Think Tanks: San Antonio Growth Remains Robust

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Graphic courtesy of Brookings Institution.

Graphic courtesy of Brookings Institution.

An increasingly diversified economy has enabled San Antonio to weather a slowdown in the shale-oil production industry and rank high among other major U.S. cities for new job creation and other key economic measures, according to two national surveys tracking U.S. urban growth and prosperity.

San Antonio is ranked eighth in the Brookings Institution‘s Metro Monitor, which measures over a five-year period the rate of growth, prosperity and inclusion in the nation’s top 100 metro markets. The most recent Brookings report is based on 2009 through 2014 data. San Jose, the “Capital of Silicon Valley,” grabbed the top spot in the Brookings list. Austin, Houston and Dallas placed second, third and seventh, respectively.

San Antonio slipped from 10th to 12th in the Milken Institute’s 2015 Best Performing Cities Index released last week. Prior to placing in the top 10 in last year’s report, San Antonio’s rankings ranged as high as first in 2011 to 22nd in 2012.

The Brookings report states that 95 of the 100 biggest U.S. metropolitan areas saw growth in gross metropolitan product (GMP), similar to gross domestic product), jobs and aggregate wages. Additionally, every large metropolitan area saw growth in at least one of these categories. Some cities grew dramatically, while others grew barely at all.

San Antonio was the ninth-best performing city for upward change in prosperity in 2009-2014, which includes level of productivity and standard of living. San Jose topped this list, too, with Houston, Austin, Dallas and El Paso placing second, third, fifth and seventh, respectively. Aggregate wages measures the total value of wages, salaries and benefits paid to workers. According to the authors of the Brookings report, every large metropolitan area experienced some modest growth in GMP, aggregate wages or jobs, but increases in prosperity were not as widespread.

The authors of the Brookings study said inclusion “proved more elusive” compared with prosperity and growth during the economic recovery period of 2009-2014. This report notes only eight of the 100 largest metropolitan areas saw overall improvements in median wage, relative income poverty rate, and employment rate in that timeframe. No Texas city ranked in the top 20 or bottom 20 in inclusion. Tulsa, OK ranked first.

Graphic courtesy of Brookings Institution.

Graphic courtesy of Brookings Institution.

The Brookings report uses race as a baseline measure in the Metro Monitor. When measuring inclusion by race or ethnicity, the Washington, D.C.-based nonprofit think tank found that disparities between whites and other groups widened in most cities during the recovery, with the median wage gap and relative income poverty rate each growing. Cape Coral, Fla., ranked as the best-performing city in this measure. McAllen, El Paso and Houston finishing ninth, 12th and 17th, respectively. The Metro Monitor’s authors acknowledged that fiscal growth alone does not necessarily equate to better outcomes for all socio-economic groups in metropolitan areas.

“Local leaders hoping to extend and accelerate this economic recovery need to make deliberate efforts to ensure that more people and communities benefit from a rising tide,” said Brookings Senior Fellow and Deputy Director Alan Berube, report co-author, in a press release.

The Brookings report authors found, among others, one major positive trend in San Antonio’s favor. They explained that recent trends suggest metropolitan areas can make progress toward growth, prosperity and inclusion simultaneously. However, strong performance on all three outcomes at the same time is a rarity.

Graphic courtesy of Brookings Institution.

Graphic courtesy of Brookings Institution.

“From 2009 to 2014, only nine large metropolitan areas performed above the average of all large metropolitan areas taken together on growth, prosperity, overall inclusion, and inclusion by race. Four were in Texas and Oklahoma: Dallas, Houston, Oklahoma City, and San Antonio,” the report states. The study lumps in San Jose and Seattle and a few other cities.

In the Milken report, Austin/Round Rock dropped to fourth this year from a second-place ranking in 2014. Dallas/Plano/Irving rose to fifth place this year from a ninth-place showing in 2014. Houston, Fort Worth/Arlington, Laredo and Lubbock fell out of the top 25 altogether. Now, Houston stands 26th, Fort Worth/Arlington at 31st, Laredo at 57th, and Lubbock at 73rd.

Odessa this year ranked No. 5 for top performing small cities, a rise from its 12th place showing in 2014. Fargo, ND, held onto its top spot among best-performing small cities, due to the retention of a well-educated workforce, low business costs, and an expanding industrial and technology sector. Killeen/Temple and El Paso were among the cities experiencing the greatest decline year over year, finishing 172 and 121 this year compared to 91 and 53 last year.

The report’s authors note that technology and oil are still the primary industries driving regional economies up or down.

The Santa Clara, Calif.-based non-profit, non-partisan Milken Institute still sees technology as major economic engines in such cities as San Francisco, Seattle, Denver, Austin and the Santa Clara/San Jose/Sunnyvale area. The latter area reclaimed the No. 1 overall spot after placing No. 4 over two straight years. The report’s authors stated in their executive summary that research, patenting and commercial application, boosted by early-stage risk capital, are vital to entrepreneurship in the Santa Clara/San Jose area.

The authors explained that several Texas cities fell in the index mainly because of a slowdown in shale-oil exploration, a slowdown that many industry experts say has been compounded by the drop in low oil prices worldwide.

“The economics of U.S. shale-oil exploration are such that, for most projects to cover capital costs, prices needed to be around $70 per barrel,” the report states. “Some oil deposits could be economically developed at oil prices substantially below $70 and remain active areas of exploration.

However, economically diverse cities such as San Antonio, Dallas and Denver, all of which have varying levels of ties to the oil-extraction industry, continue to thrive based on the strength of other key local industries. The exploration of the Eagle Ford shale contributed to the 2,000 new jobs in this region added over the past five years in mining support activities.

In the greater scheme of things, San Antonio dropping two places from last year is not as bad a fall as other Texas cities experienced, and the city’s rate of job growth remains strong relative to national trends, according to report co-author Minoli Ratnatunga. Communities tied to shale-oil extraction are only now starting to feel the effect of slowed exploration and a reduction in the number of operating rigs. As a result, related companies such as Halliburton and Schlumberger are making cuts nationwide.

“You have to look at the cost effectiveness of shale extraction. A slight increase in the price of oil would revive investments in that field marginally,” Ratnatunga said. She added that as long as traditional oil-producing export nations continue to not restrict their production rates, coupled with the U.S. shale oil-production rate, overall oil prices will stay at current levels.

“Metropolitan areas that are more dependent on oil and gas would see a significant slowdown,” Ratnatunga said. “We expected that, as the fracking industry matured to a point, the employment rate would stabilize and then go down.” She added more of the impact from the slowdown in shale-oil exploration and low oil prices will more than be present in the Milken Institute’s next Best Performing Cities report.

According to the index, as a whole, the San Antonio area (which includes New Braunfels in this report) ranked 15th nationwide for job growth between 2009 and 2014, but 30th in the same category between 2013 and 2014. The metro area was eighth between 2008 and 2013 for wage growth, yet 51st in the same category in 2012-2013. One flaw in the Milken Institute report is that it gives equal weight to high-wage and low-wage jobs.

Graphic courtesy of Brookings Institution.

Graphic courtesy of Brookings Institution.

Ratnatunga said one continuing factor in San Antonio’s favor is the relatively  low cost of housing that makes it more affordable for relocating workers and college graduates entering the job market. The report is an outcomes-based index, and does not incorporate measures such as costs of living, quality of life or costs of doing business. The Milken Institute states such measures, while important to virtually any community, are susceptible to large variations and tend to be more subjective than objective.

The new report notes national companies that have expanded their local back-office and customer-service operations. As an example, employment in the insurance industry has increased by 32% over a five-year period ending in 2014, adding more than 7,600 jobs over the same timeframe. That is more than in all but one of the MSAs across the country.

Administrative and support services employment in the San Antonio/New Braunfels area went up nearly 20% over the past five years, adding 4,700 jobs in 2014 alone. Also, this region seen the influx of 4,100 jobs in 2014 in the direct consumer-service sectors of general/retail merchandise and in dining and beverages.

The Texas Workforce Commission earlier this month reported that Texas businesses helped the state to cap a strong 2015 with the employment rate; the past year had 10 months of job increases statewide. San Antonio/New Braunfels had a 3.5% unemployment rate in December 2015, down from 3.8% in November and 3.7% in December 2014. The San Antonio area saw a net growth of 35,000 jobs in total in 2015.

That percentage translated to net growth of 35,000 jobs in the metropolitan area last year. Keith Phillips, assistant vice president and senior economist of the Federal Reserve Bank of Dallas branch in San Antonio, spoke at a recent Urban Land Institute luncheon, where he offered a forecast of 2-3% job growth for the city in 2016. He said much of the job growth will be in health care and leisure/hospitality industry.

While health care has become a reliable industry in San Antonio, the city is holding its own in becoming a center for high-technology industrial expansion. The Milken report ranked San Antonio 41st in high-tech GDP (gross domestic product) growth from 2009-2014, and 87th in the same category in 2013-2014. In terms of high-tech GDP concentration, San Antonio ranked 82nd in 2014.

The Milken Institute measures the number of specific high-tech fields, out of a possible 19, whose concentrations in an MSA are higher than the national average. Ten high-tech manufacturing industries are considered: pharmaceutical and medicine, commercial and service industry machinery, computer and peripheral equipment, communications equipment, audio/video equipment, semiconductor and other electronic components, navigational/measuring/medical/control instruments, magnetic and optical media, aerospace products and parts, and medical equipment and supplies.

Nine high-tech services, also, are considered in the metrics here: software publishers, motion picture and video industries, telecommunications, Internet service providers, web search portals and data processing services, other information services, architecture/engineering services, computer systems design services, scientific research and development, and medical and diagnostic laboratories.

Ratnatunga said her new report found seven of these industries in a positive growth trend in San Antonio: “It indicates that the city is not concentrated in just one or two industries. In those fields, San Antonio grew slightly above the average growth rate nationwide.”

Edward Cross, chief executive officer of the San Antonio Commercial Advisors office of Cushman and Wakefield, said in his line of work, so many organizations and agencies rank cities in different ways. He has a particular perspective on the Milken report.

“I don’t put a lot of weight in any report. But when you see Houston, for example, they fell out of the conversation completely here,” Cross explained. “I don’t pay attention to such movement unless it’s dramatic, and it is for Houston.”

Cross said, overall, San Antonio is in good economic shape now and will remain so in the near term. He recalled moving out of Houston in the mid-1980s, when oil prices fell for such a long time it yielded a negative impact for that city’s energy-dependent industrial economy.

“Houston has a hangover, the crash after the boom, and it’s a reminder of how things work,” said Cross. “Where raw jobs are concerned, I do pay attention, and look at the 35,000 jobs that were created in San Antonio last year.”

Cross agreed with the authors of the Milken report that San Antonio, with fewer oil and gas-related jobs,  has a more diversified, less energy-dependent economy that has withstood some prevailing economic challenges. He acknowledged that, in the short-term, consumers see a positive with low oil prices by way of low prices at the gas pump, for example.

“But you offset that with a concern in my field of work that I’ve seen in the last three months or so, and that’s the cost of health insurance,” he added, referring to rising premiums and other healthcare-related costs.

Cross said, from what he sees so far, the 2016 local economic scene has begun much in the same the 2015 local economy did.

“San Antonio is in a great spot. It’s like a Goldilocks economy: It’s not too hot, not too cold.”

Top 15 Best-Performing Large Cities
1. San Jose/Sunnyvale/Santa Clara, Calif.
2. San Francisco/Redwood City/South San Francisco, Calif.
3. Provo/Orem, Utah
4. Austin/Round Rock
5. Dallas/Plano/Irving
6. Raleigh, NC
7. Seattle/Bellevue/Everett, Wash.
8. Portland/Hillsboro/Vancouver, Ore./Wash.
9. Greeley, Colo.
10. San Luis Obispo/Paso Robles/Arroyo Grande, Calif.
11. Salt Lake City, Utah
12. San Antonio/New Braunfels
13. Charlotte/Concord/Gastonia, NC/SC
14. Fort Collins, Colo.
15. Naples/Immokalee/Marco Island, Fla.

*Top Image: Graphic courtesy of Brookings Institution.

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