Key Point: Texas recently leads the way in job creation and economic growth but there’s more to do to help struggling Texans deal with the state’s affordability crisis, especially freezing government spending and moving further to sales taxes.
Overview: Texas has been a national leader in the economic recovery since the inappropriate social and economic shutdowns that caused a severe recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 12th straight month, leading exports of technology products for 20 consecutive years, and being home to 54 of the Fortune 500 companies. While the 87th Texas Legislature in 2021 supported the recovery by passing many pro-growth policies like the nation’s strongest state spending limit, there’s more to do in 2023 to remove barriers placed by state and local governments. Solutions include governments passing responsible budgets and returning surplus tax dollars collected to taxpayers by reducing property taxes until they’re eliminated. Other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C.
Labor Market: The best path to prosperity is a job, as it helps bring financial self-sufficiency, dignity, hope, and purpose to people so they can earn a living, gain skills, and build social capital. The table below shows the state’s labor market for October 2022.
The payroll survey shows that net nonfarm jobs in Texas increased by 49,500 last month, resulting in increases for 29 of the last 30 months bring record-high employment to 13.6 million. Compared with a year ago, total employment was up by 694,200 (+5.4%), which was the fastest growth rate in the nation, with the private sector adding 670,200 jobs (+6.1%) and the government adding 24,000 jobs (+1.2%). The household survey shows that the labor force participation rate is slightly higher than it was in February 2020 but below June 2009 at the trough of the Great Recession. The employment-population ratio is nearly back to where it was in February 2020, and the private sector now employs 600,000 more people. Texans still face challenges with a worse unemployment rate, though historically low, and nonfarm private jobs just recently above its pre-shutdown trend (Figure 1).
Figure 1 compares the ratio of current private employment to pre-shutdown forecast levels in red states and blue states if both chambers of the legislature and the governor are Republican (dark red), Democrat (dark blue), or some combination (lighter colors). The results show a clear distinction between red states and blue states, with the stringency of restrictions by governments during the pandemic along with pro-growth policies before and after the shutdowns playing key roles. Specifically, 22 of the 25 states with the best (highest) ratios are in red-ish states while 13 of the 15 states and D.C. with the worst (lowest) ratios are in blue-ish places.
Figure 1 is informative because only Republican governors, with the exception of Louisiana, ended the supplemental unemployment payments that contributed to some people receiving more than while working before the payments expired. These data indicate a strong relationship between sound policy and more job creation. Overall, multiple indicators should be considered as the unemployment rate is a rather weak signal of the labor market. While the labor force participation rate in Texas exceeds where it was before the shutdowns, and the 4.0% unemployment rate could be full employment, the employment-population ratio is 0.2-percentage point above the pre-shutdown ratio.
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) provided the real gross domestic product (GDP) by state for Q2:2022.
Texas had the fastest GDP growth of +1.8%—to $1.85 trillion—on an annualized basis (above the -2.6% U.S. average). These followed Texas’ GDP growth declines of -7.0% in Q1:2020 and -28.5% in Q2 during the depths of the recession. GDP rebounded in Q3 and Q4, yet declined overall in 2020 by -2.9% (less than -3.4% decline of U.S. average) but increased by +3.9% in 2021 (below the +5.9% U.S. average). The BEA also reported that personal income in Texas grew at an annualized pace of +9.3% in Q2:2022 (ranked 3rd best and above the +5.8% U.S. average) as job creation and inflated income measures found their way across the economy.
Bottom Line: As Texas recovers from the shutdown recession and faces an uncertain future with the U.S. economy having stagflation and a likely recession, Texans need substantial relief to help make ends meet. While the Texas Model was strengthened by the 87th Legislature last year from less government spending, taxing, and regulating, more is needed for limiting government at the state and local levels.
Recommendations: In 2023, the Texas Legislature should improve upon its past efforts by:
The latest U.S. Jobs Report for September 2022 may look good, but a peek under the hood shows major weakness in a fragile economy. Things will get worse before they get better. And those most affected by the worsening economy are everyday Americans, small business owners, and entrepreneurs, without whom capitalism’s prosperity crumbles.
Of course, Democrats fearing upcoming election loss are hiding behind the record-low 3.5 percent unemployment rate to ignore the reality that inflation-adjusted average hourly earnings fell by 3 percent over the last year, the 18th consecutive monthly decline. These earnings have risen slower than inflation, essentially after the $1.9 trillion, March 2021 American Rescue Plan that was supposed to “stimulate” the economy.
Unfortunately, trillions more taxpayer dollars have been appropriated since then, further fueling the fire of money-printing by the Federal Reserve, which is a major cause of 40-year high inflation that won’t soon moderate without a more aggressive tightening policy.
The trickle-down effects of high inflation from money-printing funding excessive deficit-spending are keenly felt by American families, who have experienced an estimated loss in real income per capita of $4,200 since January 2021. And 40 percent more say they may not be able to pay their bills, compared to a year ago.
Americans are forced to make tradeoffs they should never face.
But with prices for food at home up 13.5 percent, shoppers must choose between eating healthy or paying the bills. Many are choosing less-healthy eating habits, creating health concerns in an already fragile healthcare system dominated by failures from government intervention. Reduced purchasing power has forced other tradeoffs, such as 93 percent of working Americans having a side hustle.
The dismal state of the nation is squashing people’s potential to prosper.
In addition to the average working American, businesses are hit hard. GAP, Peloton, Tesla, Microsoft, J.P. Morgan, and countless others have laid off hundreds to thousands of workers as they grapple with the effects of this recession. More importantly, 75 percent of small business owners say inflation is hitting their profit margin and 56 percent don’t see inflation abating until at least summer 2023, forcing them to raise prices, cut overhead costs, and minimize labor hours.
Unable to compete with big corporations that can keep costs lower, small businesses and entrepreneurs are seriously threatened. If the Fed doesn’t act more aggressively to substantially reduce its bloated $8.8 trillion balance sheet, lowering the high inflation it largely created, Americans will continue to suffer. This economy especially hurts the poor, who are stripped of their dignity without a well-paid job and the ability to afford necessities for their family.
There must be a liberty-friendly, pro-growth approach moving forward, removing government barriers that have crippled the success of capitalism.
This should include cutting government spending, taxes, and regulations to help quickly balance the budget, to stop fueling the Fed’s destructive policies. Congress should pass rules-based policies of a spending limit with a maximum growth rate of population growth plus inflation to cut bloated government spending, and a monetary policy rule, short of eliminating the Fed.
At the very least, Republicans should help undo the damage from a reckless government that has added nearly $7 trillion in deficit spending over the last couple of years. Of course, this violates the Statutory Pay-As-You-Go Act of 2010. Last year, the Biden administration waived PAYGO, like the Trump administration inappropriately did in prior years, in pursuance of the American Rescue Plan Act. But with a now evenly divided Senate, Republicans have the power to oppose similar proposals that would drive the nation into deeper debt.
To pull America away from the grips of a recession and the shackles of inflation, the government must get out of the way of the productive private sector. So long as the government continues egregious progressive policies, the hardworking Americans fueling the economy will be unable to do so, making for a government-dependent and economically unfree status that capitalism, with limited government, once helped them escape.
Originally posted by AIER
Vance Ginn, Ph.D.