Consumers’ Mood Depends on Local Climate
As the economy slows, it is largely the American consumer who will decide whether a recession is at hand. If spending continues, the economy will almost certainly continue to grow. But consumer confidence varies around the country, reflecting local conditions. In the South and West, people are more upbeat; in New England and the mid-Atlantic region, the view is darker. Here is a look at what is shaping consumer attitudes in Pennsylvania and Texas.
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Unemployment is low, wages are rising and the natives are happy--evidence that the decade-long campaign to transform Texas into a high-tech “new-economy” state hasn’t been a complete success.
Oil--creator of Texas’ biggest booms and deepest busts--still plays a strong role here. And the recent revival of that “old-economy” stalwart could be part of the reason Texans’ mood stayed buoyant last month even as consumer confidence soured elsewhere. Researchers found that Texans were more optimistic about the local economy, their personal finances and especially their prospects than consumers nationally.
“I haven’t seen any signs of a slowdown,” declared 30-year-old Dallas banker Matt Helm, who was a teenager during the state’s last economic downturn in the 1980s, when oil prices plummeted, unemployment skyrocketed and real estate prices collapsed.
Helm remembers when houses were worth less than what was owed on the mortgage. Today, his own home is worth 40% more than what he paid just 14 months ago.
“Everybody had such a good year last year, and then in January it just picked up again,” he said.
Much of the growth over the last decade was fueled not by oil but by what Texans hoped would displace natural resources as the dominant force in their economy: high technology. Indeed, efforts to woo high-tech firms were successful enough that tech now rivals oil as the state’s largest industry.
Recently, Texas began to see the layoffs that have convulsed Silicon Valley on the West Coast and Silicon Alley on the East. But so far, rising oil and gas employment--inspired by $30-a-barrel crude--has helped offset the tech shakeout, many economists say.
“When one’s taking a breather, the other’s picking up,” said Fiona Sigalla, an economist with the Federal Reserve Bank here. “Texas tends to do well when oil prices are high, when the rest of the nation suffers.”
Not all economists agree that rising oil prices are good for Texas. Waco economist Ray Perryman said higher energy costs are actually a slight negative, because Texas now imports more oil than it exports and high-technology firms tend to be heavy energy users.
But Perryman and other economists still expect Texas to outpace the national economy for the foreseeable future as the economic growth that started in the last decade continues.
In the ‘90s, the Texas economy expanded at a rate rivaling the oil boom of the ‘70s and early ‘80s. But this time, it wasn’t accompanied by the wild real estate speculation that led to bank failures and half-vacant skyscrapers, the Fed’s Sigalla said.
Even the sudden shock of sharply lower oil prices in 1998 failed to derail the expansion. Although the number of working oil rigs fell by almost half, growth in tech, construction, manufacturing and retail more than offset the damage, economists said.
And now, as tech growth slows, oil companies are gearing up to send more drilling crews into the field and into the Gulf of Mexico, said Bill Gilmer, economist in the Fed’s Houston branch.
The positive effects are felt most keenly in Houston and smaller cities such as Midland, where half or more of the local economies are tied to oil. But statewide, personal income is expected to grow at a 3.9% pace through 2005, compared with 3.1% nationally, economist Perryman said. Employment, meanwhile, should grow 2.2% in Texas, compared with 1.4% in the rest of the country.
Restaurant owner Jim Prichard sees the growth in the steaming plates of sliced beef, sausage and ribs he serves up at Sammy’s Bar-B-Q near downtown Dallas. Prichard, 60, said his sales have risen 20% a year since he started Sammy’s eight years ago.
As an indicator of the region’s wealth, Prichard points to the revival of the surrounding State-Thomas neighborhood, where new townhouses sell for $350,000, and to the luxury home developments and upscale malls that have sprung up in north Dallas suburbs.
“My brother builds $1.5-million, $2-million homes on spec. He sold three last month,” Prichard said. “That’s how good things are.”
It doesn’t hurt that the state’s former governor now lives in the White House, although Prichard downplayed the effect on the Texas economy.
“We feel real good about that,” he said of George W. Bush’s election. “But I don’t think he’s made our economy, just like I don’t think Bill Clinton made our [national] economy.”
A few blocks away, 42-year-old Glen Steen, who was taking a cigarette break outside a downtown bank, said plentiful jobs, the long expansion and rising real estate values have given Texans plenty to feel good about. Unemployment in Texas was a seasonally adjusted 3.7% in December--the lowest since January 1974.
“As long as people have jobs, they’re getting a steady paycheck and they’re paying their bills, they’re happy,” said Steen, who works for a copier repair company.
Down in Austin, Texas’ capital and symbol of its high-tech aspirations, not everyone is convinced the state can continue its bull run, given the troubles tech firms are facing nationwide.
“You saw this in the ‘80s, when people were going to Sullivan’s Steak House every night and throwing $100 bills around,” said Lawrence Rubin, chief executive of an Austin company that sells luxury watches. “I think people are in denial.”
Certainly, there are troubling signs. Austin, mecca for computer, semiconductor and telecommunications firms, has lost about 4,000 high-tech jobs so far this year, compared with 1,800 in all of 2000. Motorola Inc. recently announced plans to ax 400 jobs locally, and Dell Computer Corp. said Thursday that most of its 1,700 layoffs will happen in central Texas. The layoffs--and rumors of more to come--have spooked some local residents, even though the unemployment rate in Austin is a minuscule 1.6%.
“Until now, [laid-off workers] were just sucked up like a sponge,” said Mark Hazelwood, chief executive of the local Chamber of Commerce. “But I think there’s a growing concern. . . . This change has happened so quickly that it’s led to fears of a slowdown.”
Public relations specialist Stephanie Elsea, 33, landed several job interviews after being laid off last month by Drkoop.com. But two seemingly solid prospects evaporated as layoffs and the tech-stock sell-off continued.
“They say, ‘We love you, we think you’re great, but our business is being affected by the changing economy too . . . and right now we can’t afford to take the risk’ ” of hiring new people, Elsea said.
The uncertainty could derail her maiden voyage into homeownership. Her deal, for a $140,000 home in Round Rock, a few miles north of Austin, is scheduled to close next month, and she checks on the building site three or four times a week. She tries to stay positive, but the visits are bittersweet.
“I’m not sure how excited I should get, just in case I can’t close” on the house, Elsea said.
Slower growth isn’t necessarily a disaster, said Dan Hamermesh, an economics professor at the University of Texas at Austin.
Hamermesh, a transplanted Chicagoan who wears a big black cowboy hat and goes to temple with computer magnate Michael Dell, believes Texas--and the rest of the U.S. economy--has moved from an “unsustainably high growth rate to a sustainable one.”
He noted that venture capitalists here are still lending money--the amount rose last quarter in Austin, even as it fell sharply elsewhere--and some high-tech firms are planning expansions while others are contracting.
Even if tech layoffs increase and oil prices dip, Hamermesh said, Texans will be upbeat about their economy. “Texas is an incredibly optimistic place.”
