Scott Ball / Rivard Report
The number of people moving to Texas every day and the diversity of industry in the state are keys to its strong economy. But with economists predicting a slowdown in the nation’s economy as measured by the gross domestic product (GDP), the state will need to address some major issues to remain healthy.
Robert Kaplan, president and CEO of the Federal Reserve Bank of Dallas, addressed those issues as structural drivers that need reform at the Real Estate Council of San Antonio meeting on Thursday. The discussion with Kaplan was moderated by Charlie Amato, chairman and co-founder of SWBC.
“Unlike other states,” Kaplan told the audience of real estate specialists, banking professionals, and economists, “the issues are in our control.”
Kaplan described four structural drivers he sees as most affecting the U.S. and state economy in the coming years. They include an aging population and slowing of workforce growth, sluggish productivity growth, industrial globalization, and a federal deficit in the trillions of dollars. Even as Texas grows and prospers, the state is not immune to an economic downturn if these drivers aren’t addressed. And that includes San Antonio in particular.
“San Antonio has a relatively low unemployment rate, well below 4 percent,” Kaplan told the Rivard Report. “I know from talking to business [leaders] here, and from our surveys and the work we do, that employers have a hard time finding labor. So the tight labor market at this point is a constraint to growth.”
Nationwide, the population is aging and workforce growth is slowing, and the same is true in SanAntonio. Kaplan said that calls for more spending on education, better access to child care and transportation, and at the national level, an immigration policy that’s education- and skills-based.
Demographic changes also are contributing to the need to improve educational systems. Black and Hispanic populations are the fastest-growing in the country, and yet they tend to lag in educational advancement.
“Spending on education gives the highest return on an investment you can make,” he said. “We have to start thinking that way as a country, and not [looking at] it as philanthropy.”
Kaplan also spoke of the importance of trade policy and globalization in the modern economy and how those factors will impact business growth in Texas. He said that as more business begins to operate on an international scale, globalization should be viewed as less of a threat to jobs than technology. “We need to improve integration with the world … and view it as an opportunity to grow faster,” he said.
An immigration policy that bolsters the labor force could be a positive driver of the economy. Current labor force participation is at 63 percent, down 3 percent from 12 years ago, and estimated to drop to 61 percent in the next 10 years. “Cutting immigration and growing the GDP, those two things don’t go together,” Kaplan said.
One factor that makes Texas one of the strongest state economies in the nation is not necessarily the oil and gas industry, he said. It’s a healthy diversity of industry as well as in-migration – people moving into the state from elsewhere. Kaplan called it the tailwind of the state’s GDP.
Every day, more than 1,000 people move to Texas, according to U.S. Census Bureau data. Only 60 of those people are making it to San Antonio. Even as this city’s population is expected to grow, it is not experiencing the level of in-migration seen in Dallas and Houston.
“So [San Antonio] is an example of what many cities in the U.S. are dealing with, which is they are doing well, they’ve got a low unemployment rate, and you think things are good,” Kaplan said. “But ultimately, [while] a tight labor market has a number of positives, one of the challenges it creates, is that it’s a constraint to growth. And I’ve seen that here when I talk to businesses.”
It’s a factor leading industry to invest more in the kind of technology that automates processes rather than relying on people, he said, citing the example of a call center job with relatively good pay. As that worker is replaced, he or she may be able to find work elsewhere, but the pay might be lower.
“It emphasizes the need for improving math, science, and reading, because that improves adaptability, and skills training. I hear that in almost every conversation I have,” Kaplan said.
But San Antonio is going to fare well, he said, even as it grapples with structural workforce and education issues. And that’s partly because it’s part of a state that is doing well overall.
“The thing it’s got going for it is that it’s a very vibrant city. In Texas, it’s part of a state that’s growing, the population is growing. There are 35-plus cities in this country that have these issues and they don’t have workforce growth and don’t have a prospect for workforce growth. Texas does and San Antonio does.”