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Affordability questions linger for businesses, residents in Austin economic forecast

Friday, December 22, 2017 by Chad Swiatecki

Economists and business leaders expect Austin to see continued strong job growth and business activity in 2018, though more than a decade of rapid population growth may start to put downward pressure on hiring and new activity in the city’s core.

That forecast came from Mark Vitner, an economist with Wells Fargo, who delivered the annual economic outlook for the Austin area commissioned by the Austin Chamber of Commerce. That forecast painted a familiar but detailed picture of the city, which has a tight labor and real estate market that is affecting both residents and businesses on the hunt for real estate.

Vitner said a variety of outside factors including the tax cuts recently passed by Congress and the national competition to land Amazon’s second headquarters – and its 50,000 high-paying jobs – are variables that could also impact the city’s business climate.

“Austin’s biggest challenge is coming to grips with all the growth and dramatic change over this cycle,” he said. “There’s been wave upon wave of new development and one of the biggest challenges is the calls to slow down growth and manage growth, and the city is getting much more expensive to do business in.

“Nationally, the policy mix has become more favorable and with taxes certain to be cut that will reduce the corporate rate, along with experiencing a significant rollback in regulation. That’s increased the amount of risk-taking on the part of businesses.”

Technology and energy remain strong sectors throughout Texas as well as in Austin, and Vitner said health care and hospitality are growing throughout the city, though the rolling 12-month local job growth is likely to be around 24,000 instead of the 30,000-plus that has been typical of recent years.

He said a slowdown in the professional services sector – strongly tied to the tech industry – will likely be less severe when jobs numbers are revised in early- to mid-2018 because those jobs are harder to track in real time.

On the local policy side, Vitner said a forthcoming revision in the city’s economic incentive programs – to focus more on small business growth and middle-class jobs – is a smart move to address a growing affordability crunch.

“That makes lot of sense because one of the areas Austin has been successful at is bringing in manufacturing operations, while places like Silicon Valley are hemorrhaging manufacturing jobs,” he said.

“Another challenge is that the highest growth is among high-skilled workers and low-skilled workers, while there’s not a lot of opportunity for folks in the middle. Those are the folks having a hard time affording a place to live. That’s a challenge for a lot of places. Some are going to neighboring communities where housing is not as expensive.”

Drew Scheberle, senior vice president of policy at the Austin Chamber, said the city’s strong startup environment tends to lead to job growth being underreported and then later revised. He expects Austin to maintain the 3 percent job growth it has achieved in recent years and said having accurate data is important in trying to land large employers and developments such as the Amazon headquarters.

“With lots of startups, those don’t get captured in the data because they are dynamic and they come and go pretty quickly,” he said. “We’re working pretty hard to get accurate data. And looking for quarterly data that gets corrected quicker than the yearly revisions from the Bureau of Labor Statistics. What you have here in unemployment is we have a rapidly growing labor force, so the unemployment rate changes every day because of the rapidly increasing labor force.”

Scheberle said he’s hopeful that the coming tax cuts will act as a positive force on the national economy and could fuel hiring and income growth.

“My suspicion is you have more money in the hands of companies, and that adds the possibility of adding more jobs and expanding but it may also fuel digitization,” he said. “My suspicion is it’ll lead to hiring and an increase in take-home pay.”

Photo by Kumar Appaiah made available through a Creative Commons license.

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