Are the business prospects for Dallas/Fort Worth great? Are the economic prospects for the nation good? Will the Reagan economics policy work to significantly stimulate U. S. economic expansion? The answer to these questions based on the available facts (as opposed to opinions) is a resounding yes on all three counts. Why will the economic policies proposed by the Reagan administration work? Because most of the basic theories, on a more limited scale, are already working. They’ve been working in Dallas and Fort Worth for years. Without going into a lot of abstract logistics, the Reagan policies are designed to accomplish one major economic result and one major governmental-political impression. The projected result is to actually increase the materialistic rewards for those who do business in the U. S. economy. The social-political message of the entire package is that the central government of the U. S. has adopted an attitude that is more pro-business than that of the past.
Dallas and Fort Worth have blossomed during times that have been hard elsewhere. This is predominantly due to the pro-business stance that is now being tested on a national scale. But a high level of confusion surrounds present discussions of national economic policy and how it will influence us locally. Things may actually get a little worse before they get better, and the confusion rests in the growing intensities of attitude and expectations by both critics and supporters of the Reagan administration’s economic policies. The danger with this heated environment is the possibility that the Reagan administration’s economic policies will be blamed for something they did not cause. And because of this, these policies may get sidetracked or stalled.
Inflation is the area that could create real trouble for President Reagan and his economic programs, even though the last nine months have shown improvement. Inflation accelerated from a low of about 5 per cent in 1976 to a high of 13. 3 per cent in 1979. Last year, consumer prices increased by an average of 12. 4 per cent for the whole year, which is somewhat below the 13. 3 per cent for 1979. However, this 12. 4 per cent average for 1980 disguises a significant change that can be seen in the movement of consumer prices since October 1979. Consumer prices during the last three months of 1979 and for the first three months of 1980 were rising at annual rates in the 15 to 17 per cent range. Over the last six months (ending March 1981) these prices have been increasing less rapidly at 10 to 12 per cent.
This improvement in inflation did not go unnoticed in Washington, especially by those who presented the Reagan package. During the campaign and early days in office, Reagan and his advisors made it clear that the tax and spending cuts were a long-range program to lessen inflation. It would take time for results to be seen. Yet as discussions and debates took place before the various congressional committees, and the atmosphere started heating up between critics and supporters, the Reagan spokesmen began to imply that their policies might reduce inflation in a hurry.
The majority of economists believe that national inflation will stay about the same (10 to 11 per cent) or gradually improve. Those arguing Reagan’s case for spending cuts earlier this year started to imply that while inflation had improved some, it was still bad. If Congress did not put through this package of spending cuts, they seemed to imply, then inflation would still run high, and Congress would be deemed an obstruction.
The expectation that the Reagan programs will improve our economic situation in a hurry is a dangerous one. Some of the policies that are most apt to fall under impatient criticism are those that can make a strong positive effect on long-range economic expansion. Inflation during the last half of this year will have nothing to do with the Reagan administration’s policies. Inflationary expectations can be reduced or broken, but that will take time. The Reagan administration’s economic policy can have a definite positive effect, but it won’t wield influence by the end of this year or early 1982. Taking into account the rather strong recovery since the short 1980 recession, inflationary pressures should start showing up during the rest of 1981 and into 1982. Hopefully, inflation won’t turn out to be as high as the 14 to 15 per cent expected. While national inflation may look bad for early 1982, this doesn’t mean inflation will remain that way.
Dallas/Fort Worth is not going to escape the national inflation trends. In fact, we can expect inflation to be even a little higher here. Consumer prices for the nation rose 12. 4 per cent during 1980; consumer prices in Dallas/Fort Worth went up 16. 9 per cent. Expect this higher regional rate of inflation to continue during 1981. Dallas/Fort Worth should experience average inflation in the 16 to 18 per cent range for this year and the beginning of next. This higher inflation spread between the national and Dallas/Fort Worth averages has been narrowing and will continue to do so. Dallas has the second highest inflation rate among U. S. cities, second to Atlanta, another strong growth area. Yet statistics and percentage changes do not always present the clearest of pictures. In this respect, while Dallas/Fort Worth has the second highest inflation rate, this area is still a relatively inexpensive region in which to live.
The Dallas/Fort Worth economy is going to perform better than its national counterpart. This has been the pattern over the last 10 years, and the reasons determining it have not changed. In a nutshell, Dallas/Fort Worth has been outperforming the nation in output and employment growth because of the super growth status and industrial makeup of the region. The factors and circumstances that have created this status are mainly long-term in nature. Such factors as record migration, 25 per cent population growth over 10 years, increased defense spending, and accelerating foreign investment all contribute.
If the national economy’s real output (GNP) expands by +2 to +3 per cent through the third quarter ending this September, the Dallas area will experience + 3 to + 5 per cent real growth. If the national economy slows down during the last part of this year and in early spring of 1982, then Dallas/Fort Worth should still experience + 2 to +3 real growth or better.
Energy: Last year’s rapid 16. 9 per cent inflation for Dallas/Fort Worth can be partly explained by looking at energy costs for this area. We ranked third in 1980 with a 20. 6 per cent rise in gasoline prices and third in natural gas price hikes, which increased 31 per cent – more than double the 14. 6 per cent average for all metropolitan areas. Dallas/Fort Worth fared much better when it came to electricity costs – showing only a 4. 7 per cent rise in 1980. That compared favorably with the 10. 1 per cent average increase for 27 metropolitan study areas. All energy prices in the Dallas area went up 18. 5 per cent during 1980, according to the Dallas southwestern regional office of the Bureau of Labor. Dallas/Fort Worth energy costs areforecast to rise 12 to 14 per cent for all of 1981. Last year’s 18. 5 per cent increase forthis area had a lot of catching up to do toget in line with national energy costs.
Employment: While Dallas/Fort Worth came away with bad marks regarding the national-regional inflation comparisons, just the opposite is true regarding employment. Over the last 10 years, this employment rate has continually ranged between two and three percentage points below the national figure. Presently, unemployment: in the nation is running around 7. 3 per. cent and that’s more than 3 per cent higher than the Dallas/Fort Worth unemploy- ment rate of 4. 1. Total employment con- tinued to expand during 1980, in spite of the recession. Some 60, 000 or so more workers found jobs in the local work force.
Construction Industries: Not every sec-: tor of this region’s economy has been do- i ing consistently well. The construction in-dustry is a case of split personalities. Residential construction was weak during; 1980. but commercial-industrial construction has been booming. Condominium/ townhouse construction permits rose more than 50 per cent during 1980; this was the only bright spot in the residential construction sector, and a small one at that, since condo construction’s share of this construction market is only about 2 per cent. The rest of the residential sector took a beating. According to Briley Research Corporation, permits for single-family houses (which were 63 per cent of residential construction, according to M/PF Research, Inc. ) were down 23 percent. Second in market share is apartment construction (32 per cent), and permits here dropped from 10, 931 to 8803, down about 19 per cent. Total residential permits were down some 16 to 18 per cent.
There should be slow improvement in the residential and home construction industry with more to come next year. Mortgage rates should improve during the first half of 1982, but even before these rates start dropping, there are other factors and circumstances that should provide support for the housing industry. Of these, the most obvious one is the ever increasing pent-up demand that’s been developing since lale 1979. The National Association of Home Builders recognizes this and has ranked Dallas/Fort Worth at the top of the list where they think home-building activity will become the strongest. Last year, Dallas/Fort Worth ranked second, but with projected starts for 1981 at 38, 160, that puts this area far ahead of second place (West Palm Beach, Florida) and third place (Houston).
The large inventory of unsold houses (more than a five month supply, more than twice the number of unsold houses existing last year) may keep the home-buying market tilted to the buyer’s side for another nine months or so. If mortgage rates ease later this year and during the first half of 1982, mortgage money is going to become much more available. Homebuilders seeing this improvement will also be gearing up at this time. With a stronger overall national economy coming into play during the last half of 1982, you may expect housing prices to firm up, and the market in general may tilt to the seller’s advantage.
Commercial construction is a different story. M/PF Research recently released figures showing that total permit values for non-residential construction hit an all-time high of $1. 25 billion for the six-county Dallas/Fort Worth area. That’s a 20 per cent increase for 1980. The office building sector was the strongest, representing about 40 per cent of the total value of permits. Over the next 12 months, office building and other non-residential construction is going to remain strong.
Dallas moved into second place nationally in the amount of office space absorbed during 1980. Houston was in first place. About 6. 5 million square feet of office space was absorbed, according to Office Network, an organization of U. S. office leasing firms. With such a rapid net increase in the amount of occupied space, inventories have remained low. Commercial rental rates are going to continue to go up, but Dallas rental rates are still going to be quite attractive to outsiders. Dallas rates for Class A usable downtown space range from $15 to $17 per square foot.
That same space in Houston leases for about $20, but can go as high as $50 in New York, Chicago, or Los Angeles.
Interest Rates: The vast majority of credit markets are national in character; therefore, interest rates in Dallas/Fort Worth will follow the national trends quite closely. Short-term interest rates, after reaching all-time highs last December, have come down some. But this is not true for long-term rates, which are near their highs or are making new ones. The expected + 2 to +3 per cent real expansion of economic activity through September or so, plus the expected worsening of inflation, should cause upward interest rate pressures for the next three to six months. This developing upward pressure in interest rates may be strong enough to force rates to new highs. The most likely path short-term rates will take is three to six months of increase, with a return to December highs or just above them. In other words, the bank prime may move back up to the 21 to 22 per cent range. If things turn out as expected, then short-term rates should peak sometime between October and December of this year and gradually decline through the first half of 1982.
Long-term rates should rise during the rest of 1981. However, they have gotten ahead of themselves in the recent bond market panic. So, long-term rates may hold here or even improve some over the next couple of months before they head up again. Moody’s AAA bond rate is presently 13. 3 to 13. 5 per cent. These rates may go as high as 14 per cent. Long-term rates, including mortgage rates, probably won’t reach their highs as early as short-term rates do. It probably won’t be until after February or March 1982 before mortgage rates and other long-term rates start to moderate, and then this improvement will be modest and grudgingly slow.
If the national economy of the Eightiesis going to expand faster under Reagan,then Dallas/Fort Worth will do even better, and that’s almost hard to imagine.This area has always been pro-business.Compared to the rest of the nation, wehave relatively low state, county, and citybusiness taxes, regulatory requirements,costs, and red tape. And Texas is a right-to-work state; labor costs are relativelylow and negotiations are market oriented.Free enterprise is accepted and practicedhere. All of these things draw foreign andU. S. businessmen here in droves. A whopping 53 national bank charters were issuedin Texas last year, and where the wealthgoes, so goes the action in virtually everysphere of human activity. If you have always lived and worked near Dallas, thenyou are lucky. If you moved here by decision, then you are wise.