At some point in the fourth quarter of Sunday’s Dallas Mavericks playoff game, when broadcasters are returning from a commercial break, they are likely to employ a graphic called a “game reset” as a way to catch viewers up. It’s a sportscaster’s way of saying, “OK, here’s the situation …” In a way, it feels like the entire world economy has just taken a 15-month long commercial break, so now may be an appropriate time to reset. Where do we stand? What’s the current economic situation? How well will the North Texas economy reconnect to pre-pandemic trends? And what should we expect as action resumes?
For North Texas, economic indicators have been mostly positive for years. The Texas Miracle has contributed to strong growth that looks to be returning now. We have certainly weathered the pandemic-fueled downturn better than many other parts of the globe. But there are worrying signs and factors to watch. Perhaps the best way to sort through those is using the tried and true business framework of a SWOT analysis to identify our area’s economic strengths, weaknesses, opportunities and threats.
Every chamber of commerce brochure lists the same strengths for North Texas: central location, strong infrastructure, low taxes, diverse population, entrepreneurial mindset, cultural offerings and institutions of higher education eager to align with workforce needs.
The Texas economy has been growing steadily for years and appears poised to pick up where it left off last spring. By the end of 2021, Texas is expected to add more than 800,000 jobs, according to the Federal Reserve Bank of Dallas. That would be a record, far surpassing the 417,000 jobs added statewide in 2014. Gains like that don’t happen if the points in the brochure aren’t attractive.
We would add that Dallas seems to have the right pieces aligned for a healthy economic development program to promote equity and stability too. City Hall is in the process of creating an independent economic development organization. City leaders have convened dozens of stakeholders from the business, education and government sectors.
Some short term trends are pointing the right direction. April economic indicators from the Dallas Fed show North Texas businesses bouncing back from the pandemic. Employment grew by 25,100 jobs in March. Payroll expanded 8.7% in Dallas and 7.9% in Fort Worth. The Fed’s Business-Cycle Index, which synthesizes aggregated movements in unemployment rate, nonagricultural employment, inflation-adjusted wages, and inflation-adjusted retail sales, jumped 9% for North Texas in March.
All of that shows an economy ready to return to its strengths.
The economic weaknesses in our area are continuations of long trends. North Texas, and particularly Dallas, struggles with a dramatic wealth gap between the north and south, white and nonwhite. That gap is reinforced by a hollowing out of Dallas’ middle class.
Dallas ISD has made improvements in recent years, especially with its efforts to reward its best teachers and deliver workforce skills to students. But there persists a negative perception of Dallas schools that affects migration trends and the city’s tax base.
Workforce housing remains an issue. About once a week, we hear a city leader cite the often-repeated statistic that Dallas lacks 20,000 units of affordable housing. In 2019, the portion of Dallas renters who spent more than 30% of their income on housing was 58%. For owner-occupied housing, it was still high at 38.5%, according to an AngelouEconomics study commissioned by the city.
In the near term, Dallas offices look troublingly empty. Despite new construction around the city, office vacancy rates hit a multiyear high of 24% in 2020, according to data from CBRE Research. Since the start of the pandemic, office vacancy has risen by almost 4% to its highest level since 2004.
While office space is slow to fill back up, industrial space is crowded. The market absorbed almost 10.3 million square feet in the latest quarter with the vacancy rate at a low 5.4%. That trend is partly driven by the pandemic, which had us all at home shopping online, fueling activity at distribution hubs. That’s a boon for a centrally located city like ours.
Travel and tourism are bouncing back as well. Employment in the leisure and hospitality sector grew by 15.8% in the first quarter of this year, following a pace set by 17.3% growth in professional and business services the quarter before.
Each of those sectors — hospitality, industrial and professional services — has been deeply affected by the pandemic. The opportunity here is for North Texas firms to be responsive enough to capitalize not just in the near term with things like vaccines and home improvement purchases, but with long-range “new normal” realities about how American shoppers, travelers and office workers will behave.
North Texas should use its strong past and current momentum to hedge against future challenges. Texas is clearly on the winning side of the great pandemic-fueled worker migration. According to a study by the real estate company CBRE titled “COVID-19 Impact on Resident Migration Patterns,” more than 16,000 people moved to North Texas from California alone in 2020. That’s 19% more Californians than moved here in 2019. Likewise, 4,500 New Yorkers moved here last year, up 22% from the year before.
Importantly, many of those moves were fueled by jobs. According to another study by United Van Lines, employment was the top reason people moved to Texas in 2020, and more people moved to the state for work than moved away for that reason.
But that wave won’t last forever. It remains to be seen how many of those workers fleeing the high-cost coastal cities will remain in Texas after the wave crests. Will Dallas-Fort Worth continue to attract companies even if a Texas population surge drives up the cost of living?
Inflation is another concern. In April, the Consumer Price Index rose 4.2% from a year earlier, higher than the anticipated rise and a faster pace than American consumers have seen since 2008. For working-class families, this may be the most foreboding trend on the economic horizon.
Our economic snapshot wouldn’t be complete if we didn’t point out the ever-present city/suburb dynamic. As our cover story explains, the very factors that make suburbs more attractive for upwardly mobile people are the ones that leave behind depressed parts of the city. Few of those companies and employees moving to Texas are headed to the inner city. Instead, they are building corporate campuses in the exurbs, stretching opportunity farther and farther away from the places that need it most and fueling continued racial and income segregation.
If we were the city’s version of Rick Carlisle, drawing up a play coming out of this coronavirus timeout, these are the factors we would be pointing out. If North Texas can contain these threats and capitalize on our opportunities, we can strengthen our position as a can-do city for business and success. It’s time to get back to the playbook that has delivered winning results for D-FW for generations.