DMN Economic Roundtable: Area leaders upbeat on Dallas
Saturday February 18, 2012
Dallas Morning News – by Jim Landers
Dallas community businessmen and women took part in The Dallas Morning News third Economic Summit on Wednesday.
Uncertainty, over-regulation keep recovery in check, Economic Summit members say
A resurgent Dallas economy is creating jobs, attracting migrants and money, and exuding confidence that’s still lacking in much of the nation.
Dallas leaders gathered for an economic summit by The Dallas Morning News say they’re bullish on the area and focused on the problems of growth. At summits two and three years ago, they were consumed with fighting back against the recession.
This optimism is tempered, however, by exasperation toward the federal government. Election-year uncertainties, gridlock, regulation and much else are clouding the view of the nation’s future.
Dallas Mayor Mike Rawlings said the psychology of the area is upbeat while the nation as a whole seems doubtful about where America is headed. He said the nation was evenly divided between those who think the country’s better days are still ahead of us and those who think we’re past the peak.
“In Dallas, we asked the same question,” Rawlings said. “Sixty-five percent say our best days are ahead of us. Fifteen percent say the best days are behind us. Psychology is such a big part of it.”
The number of people out of work remains a concern. The December unemployment rate was 7.1 percent in the Dallas-Fort Worth area, well above the December 2008 rate of 6 percent.
Yet that could be a reflection of strength as much as weakness. Michael Cox, director of the William J. O’Neil Center for Global Markets and Freedom at Southern Methodist University, noted that Texas has created more jobs than all the rest of the states combined since the onset of the recession.
The state has recovered from job losses suffered in the downturn but can’t keep pace with the number of people moving to the area.
Dallas isn’t quite there yet, but close. There were still 11,800 fewer payroll jobs in the Dallas-Fort Worth area in December than there were three years earlier. But when you count the self-employed and household workers, there were 92,648 more people working at the end of the year than there were in December 2008, according to the U.S. Bureau of Labor Statistics.
“Texas will continue to accumulate people,” Cox said. “And, as it turns out, … [in the Dallas area] we’re gaining from the rest of the state, too.”
Energy burns brightest
The brightest spot in the economy is one that has enriched Texas many times in the past. Kenneth Hersh, CEO of NGP Energy Capital Management, said Texas is at the forefront of an oil and natural gas boom that’s attracting capital from all over the world.
“For all intents and purposes, oil and gas supply is infinite,” he said. “Think about the last 10 years of discussion. It’s all been about finite resources and resource scarcity and how to fit in 2 billion people … in this resource-constrained world. I think in the next 20 years it’s about resource abundance. We have too much. We’ve only scratched the surface technologically.”
The resurgence is largely due to drilling technologies perfected in the Barnett Shale, an area beneath North Texas that offers rich deposits of natural gas to drillers using hydraulic fracturing and horizontal wells.
The same techniques unlocked gas deposits elsewhere in Texas and in several other states — so much so that a supply glut has developed, causing natural gas prices to collapse. As a result, Texas consumers have enjoyed lower electricity costs.
One irony of these low prices, however, is that Dallas and the rest of Texas are living on a thin margin of available electric power — even though gas is the major fuel for the state’s power generators.
Hersh said that would start to turn around as more industries gain confidence that gas will be abundant for many years.
“The coal-fired plants are being scrapped and natural gas [is] taking the market share,” he said.
That same abundance is attracting to Texas investments in energy-intensive industries such as petrochemicals.
Foreign investors also like the Texas energy sector, said attorney Wilson Chu, a partner with the firm K&L Gates LLP.
“After this meeting, I’m going to be on a video conference with a Korean private equity fund that’s hoping to invest in energy assets here,” he said. “We’re seeing that more and more.”
Uncertainty from D.C.
Members of the panel expressed concern about public education in Dallas and about the impact of the statewide drought.
But the dark cloud cited repeatedly by the panel was the unpredictability of federal government actions. Part of it is uncertainty over this fall’s elections. But the panel also griped about federal regulation, federal debt and the inability of federal lawmakers to restore programs such as Medicare and Social Security to future solvency.
“There are enormous risks that overhang the country,” said Gary Kelly, CEO of Southwest Airlines. “We have fixed commitments without having fixed funding sources.
“That’s a system that only works if you can grow your way out when you fall behind. That is basic finance. You make commitments that you can fund. One of the sides needs to change. You can either change the way you make the commitments or change the way you fund them, i.e., taxes go up.
“We have gridlock. Rather than addressing these issues that anybody in their household would do, they get pushed down the road.”
Yet the panel was upbeat about even the weakest parts of the Dallas economy. Jim Fite, CEO of Century 21 Judge Fite Co., argued that home sales and prices hit bottom in the fall and are now coming back. The supply of homes for sale has dropped by 26.3 percent, he said, from a level equivalent to 7.2 months of sales to 5.3 months.
“There are a lot of cities around the country that would give anything to have 5.3 months of inventory,” Fite said.
Commercial real estate also looks better, said Lucy Billingsley, head of the Billingsley Co.
“Dallas is surging. We’re doing great,” she said. Nationwide, however, “the only way you have real estate recovery in office is to have a jobs recovery. There’s no other barometer.”
Banking, another industry rocked severely during the recession, is also rebounding, said Norm Bagwell, CEO of Bank of Texas.
“All our [lending] sectors are doing quite well,” he said. “Energy. Real estate has come through the cycle. Our health care book has been excellent. These companies have good balance sheets, and sales and earnings are creeping up.”
Shad Rowe, general partner of Greenbrier Partners Ltd., argued that the climate for investing in American companies is excellent.
“I’m very optimistic,” he said. “It’s not in the American DNA to sit around moping forever.”
More value for money
Consumers in Texas and Dallas are dining out again, said Doug Brooks, CEO of Brinker International. Nationwide, employment in the restaurant business has recovered to its prerecession level, he said.
But they are more demanding.
“The consumer coming out of the recession wants to eat out just as often as they did prerecession. But they want to pay less. They expect to pay 5 percent less,” he said.
Consumers are coming back wary of debt and inflation. Several panelists said value is more prominent in shoppers’ minds. When prices are too high, consumers are turning away — finding cheaper restaurants, or driving less and flying less in the face of high fuel prices.
Kelly said airlines have seen customers turn away from shorter business trips. Since the Sept. 11, 2001, terror attacks, airlines have offered fewer seats each year while raising prices.
“Air travel is very sensitive to price,” he said. “Lower the prices by half, or two-thirds, and traffic will explode. There’s plenty of evidence on that point. Now the reverse is beginning to happen.”
But Kelly said the bankruptcy of Fort Worth-based AMR Corp., parent of American Airlines, was more a reflection of the weakness of an older business model for airlines and would not trip up the level of activity at Dallas/Fort Worth International Airport — a crucial driver of the area’s economy.