With the state of Dallas’ economy as hard to pin down as a greased pig, we present some juicy goosip and the truth behind it.
The economy and cars are a lot alike, at least in how we perceive them. Take, for example, a recent New York Times story about the mystery behind the “Check Engine” light. Turns out very few people have any idea what this light actually means. Like Mary Witkowski, a librarian who told the Times that if the light comes on, the car has blown a fuse. But, she said, this is only the case if you own a Honda. Mary Witkowski said that she knows two other Honda owners whose “Check Engine” lights went on. Both times, the car had a blown fuse.
For Mary Witkowski, that’s evidence enough.
So it is with most of us and the economy. We’ll walk into a restaurant one day and ask the kindly proprietor, “How’s business?” He’ll tell us business is good for him, but he’s heard it is terrible for restaurants north of 635. That’s evidence enough for us that restaurants north of 635 soon will be boarding up.
Or, let’s say a pal tells us that all those telecom layoffs we’ve read about lately are no big deal because 500 small companies have hired most of the fired. This is simple hearsay, of course. But it sounds good enough to us, especially because it is optimistic, and who doesn’t need a little optimism?
But data is a cold bed, friends. And the data says our unemployment rate remains at a 10-year high. It also says telecom companies have shed at least 30,000 jobs in this area. We’re not even going to discuss the data that says, based on the average size of a small business in the United States, 500 firms probably don’t have 30,000 jobs to go around. Nope, not even going to mention that. Not gonna do it.
The point is, we know that the Dallas area economy has its “Check Engine” light on. But no one really knows what that means. This has us floating in a sea of rumor and exaggeration, using scuttlebutt as a personal floatation device. And we’d have our journalism merit badges taken away from us if we didn’t at least try to find out the truth behind some of the rumors we’ve been hearing about our struggling, but still adorable, local economy. Here, then, is what we’ve found:
Rumor: American Airlines will lay off 30,000 people and ground 200 planes due to continuing poor financial performance.
Truth: CEO Don Carty told workers that he’d heard those rumors, and those rumors are false. But American does estimate that it needs to cut $4 billion in long-term labor costs to regain profitability. So far, only $2 billion in savings has been identified. Then again, this is a company that once saved $40,000 a year in fuel and other costs just by eliminating one olive from every salad served. So, maybe those jobs are safe after all.
Rumor: Collin County has been crushed by the tech bust and now has the worst unemployment rate anywhere in the country.
Truth: The county’s unemployment rate was 5.9 percent in December 2002, the last month for which data was available prior to press time. The 5.9 percent rate is lower than the Dallas County rate of 6.6 percent. And it doesn’t even touch the 26 percent unemployment rate in Texas’ Maverick County. (Woo! Mavericks number one!)
Rumor: The telecom industry may be bust, but wireless is booming.
Truth: Bear with us here. We’re talking about business, so it’s time to reference the Chairman of the Board. In 1952, Frank Sinatra sold about 30,000 records. Also, some of his songs were on the charts. If you wanted to, you could say that Sinatra was booming. Thing was, though, Sinatra’s songs were posting near the bottom of those charts. And for almost a full decade before 1952, Sinatra sold at least three times 30,000 albums a year.
This brings us back to the wireless “boom.”
In the late ’90s, wireless companies—who, for the uninitiated, mostly make cellphones but also now dabble in gizmos that hook up computer networks and the like without cables—were posting 50 percent annual revenue growth. The number of cellphone subscribers was increasing at the same 50 percent year-over-year pace. Companies with a major Dallas presence, like Sprint, WorldCom, AT&T, and Ericsson, were getting to be big. Rat Pack big. Then subscriber growth dried up at the end of the ’90s—dropping below 20 percent per year—and the industry tanked. Most big cellphone providers piled up debt and posted huge annual losses. Things got so bad that in June 2002, Merrill Lynch told its clients they should sell shares in any company that offered cellphone services.
And now, because you’ve been so patient, here is where this rumor comes in. In late December 2002, Merrill reversed its sell recommendation for wireless companies, and investors came rushing back. AT&T’s stock shot up nearly 30 percent. Shares in Ericsson did that one better—10 better, actually—heading up more than 40 percent.
But just as wireless workers were starting to switch off Sinatra and punch up Gary Glitter’s “Rock & Roll, Part 2,” in came some less-impressive news. For 2003, most analysts now estimate no more than 10 percent growth in wireless subscribers. And surveys show that most companies aren’t planning on shelling out yet to take their computer networks and the like wireless. That means revenues for all the big wireless companies are expected to increase just 8 percent.
Now, that’s definitely better than losing money. But, as Ol’ Blue Eyes could tell you, it ain’t booming, either, baby.
Rumor: Plano and the rest of Collin County have more foreclosures than anywhere else in the country.
Truth: Sometimes rumors, even when you hear them from a few guys swilling away their sorrows over Rhumba Ritas at Cozymel’s, can have a kernel of truth. This one does. In 2002, Collin County, led by its biggest city, Plano, had the worst year in its history in terms of foreclosures. Some 2,031 homes were foreclosed on in 2002, a 154 percent increase over the prior year. So that’s bad. But take heart, North Texans. Things have been worse. In 1988, Dallas County was posting 2,000 foreclosures a month.
Rumor: Moderately priced homes aren’t selling well, but high-priced and inexpensive homes are.
Truth: We checked this out with some local Realtors. And somehow, in the process, they ended up selling us a two-bedroom bungalow in the M Streets. Savvy, those Realtors. But this rumor actually turns out to be kind of true.
With interest rates at a 40-year low, lots of people who might otherwise rent now want to buy. So you have an increase in demand for homes at the low end of the price scale. Meanwhile, those same low interest rates encourage those already ensconced in mid-price homes to look for an upgrade. This, an economist explained to us, creates demand for more expensive homes. While the numbers don’t apply to everywhere across the region (in Collin County, for instance, home sales at the $300,000-plus level are slower than elsewhere), here’s what we know:
The median sales price of a home in the Dallas area is $127,000. According to Texas A&M’s Real Estate Center, some 70 percent of homes sold here cost less than $180,000, with most of those priced between $80,000 and $140,000. Another 10 percent of homes sold cost $300,000 or more. That leaves just 20 percent of the current sales market in mid-priced homes, with most of it in the other extremes. Put another way: true.
Rumor: While other restaurants have suffered during the current downturn, steakhouses have done just fine.
Truth: Wait. You’re saying people in Dallas like to load up on beef? Is that a fat joke or something? It is true that some big-name, high-priced Dallas restaurants went belly-up last year—Voltaire, Salve—while similarly pricey steakhouses stayed in business. It’s also true that Smith & Wollensky, a New York-based chain, is even planning on expanding into the recession-ravaged local market this spring. But the news isn’t entirely good. Most of the big chain steakhouses saw revenues stay flat or increase only slightly in 2002. A couple steakhouses to the north—Tenaya Steak and Wild Game and Canyon Cafe—closed last year. And restaurant-industry analysts note that big chains like Ruth’s Chris and Del Frisco’s had only small increases in revenues last year. Still, that picture is expected to brighten this year, in part thanks to markets like Dallas and Houston, where demand for sizzling beef never took the steep declines that were seen in other big cities after 9/11 and the recession.
In other words, yes, steakhouses here are—mostly—just fine. And, yes, that was a fat joke.
Rumor: While retailers have been hit hard, sales of luxury goods are up.
Truth: Normally, this would be true. When the economy starts sliding, luxury goods sales usually stay put. Sometimes luxury goods—brand-name fashions, top-of-the-line jewelry, fine housewares—even post increased sales. But that’s not shaking out this time. The luxury goods sector saw a steep falloff in sales in late 2001 and had a flat 2002. It’s hard to sort out exactly what’s happening at the local level, though, since much of the data on pricey products is kept nationally and internationally. But an anecdotal sampling of several of our upper-crust retailing pals suggests our area is following with the worldwide slump in luxury sales. Some purveyors say they’ve seen a marked decline; others have just been stagnant.
Rumor: The Dallas economy depended too heavily on tech and telecom and won’t be able to rebound. You should sell your home before they foreclose on it, blow some of the proceeds on a steakhouse meal, get on an AA flight to the Bahamas, and never come back.
Truth: A friend of ours made a fortune on a tech startup back in the late ’90s. He quit his job and built a castle, or close enough, in the Park Cities. Then he lost half a fortune when tech went bust, and now he puts on a suit every day and goes to work. He is among the many who have told us: “Dallas won’t ever boom again like it did. The party’s over.” To which we answer: Kristin Sheppard.
Ms. Sheppard, you’ll remember, shot J.R. Ewing. And while the episode revealing that she was the shooter marked the peak of popularity for Dallas the TV show, it also serves as a reminder that Dallas the city used to be a booming oil town where one could find actual oil wells on the outskirts of town and actual oilionaries living within its confines. Indeed, during the boom years from 1978 to 1981, Dallas was lousy with black gold. And never was a town so big also so dependent on a single industry. The energy business was 17 percent of the entire Dallas area economy in 1982. Then J.R. got shot, oil went bust, and lots of people expected tumbleweeds would be rolling through a deserted Dallas soon after. You know the rest. By 1998, oil had shrunk to just 5 percent of the economy.
So maybe the area just switched tech for oil. But no matter. The point is, it made the switch, survived, and prospered. And if it did it once, it’ll do it again. We hope.