I released my 2015 economic forecast for the San Antonio economy yesterday. I am projecting employment growth in the range 2.25-3.0% and a reduction in the unemployment rate to 3.4-3.8%. The employment growth forecast is down a bit from the growth San Antonio experienced in 2014 at 3.26%, but it is still a healthy growth rate for San Antonio and will continue to push unemployment down from its December rate at 3.9%. Keith Phillips, senior economist at the Federal Reserve Bank of Dallas, projects employment growth for Texas to be in the range of 1.0-2.0% in 2015. Employment across the state grew at a rate of 3.23% in 2014, so while it is projected that the state will continue to see growth, it is a fairly sizable reduction.
The reductions in projected growth rates for 2015 are mainly due to the impacts on the Texas and San Antonio economies, but the divergence in the size of the decreases in the growth rates between Texas and San Antonio is due to the differing impacts on the respective economies. The energy industry is a big (and increasing) part of the Texas economy, so while there will likely be a boost in consumer spending due to lower fuel prices, areas like Houston, Dallas, Ft. Worth, Midland/Odessa, Corpus Christi, and Longview are still likely to be hit pretty hard, since the energy industry is a large part of their regional economies.
However, while the San Antonio economy will be negatively affected by the downward pressure from slowing growth across the state, it has some unique characteristics that will minimize the impact. One key characteristic is that the mining industry is only about 3% of the San Antonio economy. Additionally, much of that industry in San Antonio is focused on refining, so it will actually benefit from the low oil prices. There has also been some concern that the slowing activity in the Eagle Ford shale area will have a big impact on San Antonio. There will certainly be a negative impact, but the vast majority of the activity in the Eagle Ford area is south of San Antonio. Thus, while the San Antonio economy certainly benefited from the Eagle Ford shale play, the impact on growth was not substantial, and as such, I don’t think the negative impact will be very large, either. Another unique characteristic is that the reduction in employment that will continue as Eagle Ford drilling activity decreases will likely be absorbed by the construction industry in San Antonio. It is not unique to San Antonio that the housing market is very strong, as the housing market is tight across the state. As the Eagle Ford hiring activity increased a few years ago, we saw workers leave the construction industry in San Antonio to work in the Eagle Ford area for much higher wages, but that flow of labor will most likely reverse itself this year. With the tight housing market, construction activity is likely to increase this year, so as employment in Eagle Ford continues to decline, many of these workers but the close proximity of San Antonio to Eagle Ford means that many of these workers will possibly be able to find employment in the construction industry. Lastly, much of the tourism business in San Antonio comes from visitors who drive to the area, so the lower gas prices making it cheaper to drive and providing additional disposable income could cause a boost in tourism in San Antonio.
Other risks to the forecast include slowing growth around the world and the strong dollar. The impact of the strong dollar is already starting to show its effects on the San Antonio economy, but I do not think this will be a large negative impact. It does contribute some to the slowing growth as indicated in the forecast.
If the forecasts come to fruition, growth in Texas will likely fall below that of the U.S., but San Antonio will at least see growth at its historical average rate. However you look at it, 2015 will still be a year of growth.