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Business Forecast: State Economy Set for Comeback

Business Forecast: State Economy Set for Comeback

As the energy outlook continues to improve, business leaders from across the state are cautiously optimistic about Texas' economy. That was the consensus at the 2017 University of Texas McCombs Business Forecast events, where experts shared insights with audiences in Austin, Dallas, Houston, and San Antonio in January and February. They predict that 2 percent job growth will help the Texas economy stabilize in 2017 following two lackluster years caused by weak oil prices.

From Oil Bust to Balance

Energy accounted for roughly 13 percent of the state’s GDP in 2014, then it dipped to 6 percent a year later, costing Texas 100,000 jobs.

Yet economists Mine Yücel, Keith Phillips, and Robert Kaplan of the Federal Reserve Bank of Dallas noted that while energy and related manufacturing weakened sharply in 2015-2016, the service sectors in the state continued to grow during that time, and that regionally, the I-35 corridor of Dallas, Austin, and San Antonio saw few negative effects from the energy bust. 

Unprecedented Reserves in Permian

In November 2016, the U.S. Geological Survey announced a new estimate of continuous oil in the Permian Basin, by far the largest such estimate recorded for any formation in the United States. The area is assessed to have 20 billion barrels of oil. During the energy downturn, innovations in extraction technology continued in the Permian. "We did a lot of learning during an anemic time while not a lot of rigs were running. You had plenty of time to focus, get your science right, optimize things," said Bill Montgomery, BBA '84, of Quantum Energy Partners. 

Financial Systems “Loaded for Bear”

Banks are more stable than they have been in years, said Elaine Agather, chairwoman of the Dallas Region for JPMorgan Chase.

"By any reasonable measure, the financial system is unquestionably stronger because of regulations after the mortgage crisis of 2008," said Agather. "Our capital and deposits are stronger than they’ve been in 70 years."

However, David Booth, chairman and co-CEO of Dimensional Fund Advisors, said, "There's got to be an optimal amount of regulation, and whatever that point is … in the financial services industry it’s gone way too far."

John Goff, BBA '77, a private investor in Fort Worth and co-founder of Crescent Real Estate Equities, agreed, "There’s significant cash on the sidelines. If you look at the firepower on bank balance sheets, there is $14 trillion of excess lending capacity that’s not being tapped into."

Universities Incubate Innovation

Bob Metcalfe, an early Ethernet pioneer and professor of innovation at UT’s Cockrell School of Engineering, said the innovation system that drives prosperity is functioning well and getting better. More universities are adopting the MIT innovation model, he said, in which professors and students incubate new projects on campus, identify investors, and take the innovations to market with students serving in C-level roles. 

Data-driven Distribution

Even in traditional industries, innovation is crucial to success said Alan Dreeban, partner and director at Republic National Distributing Company, a wholesale distributor of wine and spirits based in San Antonio. "We use a complex blend of data to create a product mix for every socioeconomic slice so we can glean the most profit per square inch of shelf space."

Business Forecast: State Economy Set for Comeback

Health Care: The Outlier

And yet with all the positive developments in the Texas economy, one area where innovation and utilization are out of sync is health care. While nearly 10,000 new health care jobs were created in 2016, Texas still has the highest number and highest percentage of uninsured residents, said Don Kramer, M.D., founder and chairman of Nobilis Health. 

The state also doesn’t pay for the $5.5 billion in uncompensated care costs that Texas health care providers incur annually, he said. 

Disruptive Cloud Computing

The most recent — and disruptive — connection technology is cloud computing, said Taylor Rhodes, CEO of San Antonio’s Rackspace Managed Cloud Business Solutions.

Today's Uber, Lyft, Yeti, Airbnb, Amazon, and even the newly responsive Domino's Pizza, would never have been possible in their current forms without their born-in-the-cloud technology-based platforms, he explained. 

"Technology is both creative and destructive," he added. "Jobs are lost and jobs are created. We have an opportunity here to be on the winning side of that."

From the spring 2017 issue of McCOMBS, the magazine for alumni and friends of the McCombs School of Business.

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