9 Industries Driving GDP Growth in the Texas Economy

In the years following the 2009 recession, Texas was one of the most economically resilient states, experiencing compounding annual growth in excess of 7% between 2009 and 2014. Throughout the economic recovery, the strongest growth industries were related to energy, construction, and technology. The Texas economy's long-standing ties to the energy sector helped drive employment and income expansion amid rising oil and gas prices, though commodity price depreciation has challenged further growth over the past year.

Technology hardware and software firms have grown rapidly in Texas, which has managed to lure businesses from other states such as California. Like the rest of the United States, the largest employment sectors in Texas are retail trade, professional services, leisure and hospitality, and health care. None of these sectors are exhibiting exceptional growth, but they form the economic backbone of the state and represent the majority of jobs and income. An assessment of a state's economy requires examination of these basic industries.

1) The Supersector

The constituency of the trade, transportation and utility sector is broadly defined by the Bureau of Labor Statistics (BLS). Many economists consider this group a supersector because it encompasses so many subindustries As of 2016, the supersector employed 2.4 million people in Texas, representing 20% of total nonfarm employment. The state is slightly more exposed to trade, transportation and utilities relative to the U.S. as a whole. The sector's 2.39% annualized growth rate means it is not a significant contributor to employment or income growth.

The retail trade industry employed more than 1.3 million people in 2017. Machinery, equipment, and supplies merchant subcategories fueled wholesale trade growth, bringing total sector employment above 580,000.

Transportation and warehousing employed 474,961 people at the end of 2017. Industries within this supersector are generally mature and have benefited from increased economic activity in Texas. Growth for these categories is responsive to success in other industries, such as energy and technology.

2) Business Services

As of August 2020, the professional and business services sector employed 14% of the Texas nonfarm workforce, a proportion higher than that of the entire U.S. Modest overall industry growth was highly variable among constituent subindustries. Architectural and engineering employment grew in excess of 10% alongside increased construction demand. Movement of people and business into Texas and improving general economic conditions stimulate construction spending and capital investment. Employment services and computer system design were also rapid growth segments.

3) Education and Health

According to a June 2015 BLS report, education and health services employed 1.675 million people in Texas, representing -4% growth over the prior year. This is not an industry from which rapid growth can ever be expected, but it is an important source of employment. Modest, positive health care sector growth is a sign of stability and continues to create more jobs moving forward.

Eight of the 25 largest employers in the state are hospitals or research facilities. Home health care providers were the quickest growing segment of the Texan health care industry, expanding 6% in 2014 as more people elected to receive care in their own homes instead of inpatient settings.

4) Leisure and Hospitality

The leisure and hospitality industry employed 1.147 million people as of August 2020, or 9% of the nonfarm labor force. This is proportionately higher than the rest of the U.S., indicating high tourism and disposable income. Accommodations were another strong growth category. The food and drinking places subsegment contributed more than 75% of the sector's additional jobs over the prior year. Accommodations were another strong growth category. This industry is expanding due to growth in other sectors, namely productive activities.

5) Manufacturing

According to the BLS, the manufacturing industry employs 869,000 people in Texas or 7.1% of all nonfarm workers as of August 2020. This sector has declined 4% over the past year. Certain key subcategories exhibited strength and catalyzed the gross domestic product (GDP) growth. Durable goods, especially machine manufacturing, were especially strong amid improving business investment conditions.

Chemical manufacturing has been one of the most rapid growth categories, and the performance of this industry is supported by Texas' large petroleum industry. Overall manufacturing growth has been dampened by declines in technology manufacturing, which is being reduced through outsourcing and automation.

6) Financial Services

The financial services industry employs 809,000 people in Texas as of August 2020, or 6% of the state’s total nonfarm employment. Financial activities represent large, mature sectors that generally grow in line with the wider economy. Retail banking has represented the strongest growth element of the financial sector in the U.S. The sector continues to operate as an important employer in Texas, which contributes to income disproportionately relative to people employed.

7) Construction

The construction industry is one of the largest and fastest-growing in Texas. There are 763,000 people employed by the industry, constituting 5% of the total nonfarm workforce. Construction of buildings is the leading subindustry driving this growth, with multifamily housing starts outpacing single-family starts and permit volume. Commercial construction is also trending positively, though infrastructure spending has been limited. Construction is fueled by population growth, an improving housing market and a healthier business investment environment.

8) Energy

According to August 2020 BLS statistics, there are 187,000 Texans employed by mining and logging firms, most of which are energy firms. Texas ranks highest among states in the energy sector in terms of employment and total energy production. Energy firms also contribute disproportionately to GDP relative to total employment, underlining the importance of this industry to the Texan economy.

Falling energy prices and the COVID 19 pandemic in the U.S. has hindered industry growth, which experienced a 24% decrease in employment from August 2020 to August 2019. Growth and contraction in the energy industry are some of the most important factors determining the rate of expansion in other industries such as trade, hospitality, and professional services.

9) Information and Technology

The information industry includes digital and physical publishing firms. As of August 2020, the information industry employed 195,000 Texans. However, the information industry does not include all of the firms operating in the more broadly defined technology sectors, such as computer systems design, technology manufacturers, telecommunications providers, IT consultants and infrastructure-as-a-service firms.

Large tech companies such as Dell, Inc., Texas Instruments, Inc., and Rackspace Hosting, Inc. are headquartered in Texas, while AT&T, Inc. and Hewlett-Packard Company are the 12th and 13th largest employers in the state, respectively. The broader tech sector employs 270,000 people in Texas, which is a new high above the previous peak reached during the tech bubble in 2000.

The more recent boom has allowed Texas to rise above California as the nation’s top exporter of technology. Alongside the energy sector, technology is an important productive economic element with the potential to influence growth in service industries.

Article Sources
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  1. Federal Reserve Bank of St. Louis. "Total Gross Domestic Product for Texas."

  2. Comptroller of Texas. "Trade, Transportation and Utilities Overview."

  3. BLS. "Texas Economy at a Glance."

  4. Texas Workforce Commission’s Labor Market & Career Information. "Texas Workforce Report," Page 39.

  5. University of Texas Arlington. "Healthcare Is Big Business in Texas."

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