federal government. Rig counts are up slightly, and oil prices have firmed modestly, positive signs from the state’s largest export industry (although both remain far below pre-pandemic levels).
Even with gains through the summer and fall, employment in the state remains well below pre-pandemic levels. Texas lost about 1.3 million jobs in March and April. As the economy began to reopen over the summer, large numbers of jobs were added, reflecting the fact that as businesses began to resume operations, what was essentially a sound economy before the pandemic began to respond.
The gain in Texas employment in September was less than half the addition in August, and the unemployment rate rose. However, October gains were significantly higher than September’s. This uneven pattern is to be expected as the COVID-19 health crisis continues to cause fallout for the economy.
The most recent estimates (October) indicate Texas employment was 499,200 below one year prior. While this decrease in total employment of -3.9% has been extremely difficult, with many households financially distressed due to job losses, other states have fared even worse. As of October, year-over-year losses were -1,015,500 in New York and -1,369,400 in California, and some states experienced percentage declines of 9% or more.
The timing and severity of outbreaks and reopening decisions have varied widely, and states are entering phases of recovery at different times. The pandemic has wreaked havoc, and the road back will be slow in many parts of the country.
Although the COVID-19 situation remains challenging and fluid, however, The Perryman Group’s latest forecast for the Texas economy indicates a return to growth and strong performance in the future.
Key factors affecting recovery
The pattern of the recovery will be influenced by the magnitude and timing of relief from the modest federal stimulus package that is moving toward passage as this is being written, as well as the extent of future relief.
When the original CARES Act was passed this spring, the worst of the pandemic was anticipated to be dealt with in a 2-3-month period, and provisions for relief did not anticipate an extended economic dislocation. Without additional help beyond the modest post-election measure, problems such as evictions and food insecurity will increase, and businesses will be forced to lay off more workers (or even close entirely).
Major industries such as airlines are barely hanging on (yet vital to our future recovery and quality of life), and state and local governments are facing massive budget shortfalls as demand for services soars. A more robust federal stimulus package could help keep the structure together, providing much-needed relief and enhancing future economic recovery once vaccines and therapeutics bring the virus to manageable levels.
Another driver of recovery potential is obviously the pandemic itself. Case numbers have been trending decidedly upward, and hospitals are strained in many areas. While it is crucial to keep the health care system from becoming overloaded, a lockdown causes extensive fallout such as job losses, financial distress, mental health issues and many more problems.
While targeted shutdowns may be needed, they should be carefully considered and structured to do what needs to be done with the least amount of harm. Progress toward vaccinations has been encouraging, and the next few months may see a notable change for the better if vaccines become widely available.
The cost of COVID-19
The high human cost and loss of life due to COVID-19 is tragic and staggering. While the suffering and hardships imposed by these losses are incalculable and the primary concern, the economic consequences cannot be ignored.
The Perryman Group used information regarding lost person-years of life, data compiled by the Centers for Disease Control and Prevention (CDC) and the firm’s modeling systems to examine the resulting implications for business activity.
Although most of the fatalities have occurred among older age groups, 2020 U.S. fatalities will cause an estimated loss of well over 600,000 job-years (a person working for a year) over time (using the lower range of CDC estimates). This value is fully adjusted for age, gender, ethnicity, worklife probabilities, labor force participation and stabilized unemployment rates.
As these direct losses flow through the economy in the coming years, the cumulative effects include declines of approximately $200 billion in U.S. gross domestic product, $120 billion in personal income and 2 million job-years. This foregone activity is roughly equivalent to the annual amount generated in Louisiana or the Austin and Cleveland urban areas combined.
It should be noted that this measure does not begin to capture the full ramifications of the virus. The morbidity and lingering effects on those infected will reduce productivity over an extended period, as will the problems with forgone or delayed medical care among the rest of the population and the mental health challenges that are posed by the ongoing crisis.
The losses from fatalities are significant not only because of their magnitude, but also because they are both lingering and cannot be recouped. These economic harms are also in addition to the ongoing impacts of the pandemic on the economy.
The recovery has been decidedly uneven, with some socioeconomic groups benefitting more than others. Although many companies are struggling during the pandemic and job losses have impacted workers across all education levels, unemployment increased the most among those with lower educational attainment.
The correlation between education level and employment is well established. Those with more education typically earn greater incomes and are less likely to be unemployed. The pandemic has caused this pattern to accelerate.
Remote work had been growing before COVID-19, but its prevalence has increased dramatically. However, workers with less education tend to be in jobs for which this approach is not feasible; rather than shifting to remote work, they have become unemployed.
Recent surveys by the Bureau of Labor Statistics indicate that about 70% of people with a bachelor’s degree and higher are in jobs suitable to perform remotely, compared to just 25-30% of those with only a high school diploma.
Industries such as professional and business services, financial activities, information and public administration have been able to largely maintain operations. Many others (salons, travel and leisure, bars and restaurants, for example) had to shut down for a period, only to reopen with reduced capacity.
Although a few industries have experienced increased demand due to the pandemic (such as those enabling remote work and school), many have been hit hard. The travel industry, for example, has experienced steep declines in revenues. Industry observers estimate that business travel may permanently decline by about one-third. As demand for fuels dropped sharply, oil prices fell rapidly, causing market turmoil and a sharp reduction in activity. With economic recovery underway, the worst appears to be over for the industry, with some resumption in drilling.
For some industries, the pandemic escalated trends that were already ongoing. In retail, for instance, the proportion of online sales has been growing for years, but safety concerns accelerated the pace. Brick-and-mortar stores remain important, but many have long been shifting focus toward online. Major investments in both the functionality and aesthetics of remote experiences have enhanced consumer perceptions and, hence, purchases.
Some of the changes necessitated by the pandemic will no doubt remain. Supply chain management and ensuring availability will be emphasized. Inventory practices will be revamped. More and better curbside and contactless delivery and payment systems are likely part of the new normal.
Texas economic forecast
The Perryman Group’s latest forecast indicates that the Texas economy is likely to add an estimated 1.6 million net new jobs by 2025, representing a +2.33% annual rate of growth over the period. Services industries will drive job gains, with wholesale and retail trade businesses also forecast to see notable hiring.
Total real gross product (RGP) is projected to increase by $412.1 billion by 2025, a growth rate of 4.42% per year. All major industry groups are projected to expand through 2025, with the mining and services segments likely to experience the largest growth in annual real gross product.
Some of this growth, particularly in 2021, will represent recouping losses from 2020. It will take several years to return to the long-term pace anticipated prior to the virus, but the long-term outlook does comport with prior expectations.
These growth projections for Texas are significantly more positive than The Perryman Group’s outlook for the national economy.
The Perryman Group’s forecast indicates that it will take a significant amount of time for some industries and geographic areas to return to prior peak levels even with no major additional disruptions.
The current economic crisis was caused by a health crisis, and to ultimately resolve the economic crisis requires effectively dealing with the pandemic situation. As the disease becomes better understood and effective therapeutics and vaccines are developed and widely implemented, both incidence and severity should be reduced.
COVID-19 will continue to cause economic fallout, slowing growth across the economy. On balance, however, Texas remains well-positioned for growth once a post-pandemic “new normal” is reached.