Interesting Changes in Industry Concentration in San Antonio

One common indicator used to get a sense of the structure of a local economy is the location quotient. Specifically, it measures the concentration of an industry in a local economy, such as a metropolitan area economy or a state economy, relative to the concentration of the same industry in some base area, typically the national economy. The most often used data to calculate the location quotient is employment, but income or wages is also used. The location quotient for industry i in region r is calculated using the following formula:

LQir = (Employmentir/Total Employmentir)/(EmploymentUS/Total EmploymentUS)

I did these calculations for the San Antonio metropolitan area economy using this formula. I calculated the location quotients for the NAICS 2-digit level industries. The names of these industries and the location quotients as of January 1990 and April 2017 are shown in the following table. April 2017 was used because it was the most current data available at the time I made the calculations.

Four industries in San Antonio have seen increases in their concentration levels since January 1990 (highlighted in yellow). The construction, mining, and logging industry saw the largest increase in relative concentration followed by financial activities, professional and business services, and manufacturing.

The largest declines in the location quotients were in the government sector followed by other services. The hospitality and education and health industries also saw smaller declines in their relative concentrations, and while the trade, transportation, and utilities and the information industries both saw declines so small one should probably just treat these as being inconsequential.

It is also interesting to note that a location quotient greater than 1.00 indicates that the concentration of the industry in the region is greater than the concentration at the level of the national economy.

As of April 2017, the industries with such location quotients were construction, mining, and logging; information; financial activities; education and health; hospitality; and government. The highest location quotient as of April 2017 was the financial activities industry; it had the second highest location quotient in January 1990. The industry with the highest location quotient in January 1990 was government.

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These changes highlight two interesting characteristics of the San Antonio economy.

First, it is an economy with a broad base of industries with relatively high concentration levels. Second, the relative base of employment has shifted away from government. This is not to say that government activities and funding are not still a vital component of the San Antonio economy because they are. The military has a big impact on the local economy, and it is worth noting that the military does not have to report employment levels, so I do not believe they are captured in these calculations.

Additionally, government funding of healthcare is very important to the San Antonio economy due to the size of the healthcare industry in the region. That said, the government sector still has a location quotient of 1.08. This fact combined with the diversity of the industry base in San Antonio is why the economy also tends to be somewhat stable relative to regional economies with more focused industry bases.

Steve

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Broad-Based Growth Continues in San Antonio

With the exception of the information sector, growth continues across all other sectors of the San Antonio economy through June of this year. The growth is lead by large increases in the construction, mining, and natural resources sector (just indicated as construction/mining in the chart) and the education and health sector. I suspect most of the employment gains in the former sector has probably come from the construction industry, but with the recovery of oil prices and activity beginning to pick-up in the Eagle Ford Shale area, the mining and natural resources industries have likely contributed their parts as well.

Growth in the education and health sector is probably driven by the continued strong expansion in the healthcare industry in San Antonio. Professional and business services (indicated as prof. services in the chart) has also shown some nice increases in employment growth this year.

The question is whether or not these sectors will continue to show strong growth.

As long as the economy keeps humming along, the construction industry is probably going to continue to grow, but there are indications that the economy is reaching capacity (as noted in my previous post) and housing prices are starting to move beyond the level of affordability for many folks.

Regarding the mining and natural resources industry growth, this is going to be driven, in part, by what oil prices do. I do not think anybody really knows where oil prices are headed over the next few years, but I think the experts feel like there will be some increase.

It seems to be a safe bet that the healthcare industry will continue to grow. However, many of the healthcare organizations in San Antonio receive a large portion of their revenues from federal government sources, so the wild card is what ultimately happens with healthcare policy and the federal budget. That may be more difficult to predict than oil prices.

Employment Growth by Industry San Antonio June 2017

NOTE: TTU is the trade, transportation, and utilities sector.

 

Feel free to contact me with any questions.

Steve

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