The decline in oil prices has been in the news almost daily the last several months here in Texas. One topic that gets a good deal of discussion around the water cooler these days is how it will affect Dallas. Most believe that Dallas is well positioned to weather the price declines better than some other areas—because of its economic diversity.
The catch here is what does this “diversity thing” mean? Some cite job numbers. That’s part of it. There are 31,000 direct energy jobs in Dallas-Fort Worth. That’s around 1 percent of our employment base. That is a very good thing!
More important, though, economic diversity has to do with the variety of industries that drive a market. Economists are always benchmarking economies based on gross domestic product (GDP), job gains, and the like. One key metric they use is how close the mix of jobs looks like the U.S. average. In other words, the closer a metro area’s economy looks like the country’s, the more diverse it is—and the lower volatility it will see when major shifts take place in a key industry driver.
To put this in perspective, think of Pittsburgh and steel in the late 1970s and auto manufacturing in Detroit today. Both those areas took it on the chin hard, due to their reliance on a single industry.
So, to keep it simple the United States is benchmarked at “100,” the most diverse set of industries. Back in the 1980s, Dallas was ranked about 67. That’s more diverse than I would have guessed, but it makes sense given the large size of our market even back then.
Today, however, Dallas comes in at 80. That’s pretty much at the top of all the major U.S. markets.
Although energy was a big part of the Dallas’ economy in the 1980s, today we have deep roots across numerous industries, including technology, telecommunications, banking, and financial services. This diversity balances out the swings we saw in the old days—and are the key reasons we are seeing the broad kind of growth we have experienced in the last several years. In addition, this diversity is why we think we should be somewhat insulated during this energy shift.
To put Dallas in perspective, the less diverse markets today are coming in at below 65 or 70. Even though energy is still a big driver in Fort Worth, that community has transitioned dramatically over the last few decades. Today, it is much more balanced.
In contrast, markets like Austin and Seattle are very tech-focused, which is reflected in their lower scores. That is not to say those economies are bad. Rather, the lower score merely quantifies how much those markets rely on a specific industry or industries for growth and how volatile the reaction might be if there is a sudden change in their drivers.
If you are curious, the lowest-ranked markets and their drivers include Washington, D.C. (45, government), Las Vegas (25, gaming), San Jose (23, tech), and Midland (8, energy).
