Texas Contractor 2009 Forecast

The economy certainly has people worried in Texas. There is pain with real jobs being lost, and there is worry about what is yet to come. But the recession will not be as severe here as in the northern states.

The condominium market tanked along with the housing bust, with all those condos now being converted to apartments. It's all in the bookkeeping. There have been reports of multifamily high-rise projects being put on hold in the downtown Austin market. On the other hand, M/PF YieldStar reported that the Dallas area leads the nation in apartment construction, with more over 20,000 units under construction, even surpassing even the Houston market, which is one of the busiest in the nation. There are businesses and people still moving to Texas from areas that make our housing prices appealing.

In a speech to the Dallas Regional Chamber of Commerce, Gov. Perry said that, “On the financial side, Texas has the lowest loan default rate of any large-population state, and an unemployment rate that was well below the national average in the most recent reports.”

Highway construction, which suffered in 2008, is rebounding to more normal activity, and President-elect Obama's economic stimulus plan is offering more hope. TxDOT has identified $5 billion worth of construction and maintenance projects that could be accelerated between January and August 2009.

Realizing the significance of Texas' positioning as a mid-nation shipping zone, the ports of Houston and Corpus Christi are continuing with expansion programs.

Hospital and school construction, such strong markets over the past several years, depend on bond sales, philanthropic donations and endowments tied to the stock market. With those resources shrinking, even schools and municipalities that passed bond elections in November will become very thoughtful about moving forward with their construction plans.

Texas leads the nation in wind energy capacity and construction. Due to the economy, projects my move a little more slowly in 2009, according to an American Wind Energy Association (AWEA) representative; however, the good projects will continue to move forward. Natural gas developers have also begun to tighten their budgets as gas prices have fallen.

On the state side, Texas agencies are in the second year of the current biennium, which, under the funding pattern traditionally followed by state lawmakers, has less new construction authorized. Gov. Rick Perry has called on state agencies to cut back on spending and appropriations requests, increasing the likelihood that projects may be postponed – or funded on a contingency basis – for the second half of the next biennium.

During the first half of 2008, state sales tax, gas and oil revenues were up nicely from 2007, prompting the comptroller's office to estimate an approximately $10-million to $12-million surplus for the year. Unfortunately, the trend reversed during the second half of the year.

Ironically, higher oil and natural gas prices provided some additional taxes to the state, and boosted employment in some areas – while higher gasoline prices had a negative effect on other parts of the economy. The Texas budget should remain in the black, but the line will be close. The outcome is that state-financed construction projects will remain flat, but indicators signal that Texas will not be dragged into the depths of economic abyss.

According to the office of Susan Combs, the Texas comptroller, “The Texas economy, the world's 12th-largest, continues to fare better than most other states. With our mix of industries and avoidance of the housing price bubble, Texas should have more resistance to – but not immunity from – recessionary conditions. In fiscal 2008, Texas' gross state product grew by 4.2 percent versus 1.9 percent for the national economy. … From October to November 2008, the U.S. economy lost 533,000 jobs. Texas gained 23,000 jobs in October.”

These overall reports are important to the construction market as well, because as people and businesses continue to move to Texas, they will need the services of construction providers. n