Chamber economic forecast sees Austin strong despite inflation, recession worries

Looking at the Austin-area economy for the next 12 months, local experts see that a series of “once-in-a-lifetime” events both good and bad are about to run into the realities of rising interest rates and the increasing likelihood of at least a minor recession to cool off inflation worries.

The good news, according to the panelists assembled for the Austin Chamber of Commerce’s annual economic outlook forum, is that Texas and local governments including Austin have seen surprising increases in tax collections over the past 18 months. Combined with a multi-year string of major business relocations to the Austin area, the prospect of some slowdown in borrowing and consumer demand will create a leveling off for the area’s economic interests.

“For us here in Austin, we are the fortunate ones,” said Charisse Bodisch, the chamber’s senior vice president of economic development, while name-checking major new expansions by U.S. Army Futures Command, Apple, Amazon, Tesla and Samsung. “We’ve had multiple once-in-a-lifetimes in this region, and the thing that we’re seeing is if a deal was coming in for office or manufacturing space it was 50,000 square feet. The deals we’re seeing now are in the millions (of square feet) and for billions of dollars of capital investment.”

A presentation by Texas Comptroller Glenn Hegar early in the event included breakdowns of how the state Legislature will have to allocate tens of billions in unexpected tax collections, with infrastructure for water and Wi-Fi among the priorities for communities across the state.

Thomas Schuette, senior vice president and research analyst for PIMCO, said local governments are in a similar situation, with budget reserves at 30 to 50 percent of annual expenditures creating little need to borrow for major capital expenses.

“States and locals nationwide at the start of the pandemic started making cuts, and since then have been amazed by the inflows of tax money beyond what has come from the federal government. A lot of them tell the same story now with rainy day funds that are flush after multiple years of double-digit revenue growth,” he said. “When we enter this period of uncertainty right now one of the strengths is a lot of local governments around here are sitting on a lot of dry powder for infrastructure spending or replacing revenues if they see tax collections slide.”

Economist Mark Dotzour said Texas and Austin specifically are benefiting from a pullback of investment in China, with that production tending to head most to a handful of six southern states including Texas, North Carolina, Florida and Arizona that are desirable for labor talent and favorable for business investment. That fuel for growth is so strong that Dotzour said it will likely require a revision of Austin’s future population estimates that had the metro region on pace to cross the 3 million mark by 2030.

“There’s this huge global move away from China for jobs in wealth that is new. So you have a global funnel of wealth and jobs that are moving back to the United States as quickly as they can, and from there there’s a smaller funnel directing that to those six states. That’s what’s so unbelievable after 25 years of having stuff move to China and India and now coming back here again.”

Bodisch said the increase in interest rates has already caused some slowdown in residential real estate, with the median home price now around $470,000 and more homes taking almost two months to sell.

With tech companies such as Facebook parent Meta announcing layoffs locally, she said the persistent issue of talent availability may be easing, allowing for more expansions or relocations once recession worries ease.

“On the talent side you’ve got some companies that are announcing layoffs and so there may be some availability that we can put into new companies looking to come here,” she said. “Things have been on the employee side where they’ve had all of the cards, and it’s now coming back to the employer side … where companies have said we need the pendulum to come back where we can have our employees here with us to come together, collaborate and come up with great new technologies since it’s difficult to do that over Zoom.”

Photo made available through a Creative Commons license.

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