The Lone Star state is going it alone once again.
The state of Texas carries its famous nickname as a reminder of the once independent republic. The Texas economy is holding to that independent streak.
The Federal Reserve Bank of Dallas reported this week that economic conditions in Texas and surrounding areas are improving much more quickly than in the rest of the nation. The report showed that manufacturing production was up strongly, and that business expectations for hiring were much higher.
The Dallas Fed’s business activity index jumped to 16.2 from 2.6 the previous month. When the index is below zero, economic activity is contracting. There was also good news for job seekers. The employment index turned positive, moving from -4.1 in October to 5.8 for November.
Economic activity in Texas is greatly outpacing almost all other areas of the nation. According to the Federal Reserve Bank of Philadelphia’s monthly index of state economic activity Texas has experienced 1 percent economic growth over the last three months compared to the national state average of only 0.3 percent. Idaho’s economic activity has declined 0.4 percent over the same period.
The economic outlook for Texas is also much better.
The Philadelphia Fed’s index of leading economic indicators measures such factors as state unemployment claims and housing starts. The most recent data shows Texas’s economy is expected to grow 2 percent during the next six months while Idaho’s is expected to decline 1.5 percent.
What does Texas have that we don’t? Three factors appear to be helping the state.
Home prices in Texas have held up better — not having risen so dramatically in the first place. CoreLogic’s state-level home price index for Idaho declined 14.4 percent over the 12 months ending in September of this year. Prices in Texas fell only 1 percent over the same period. From 2005 to the peak of the housing market in 2007, Texas home prices rose about 6 percent per year while Idaho prices were jumping at an annual rate of more than 16 percent.
Higher prices for commodities are also driving the Texas economy faster. According to the Texas comptroller, state tax receipts for natural gas and oil production were 164 percent higher during the first two months of the state’s current fiscal year. Producers are getting much better prices for both commodities. Natural gas has risen to over $4 per BTU from around $2.50 in September 2009, and crude oil prices are up well over $80 per barrel after falling as low as $39 per barrel in the early part of 2009.
Finally, and perhaps most importantly, more than any other state, Texas is geared toward international trade. U.S. Department of Commerce data shows Texas has the highest level of exports, accounting for more than 15 percent of all U.S. exports. In 2009, Texas nonagricultural workers exported on average $15,807 worth of goods and services. The same figure for Idaho workers is only $6,357.
Economists disagree about many things, but there is widespread agreement that international trade is good for the economy. Policymakers at both the national and state level would do well to promote more free trade agreements.
For example, the free trade agreement with Columbia is currently stalled in Congress. Idaho farmers and others could benefit from the elimination of high tariffs on agricultural exports to Colombia. Ninety percent of all Colombian exports to the U.S. are already duty-free under the Andean Trade Preference Act.
As the song goes, the Eyes of Texas are upon us all now. The Lone Star state is a good example for the rest of the economy.
Peter R. Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. He earned his doctorate in international and financial economics from the University of Oregon.