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2016-2017 Economic Forecast SponsorsTHANK YOU!
Wide Open for Business: Taking Texas to the Next Level in 2016
Presented by Tracye McDaniel, President & CEO
Texas Economic Development Corporation / TexasOne™
ABOUT TEXASONE™
TexasOne™ is a program of Texas
Economic Development Corporation created
for the purpose of marketing and promoting
Texas as a premier business location
TEXASONE™ SUPPORTERS**Listing of top supporters
A LOOK BACK
AT 2015
2015 RESULTS
Major Investments from Industry Leaders:
No.1 in the Nation for Foreign/Domestic Investment
26,500 Private Sector Jobs Added in December –
166,900 Overall in 2015
Jobs Added in 9 of 11 Major Industries in 2015
Unemployment at or Below National Rate for 107
Consecutive Months (8+ Years)
BUSINESS
RECRUITMENT
EVENTS &
MARKETING
MISSIONS
2015
NEW YORK MISSION
“Thank You for Investing” Dinner
NYSE Opening Bell
Site Selector Luncheon: 16 Site Selectors
Conversations with 30 Global Business
Leaders; Potential to Retain 11,500+ Jobs
1 Billion+ Media Impressions
MEXICO MISSION
Three Industry Roundtable Discussions
Luncheon With Governor Keynote
550 Business Leaders Conversations
15 Identified Projects; 125 Potential Jobs
10 Million+ Media Impressions
CUBA MISSION
Resulting Business Opportunities:
Scheduled Air Travel
Rice Shipments
Agricultural Supply
Health Products
Trade With Texas Ports
110 Million+ Media Impressions
BUSINESS
RETENTION
&
EXPANSION
2015
SITE SELECTOR
ENGAGEMENT
SITE SELECTOR ENGAGEMENT
Governor Abbott Webinars for 100+ Site
Selectors
“Just One Thing” E-Newsletters: 15
Number of JOT Recipients: 845
“Speed Dating” in New York: 16 Site
Selectors
86 Site Selector Conversations
LOOKING
AHEAD TO
2016
TARGET INDUSTRIES
Advanced Technology and Manufacturing
Aerospace/Aviation and Defense
Biotechnology & Life Sciences
Information and Computer Technology
Petroleum Refining and Chemical Products
Energy
ENGAGING PROSPECTS FOR CONVERSION TO LEADS
AWARENESS
INTEREST
DESIRE
ACTION
CONVERT
Thank you!
AUSTIN FORWARD
Angelos Angelou
31st Annual Austin Forecast
January 26th, 2016
TODAY’S AGENDA
2015: The Year in Review
Austin’s Economic Drivers
Challenges to Overcome
The Future
20
2015: THE YEAR IN REVIEW
21
THE YEAR IN REVIEW: OILTE
XA
S
Source: Energy Information Administration
BILLION
BILLION
-$4.9
+$24.3
BUST• Monthly productivity cut by 20%• ~56,000 oil & gas jobs lost• Average salary: $86,000
BOOM• ~23 billion gallons consumed
annually (Gas, Diesel, Jet)• Price per Gallon decreased
more than $1 per gallon
OR
In Payroll
In Savings
NET BENEFIT TO TEXAS: $19.4 BILLION 22
THE YEAR IN REVIEW: TEXAS AT-A-GLANCETE
XA
S
Source: Bureau of Economic Analysis, Bureau of Labor Statistics
VC Funding: $1.17 Billion
Business Growth: 9,400 Household Income: $53,000 Housing Starts: 101,000
Population Growth: 512,000
1.9%
Employment Growth: 243,000
2.1%
Retail Growth: $16.3 Billion
3.6% 18%
1.7% 2.6% -2.0%
23
Unemployment: 4.4%
0.6%
THE YEAR IN REVIEW: TEXAS AFFORDABILITY
• Overall, Texas is considerably more affordable than the nation, especially in the housing market
• Texas has the lowest cost of living of the five most populous states
• Texas has a great business climate that attracts businesses from all over the world
TEX
AS
86
88
9092
94
9698
100102
2008 2009 2010 2011 2012 2013
Cost of Living by Component
Total Goods Housing
Other Services National Average
98
117.2
112.8
99.4
103.3
85
90
95
100
105
110
115
120
Texas New York California Florida Illinois
Cost of Living as a Percentage of the National
Average
24Source: Bureau of Economics Analysis
THE YEAR IN REVIEW: MIGRATION
2015 Net Population Growth: 512,000
Net Domestic Migration:
176,600
Net International
Migration:96,600
Net Births: 238,500
Median Age: 28.1 years old (Texas Median: 34.3)
Median Income: $22,700 (Texas median: $29,800)
Migrant Profile
65%
35%
Migration by Source
Out-of-State International
TEX
AS
Source: U.S. Census Bureau, Texas A&M Real Estate Center 25
THE YEAR IN REVIEW: TEXAS JOB GROWTH
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Austin Dallas El Paso Houston San Antonio
Austin vs. Other Major MSAs
Percent Growth
26
59,200
56,200
46,500
45,800
22,000
12,900
7,000
6,900
600
-14,100
-20,000 -10,000 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000
Education and Health
Leisure and Hospitality
Trade, Transportation, and Warehousing
Professional/Bus Services
Government
Financial Activities
Other Services
Construction, Oil and Gas Extraction
Information
Manufacturing
Texas Job Growth by Sector
Source: Bureau of Labor Statistics, Dallas Fed
TEX
AS
TEX
AS
THE YEAR IN REVIEW: POPULATION
• 2nd Fastest Growing State
• Austin Region Expanding Twice as Fast as State
• Estimated that Austin area surpassed 2 million people in 2015
1,682,300 1,716,3001,783,000
1,849,0001,907,500
1,973,0002,040,000
1,500,000
1,700,000
1,900,000
2,100,000
2009 2010 2011 2012 2013 2014 2015
Austin MSA
24,801,800 25,145,600
25,657,500 26,094,400
26,505,600 26,957,000
27,469,000
23,000,000
24,000,000
25,000,000
26,000,000
27,000,000
28,000,000
2009 2010 2011 2012 2013 2014 2015
Texas
790,600 795,500820,600
842,600
885,400912,800
929,800
700,000
750,000
800,000
850,000
900,000
950,000
2009 2010 2011 2012 2013 2014 2015
City of Austin
51%
3%1%3%1%
6%
35%
By City: Percent Growth of
Austin MSA (2009-2014)
Austin
Round Rock
San Marcos
Georgetown
Cedar Park
Pflugerville
Other
TEX
AS
AU
STI
N
Source: U.S. Census Bureau, State of Texas 27
THE YEAR IN REVIEW: AUSTIN AT-A-GLANCE
Source: Bureau of Economic Analysis, Bureau of Labor Statistics
VC Funding: $680 Million
Business Growth: 1,500 Household Income: $63,600 Housing Starts: 11,500
Population Growth: 67,000
3.4%
Employment Growth: 35,500
3.9%
Retail Growth: $2 Billion
6.1% 14%
3.4% 3.0% -3.2%
AU
STI
N
28
Unemployment: 3.3%
0.9%
THE YEAR IN REVIEW: AUSTIN SALES TAX
• 2015 Receipts: $405 Million• $218 Million to City of Austin
• 30% increase from 2011
• Per Capita retail sales healthy but beginning to decline
• City property tax revenue at $382M and $218M in sales tax
• Per Capita Sales Tax Burden:• Austin MSA: $920• Texas: $1050
AU
STI
N
Source: Texas Comptroller’s Office
16%
41%24%
19%
City of Austin Share of Revenue by Source
Utility Transfers
Property Tax
Sales Tax
Other
29
$16,000
$17,000
$18,000
$19,000
$20,000
$0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
2011 2012 2013 2014 2015
Local Sales & Use Tax Collection
Bastrop Caldwell
Hays Travis
Williamson Per Capita Retail Sales
THE YEAR IN REVIEW: AUSTIN PROPERTY TAXES
• Travis County property tax rolls increased 48% since 2010
• 2015 Total Valuation: ~$167 BillionAU
STI
N
Source: Travis Central Appraisal District
Estimated Share of Austin Property Tax
Base by Council District
Single Member District
2010 Share
2015 Share
Per Capita Valuation
District 1 13% 9% $90,400
District 2 4% 4% $56,600
District 3 9% 7% $57,300
District 4 6% 6% $67,700
District 5 9% 8% $80,800
District 6 3% 5% $101,700
District 7 11% 13% $88,500
District 8 9% 12% $122,800
District 9 21% 16% $156,000
District 10 14% 20% $159,617
30
• Vacancies consistently declining since 2009
• Vacancies well below national average in all sectors
• 10-year increase in rents:• Office: 40%• Industrial: 29%• Retail: 12%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Commercial Real Estate Vacancy
Office Industrial Retail
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Lease Rates per SF
Lease Rates Office Lease Rates Industrial Lease Rates Retail
AU
STI
N
Source: CoStar
Office Industrial Retail
U.S. 16.5% 9.4% 8%
Austin 8.1% 5.7% 3.7%
2015 Average Vacancy Rate
THE YEAR IN REVIEW: AUSTIN CRE
31
THE YEAR IN REVIEW: AUSTIN CRE
• Absorption consistently strong across all sectors
• Normalized for population growth, recent absorption growth less pronounced
• 3.4 million of CRE currently under construction:
• Office: 2.1 Million SF
• Industrial: 1.3 Million SF
• Retail: 85,000 SF
-800,000
200,000
1,200,000
2,200,000
3,200,000
4,200,000
5,200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Net Absorption
Office Industrial Retail
AU
STI
N
Source: CoStar 32
THE YEAR IN REVIEW: AUSTIN JOB GROWTHA
USTI
N
11,200
6,900
5,300
4,400
2,100
1,600
1,500
1,200
1,000
300
0 2,000 4,000 6,000 8,000 10,000 12,000
Professional/Bus Services
Leisure and Hospitality
Trade, Trans, and Utilities
Education and Health
Construction
Information
Financial Activities
Government
Other Services
Manufacturing
Job Growth by Sector, Austin MSA
33Source: Bureau of Labor Statistics, Dallas Fed
AUSTIN’S ECONOMIC DRIVERS
34
ECONOMIC DRIVERS: IN-MIGRATION
2015 Net Population Growth: 65,500
Net Domestic Migration:
33,800
Net International
Migration:6,700
Net Births: 17,000
Median Age: 27.6 years old (Austin Median: 33.9)
Median Income: $28,600 ($32,400)
Migrant Profile
16%
55%
29%
Migration by Source
International In-State Out-of-State
AU
STI
N
Source: U.S. Census Bureau, Texas A&M Real Estate Center 35
ECONOMIC DRIVERS: ENTREPRENEURSHIP
• One of the best years in recent history
• 82 deals, $688 million in funding
• Austin received over half of all Texas VC funding in 2015
• Software & Biotech account for 63% of funding
• VC and entrepreneur scene supported by 35 local incubators, accelerators, and co-working space facilities
12%
5%
7%
7%
8%
17%
44%
Funding by Sector
Other
Computers and
Peripherals
Consumer Products and
Services
Semiconductors
IT Services
Biotechnology
Software
AU
STI
N
Source: Price, Waterhouse, Cooper
$0
$100
$200
$300
$400
$500
$600
$700
$800
20152014201320122011201020092008200720062005
VC Funding in Millions of Dollars
36
ECONOMIC DRIVERS: THE TECH SECTOR
• Tech Employment has increased 30 percent since 2010
• Represents over 20% of total employment growth in the same period
• Average salary for these positions is over $90,000
• Shift into services and software development
25%
13%
13%
49%
2015 Tech Employment: 133,000
26%
19%
11%
43%
2010 Tech Employment: 103,000
AU
STI
N
Source: Bureau of Labor Statistics 37
ECONOMIC DRIVERS: THE FESTIVALS
4-Year Economic Impact: $5+ Billion
ACL FestFun, Fun, FunSXSWCOTAAnnual
Economic Impact
Attendance
Years Active
$875 Million
1,000,000
4
$300 Million
84,000
28
$30 Million
50,000
9
$190Million
150,000
13
AU
STI
N
Source: AngelouEconomics 38
CHALLENGES TO OVERCOME
39
CHALLENGES: TRAFFIC
Austin’s growth has brought:
• 25,000 new cars annually
• 1.7 million tons in additional GHG
• Per capita annual traffic delay is 52 hours, up 6 hours from 2009
But:
• Less traffic delays than West Coast tech hubs
• Austinites enjoy shorter commute times than most other cities
Still, as affordability issues continue to grow, so will the traffic
0
20
40
60
80
100
Austin Denver Miami Raleigh San
Francisco
San Jose Seattle
Annual Hours Lost to Traffic
20
22
24
26
28
30
32
34
Austin Denver Miami Raleigh San
Francisco
San Jose Seattle
Average Commute Time (Minutes)
AU
STI
N
Source: U.S. Census Bureau, Texas A&M Traffic and Transportation Institute 40
CHALLENGES: JOB QUALITY
• New jobs have largely maintained real incomes
• Increasing Prevalence of Leisure & Hospitality employment driving down average wages
• Top Sectors of 2015• Professional & Business Services (32%)
• Avg. Pay: $61,100• Can afford $235,000 house
• Leisure & Hospitality (20%)• Avg. Pay: $48,100• Can afford $185,000 house
• Trade, Transportation, & Utilities (15%)• Avg. Pay: $47,700
AU
STI
N
Source: Bureau of Labor Statistics, Dallas Fed
$0
$20,000
$40,000
$60,000
$80,000
2010 2011 2012 2013 2014
Average Salary of Newly Created Jobs
Average Annual Salary Average Salary of New Workers
41
0%
5%
10%
15%
20%
25%
30%
35%
$-
$20,000
$40,000
$60,000
$80,000
$100,000
Salary vs. Industry Share of Job Creation
Annual Salary Share of Growth
CHALLENGES: COST OF LIVING
• Overall cost of living lower than national average
• Single exception is housing
• Less expensive than other major tech hubs
98.7104.8 105.2
95.6
120.3 121.3107.1
0
20
40
60
80
100
120
140
Austin Denver Miami Raleigh San
Francisco
San Jose Seattle
Cost of Living as a Percentage of the
National Average
90
95
100
105
110
115
2008 2009 2010 2011 2012 2013
Cost of Living by Component
Overall Goods Rents
Other Services U.S. Average
AU
STI
N
Source: Bureau of Economics Analysis 42
CHALLENGES: RENT AFFORDABILITY
• Over half of all Austinites spend more than 30% of their income on housing
• Austin’s housing costs a percentage of income are on par with other Tech hubs that traditionally were much higher cost
11.11%
12.03%
13.30%
13.33%
9.24%
40.99%
Cost of Rent as a Share of Income
<15%
15-20%
20-25%
25-30%
30-35%
>35%
0
5
10
15
20
25
30
35
40
Austin Denver Miami Raliegh San
Francisco
San Jose Seattle
Rent as a Percentage of Income
AU
STI
N
Source: U.S. Census Bureau 43
CHALLENGES: RENT AFFORDABILITYAverage Rent by Zip code (2011) Average Rent by Zip code (2014)
Between 2011 and 2014, average rents in the Austin region increased by nearly 15% despite the permitting of 35,000 new multi-family units
AU
STI
N
Source: U.S. Census Bureau
44
CHALLENGES: SINGLE FAMILY AFFORDABILITY
• Median home price has increased 5% annually since 1990
• Austin home prices growing twice as fast as the U.S. average
• Inventory remains near record low
• Need more housing starts
AU
STI
N
Source: Texas A&M Real Estate Center
2010 2015 Difference
Median
Price$189,000 $259,000 +$70,000
Months
Inventory6.6 2.6 -4
Permits
Issued6,200 11,500 +5,300
45
$50,000
$52,000
$54,000
$56,000
$58,000
$60,000
$62,000
$64,000
$66,000
$68,000
$70,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
$280,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Median Home Prices vs. Median Income
Median Home Price Median Household Income
• Overall, the housing market remains tight, with little evidence of overdevelopment
• Below average housings starts and above average demand indicative of growing housing shortage
• Equilibrium for new housing starts is at 15,300 and for overall home sales is at 29,200
0
2
4
6
8
10
12
14
Housing Starts Issued per 1,000 residents
0
5
10
15
20
25
Sales per 1,000 Residents
Home Sales per 1,000 20-Year Average
20 Year Avg: 7.5
20 Year Avg: 14.3
AU
STI
N
Source: Texas A&M Real Estate Center
CHALLENGES: AFFORDABILITY (SINGLE FAMILY)
46
CHALLENGES: CRE AFFORDABILITYTE
XA
S
0%
2%
4%
6%
8%
10%
12%
14%
16%
$0
$5
$10
$15
$20
$25
$30
$35
Austin Dallas Houston San Antonio El Paso
Office
Lease Rate Vacancy Rate
0%
1%
2%
3%
4%
5%
6%
7%
8%
$0
$5
$10
$15
$20
Austin Dallas Houston San Antonio El Paso
Industrial
Lease Rate Vacancy Rate
0%
1%
2%
3%
4%
5%
6%
7%
$0
$5
$10
$15
$20
$25
Austin Dallas Houston San Antonio El Paso
Retail
Lease Rate Vacancy Rate
47Source: CoStar
THE FUTURE
48
THE FUTURE: ANGELOS’ ACCURACY
• Over the past 20 years, forecasts have typically been accurate but conservative
• Biggest shortcoming is over-optimism during recession years
• Best forecaster of the economy is:
THE ECONOMY!! (Angelos is 2nd)
AU
STI
N
49
(20,000)
(10,000)
-
10,000
20,000
30,000
40,000
50,000
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Net Job Creation in Austin
1-Year Forecast Actual
THE FUTURE: TEXAS POPULATION
26.51
26.96
27.47
27.96
28.44
25
26
27
28
29
2013 2014 2015 2016 2017
Population (in Millions)
(490,000)
(480,000)
TEX
AS
50
THE FUTURE: TEXAS JOB GROWTH ‘16-’17TE
XA
S
95,900
91,900
89,700
46,800
38,600
16,500
11,600
-1,400
-8,700
-10,300
-20,000 0 20,000 40,000 60,000 80,000 100,000
Education and Health
Leisure and Hospitality
Trade, Trans, and Utilities
Professional/Bus Services
Government
Financial Activities
Other Services
Information
Construction, Oil, and Gas
Manufacturing
Industries Jobs Gained/Lost % Change
-1%
-1%
-1%
3%
2%
2%
3%
4%
7%
6%
Total Jobs:
370,600
3.1%
51
1.91
1.97
2.04
2.11
2.17
1.7
1.8
1.9
2
2.1
2.2
2013 2014 2015 2016 2017
Population (in Millions)
(70,000)
(60,000)
THE FUTURE: AUSTIN’S POPULATIONA
USTI
N
52
$27.77
$31.07$33.50
$35.55$37.50
$39.38
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2012 2013 2014 2015 2016 2017
Retail Sales (in Billions)Retail Sales
Growth Rate
THE FUTURE: AUSTIN RETAILA
USTI
N
53
39,200
38,000
35,500
32,100
28,300
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2013 2014 2015 2016 2017
New Jobs Percent Growth
THE FUTURE: AUSTIN EMPLOYMENTA
USTI
N
54
21,000
11,000
8,700
8,700
2,800
2,500
2,100
1,400
1,200
1,000
- 5,000 10,000 15,000 20,000 25,000
Professional/Bus Services
Trade, Trans, and Utilities
Education and Health
Leisure and Hospitality
Information
Construction
Government
Other Services
Financial Activities
Manufacturing
THE FUTURE: AUSTIN JOB GROWTH ’16-’17
Industries Jobs Gained/Lost % Change
2%
2%
3%
1%
5%10%
8%
8%
7%
13%
Total Jobs:
60,400
6.3%
AU
STI
N
55
THE FUTURE: KEY TAKE AWAYSA
USTI
N
Lower oil prices are good for the economy
The economy is slowing—don’t panic
We are still seeing robust growth
The best way to predict the future is to create it: Implement policies to support housing affordability Implement policies to attract high-paying jobs Implement policies to reduce traffic congestion
Let’s not become victims of our own success
“I’m proud to live in Austin…Let’s keep Austin weird, but also business friendly. There’s no reason we can’t have both.”
--Angelos Angelou, 1/26/2016
56
CONCLUSIONA
USTI
N
THANK YOU!Questions?
If you would like a copy of this presentation, please e-mail Morgan Adams at: [email protected]
AngelouEconomics, an industry leader in site location, strategic planning, and economic research for more than 20 years!
angeloueconomics.comTwitter: @angeloueconPhone: 512-225-9320
57
Austin
Where Are We Now?
58
Source:
Five benchmarks for good decision making
Inflation Interest Rates
Growth
Profits The Dollar
Austin 59
Expectations for the Future
Wells Fargo vs. Consensus
How do we differ from consensus?
Sustained-trend growth, no recession in 2016
Employment—cyclical and structural change
Consumer solid
Housing improving—multifamily especially
State and local governments—revenues up
Unsustainable long-run fiscal policy
Europe improvement ahead
China growth sub 6.5 percent for 2016, 2017
Austin 60
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2000 2002 2004 2006 2008 2010 2012 2014 2016
U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change
GDP - CAGR: Q3 @ 2.0%
GDP - Yr/Yr Percent Change: Q3 @ 2.1%
Forecast
Sustained Growth in 2015—Divide Between Domestic and Trade
Following a poor start to 2015, GDP growth has improved.
Trend growth prospects in the year ahead. Consumer and
housing lead but exports a drag
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 61
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
96 98 00 02 04 06 08 10 12 14
U.S., Canada & U.K. Real GDPYear-over-Year Percent Change
United States: Q3 @ 2.2%Canada: Q3 @ 1.1%U.K.: Q3 @ 2.3%
International Growth: Synchronized
Global growth remains mixed, drop in oil prices has weighed
on Canadian growth
Source: U.S. Department of Commerce, IHS Global Insight and Wells Fargo Securities, LLC
Austin 62
25
30
35
40
45
50
55
60
65
25
30
35
40
45
50
55
60
65
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
ISM Manufacturing & Non-Manufacturing Composite Index
ISM Manufacturing Index SA: Dec @ 48.2
ISM Non-Manufacturing Index SA: Dec @ 55.3
Manufacturing & Services: A Divide
Indexes on business activity suggest continued growth for 2015 and 2016, services have
been a bulwark—manufacturing impacted by dollar and lower
energy prices—industrial recession (Barron’s 11/14/2015)
Source: Institute for Supply Management and Wells Fargo Securities, LLC
Austin 63
0%
1%
2%
3%
4%
5%
6%
7%
-9%
-6%
-3%
0%
3%
6%
9%
12%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Labor Income and Consumer SpendingYear-over-Year Percent Change of 3-MMA
Real Consumer Spending: Nov @ 2.8% (Left Axis)
Aggregate Wages & Salaries: Nov @ 5.2% (Left Axis)
Average Hourly Earnings: Dec @ 2.2% (Right Axis)
Wages & Salaries
Wages & salaries are best associated with consumer
spending—not wages alone
Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 64
0%
2%
4%
6%
8%
10%
12%
14%
0%
2%
4%
6%
8%
10%
12%
14%
66 70 74 78 82 86 90 94 98 02 06 10 14
Fundamentals of Average Hourly EarningsYear-over-Year Percent Change of Four-Quarter Moving Average
Core PCE Inflation + Labor Productivity: Q3 @ 1.7%
Average Hourly Earnings: Q4 @ 2.0%
Wage Fundamentals
Inflation and productivity are two of the major drivers of
wages
Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 65
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Thousands
Housing StartsMillions of Units
Multifamily Starts
Multifamily Forecast
Single-family Starts
Single-family Forecast
Forecast
Housing: More Multifamily
We continue to look for a gradual recovery in
homebuilding.
Apartment demand remains exceptionally strong but supply
is catching up with demand.
Single-family housing starts are beginning to ramp back up.
Gains will be more modest than in past building cycles.
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 66
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
10
20
30
40
50
60
70
80
90
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
NAHB/Wells Fargo Housing Market Index vs. Fed Funds RateDiffusion Index, Rate
NAHB Housing Market Index: Jan @ 60.0 (Left Axis)
Fed Funds Rate: Jan @ 0.50% (Right Axis)
Housing: Interest Rate Sensitivity
Persistent low interest rates have likely supported builder confidence—challenges going
forward as funds rate rises
Source: NAHB, IHS Global Insight and Wells Fargo Securities, LLC
Austin 6767
Business Fixed Investment
Capex in the tech sector comprises a 22% share of all business investment spending.Investment in the energy sector (while a key driver of growth from 2009-2012) still comprised
less than 6% of all business outlays.
Source: U.S. Department of Commerce, and Wells Fargo Securities, LLC
Energy SpendingTech Spending
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
95 97 99 01 03 05 07 09 11 13 15
Fixed Investment Spending on TechAs Percent of Total BFI
Tech: Q3 @ 22.0%
0%
1%
2%
3%
4%
5%
6%
7%
0%
1%
2%
3%
4%
5%
6%
7%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Fixed Investment in the Energy Sector As Percent of Total BFI
Energy: 2014 @ 5.7%
Austin 6868
-2%
-1%
0%
1%
2%
3%
4%
5%
-2%
-1%
0%
1%
2%
3%
4%
5%
92 94 96 98 00 02 04 06 08 10 12 14 16
PCE Deflator vs. Core PCE DeflatorYear-over-Year Percent Change
PCE Deflator: Nov @ 0.4%
"Core" PCE Deflator: Nov @ 1.3%
Inflation: Rising—But Less Than Market/FOMC Expect
Inflation remains historically low, but we expect to see a
pickup in coming quarters –average less than 2% since 1991
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 69
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Core Commodities vs. Core Services CPIYear-over-Year Percent Change
Core Services CPI: Dec @ 2.9%
Core Commodities CPI: Dec @ -0.4%
Inflation: A Divide in Goods vs. Services
Inflation for services has been much firmer than for
commodities—Macy’s backstage stores (WSJ 11/12/15)
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Austin 70
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Appropriate Pace of Policy FirmingTarget Federal Funds Rate at Year-End
December 2015 Median Response
September 2015 Median Response
December 2014 Median Response
Futures Market
2015 2016 Longer Run2017 2018
Pace of Policy Firming: Not Four Increases in 2016
The FOMC hiked rates in December. The long-term funds
rate projection curiously held steady
Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities, LLC
Austin 71
0%
2%
4%
6%
8%
10%
12%
14%
0%
2%
4%
6%
8%
10%
12%
14%
47 51 55 59 63 67 71 75 79 83 87 91 95 99 03 07 11 15
Corporate ProfitsAs a Percent of GDP
Rest of World: Q3 @ 2.1%
Domestic: Q3 @ 9.3%
NAFTA
China
Joins
WTO
Corporate Profits: Increasing Role of Global Profits
Profits as a percentage of GDP are historically high and are
being boosted by profits earned abroad post NAFTA – dollar
challenges ahead?
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 72
55%
48%
41%
34%32%
30%
24%
20%
7%
0%
10%
20%
30%
40%
50%
60%
0%
10%
20%
30%
40%
50%
60%
Percent of S&P Revenues Earned AbroadBy Sector, September, 2015
S&P Revenues Earned Abroad
IT and Materials earn the highest share of their revenues
abroad, making those industries the most at risk to the stronger
dollar—Invoicing in dollars?
Source: Bloomberg LP and Wells Fargo Securities, LLC
Austin 73
10.0%
7.4%
3.6%
0.2%
5.5%
19.4%
15.9%
-5% 0% 5% 10% 15% 20% 25% 30%
South Korea
Germany
U.K.
Japan
China
Mexico
Canada
U.S. Dollar Appreciation vs. Top Export DestinationsTop 7 Trading Partners, Year-over-Year Percent Change
Jan-16
U.S.
Exports
Less
More
Dollar Appreciation
The dollar has appreciated versus most of our largest
trading partners over the past year. That said, dollar
appreciation has varied significantly by country.
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Austin 74
60
65
70
75
80
85
90
95
100
105
-100
-75
-50
-25
0
25
50
75
100
125
Dollar Index vs. Two-Year SpreadBloomberg Dollar Index, U.S. Spread over Major Currency Yields, Bps
Yield Spread: Jan @ 106bps (Left Axis)
Dollar Index: Jan @ 99.0 (Right Axis)
Foreign Exchange Fundamentals
The interest rate differential is a key driver of currency moves
Source: Bloomberg LP and Wells Fargo Securities, LLC
West South Central
Austin
Texas Employment Growth by MSA
Corpus Christi
El Paso
College Station
Beaumont
Waco
McAllenHouston
LaredoFort
Worth
San Antonio
Austin
Dallas
Longview
Brownsville
Lubbock
Amarillo
Fort Hood
Tyler
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
-2% -1% 0% 1% 2% 3% 4% 5%
3-M
onth
Annualized P
erc
ent
Change (
3M
MA)
Year-over-Year Percent Change
Texas Employment Growth by Metro3-Month Moving Averages, November 2015
Total Nonfarm Employment
2 - 3 Million
800 - 900 Thousand
150 - 300 Thousand
Less than 150 Thousand
Recovering Expanding
Contracting Decelerating
Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, LLC
Austin 7777
Employment Situation — Texas
Nonfarm employment grew a 1.7 percent over the year in Texas. Outside of the energy sector, hiring continues to pick up. Mining and manufacturing remain notable weak spots, as the slide
in oil prices continues.
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Employment by IndustryNonfarm Employment
-4%
-2%
0%
2%
4%
6%
-4%
-2%
0%
2%
4%
6%
90 92 94 96 98 00 02 04 06 08 10 12 14
Texas Nonfarm Employment3-Month Moving Averages
QCEW: Yr/Yr Pct. Change: Jun @ 2.5%
Nonfarm: Yr/Yr Pct. Change: Nov @ 1.7%
Household: Yr/Yr Pct. Change: Nov @ -0.7%November 2015
-10% -8% -6% -4% -2% 0% 2% 4% 6%
Information
Nat. Res. and Mining
Other Services
Construction
Financial Activities
Manufacturing
Leisure & Hospitality
Prof. & Bus. Svcs.
Educ. & Health Services
Government
Trade, Trans. & Utilities
Total Nonfarm
Texas Employment Growth By IndustryYear-over-Year Percent Change, 3-MMA
Number of
Employees
Less
More
77
Austin 7878
Housing Market — Texas
Residential construction has improved over the past year. Housing permits have trended up, with single- and multifamily permits reaching their highest levels since the recession. While still off pre-recession levels, single-family construction is now back near its historic norms.
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
PopulationHousing Permits
0
40
80
120
160
200
0
40
80
120
160
200
90 92 94 96 98 00 02 04 06 08 10 12 14
Tho
usa
nd
s
Tho
usa
nd
s
Texas Housing PermitsThousands of Permits, Annual Rate
Single-Family: Nov @ 83,904Single-Family, 12-MMA: Nov @ 104,254Multifamily, 12-MMA: Nov @ 67,702
Single-Family Average (1998-2003): 110,689
0
100
200
300
400
500
600
0
100
200
300
400
500
600
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Texas Population GrowthIn Thousands
78
Austin 7979
Employment Situation — Austin MSA
Austin has seen nonfarm employment grow at a healthy 3.5 percent over the past year. Job gains remain broad based, as employment has increased in a majority of industries over the
year.
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Employment by IndustryNonfarm Employment
-8%
-4%
0%
4%
8%
12%
-8%
-4%
0%
4%
8%
12%
91 93 95 97 99 01 03 05 07 09 11 13
Austin MSA Nonfarm Employment
QCEW: Yr/Yr Pct. Change: Jun @ 4.4%
Nonfarm: Yr/Yr Pct. Change: Nov @ 3.5%
Household: Yr/Yr Pct. Change: Nov @ 0.6%
3-Month Moving Averages
-2% 0% 2% 4% 6% 8% 10%
Information
Other Services
Financial Activities
Manufacturing
Leisure and Hospitality
Educ. & Health Services
Prof. & Bus. Svcs.
Trade, Trans. & Utilities
Government
Total Nonfarm
Austin MSA Employment Growth By Industry
Number of
Employees
Less
More
Year-over-Year Percent Change, 3-MMA
November 2015
79
Austin 8080
Housing Market — Austin MSA
Residential construction in Austin has improved considerably over the past year, as the metro’s burgeoning population growth has spurred demand for housing. Housing permits have
trended up, with single- and multifamily permits reaching their highest post-recession levels.
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
PopulationHousing Permits
0
5
10
15
20
25
30
0
5
10
15
20
25
30
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Tho
usa
nd
s
Tho
usa
nd
s
Austin MSA Housing Permits
Single-Family: Nov @ 9,036
Single-Family, 12-MMA: Nov @ 11,573
Multifamily, 12-MMA: Nov @ 9,308
Single-Family Average (1998-2003): 7,778
Thousands of Permits, Seasonally Adjusted Annual Rate
0
15
30
45
60
75
0
15
30
45
60
75
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Austin MSA Population GrowthIn Thousands
80
Austin 81
Employment – Percent Change From Prerecession Peak
Energy has boosted the economies of many Southern
states until lately.
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
TX
12.5LA2.6
NM-1.8
OK3
AR0.5
MO-1.4
CO7.4 KS
1.1
U.S. = 3.3%
Greater than 3.0%
-1.0%–2.0%
2.0%–3.0%
-2.0%–-1.0%
Austin 82
Unemployment Rate by State
Unemployment rates in the energy states are generally lower
than the nation
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
U.S. = 5.0%
Greater than 6.5%
5.6%–6.5%
4.6%–5.5%
3.6%–4.5%
TX4.6
LA6.3
NM
6.8
OK4.2 AR
5.0
CO
3.6 KS4
MO
4.7
Austin 83
Unemployment Rate by County
The economic diversity within Texas is evident
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
NM
6.8
Austin 84
U.S. Forecast
Wells Fargo U.S. Economic Forecastq 4 2 01 5
2015
2013 2014 2015 2016 2017
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product 1 0.6 3.9 2.0 0.4 1.9 2.5 2.6 2.5 2.2 2.3 2.5 2.3 1.5 2.4 2.4 2.0 2.4
Personal Consumption 1.8 3.6 3.0 2.0 2.7 2.7 2.7 2.6 2.4 2.3 2.3 2.3 1.7 2.7 3.1 2.7 2.5
Business Fixed Investment 1.6 4.1 2.6 1.5 2.7 4.0 4.4 4.6 4.7 4.7 4.9 4.8 3.0 6.2 3.1 3.1 4.6
Equipment 2.3 0.3 9.9 3.2 2.1 2.5 3.0 3.5 4.1 4.2 4.5 4.4 3.2 5.8 3.4 3.4 3.8
Intellectual Property Products 7.4 8.3 -0.8 3.2 5.8 6.0 5.8 5.3 4.9 4.7 4.8 4.7 3.8 5.2 5.9 4.6 5.1
Structures -7.4 6.2 -7.2 -5.5 -0.5 4.5 5.5 6.0 6.0 6.0 6.0 6.0 1.6 8.1 -1.5 0.1 5.8
Residential Construction 10.1 9.4 8.2 5.0 7.0 9.0 9.0 8.5 8.5 8.5 8.0 8.0 9.5 1.8 8.5 7.6 8.5
Government Purchases -0.1 2.6 1.8 0.6 1.7 2.1 1.8 1.7 1.2 1.0 1.0 0.9 -2.9 -0.6 0.8 1.7 1.4
Net Exports 2 -1.9 0.2 -0.3 -0.5 -0.8 -0.7 -0.6 -0.5 -0.5 -0.3 -0.3 -0.3 0.2 -0.2 -0.7 -0.6 -0.5
Inventories 2 0.9 0.0 -0.7 -0.6 0.0 0.1 0.1 0.0 -0.1 -0.1 0.0 -0.1 0.0 0.0 0.2 -0.2 0.0
Nonfarm Payroll Change 3 195 231 174 284 195 190 185 180 175 170 165 160 199 260 221 188 168
Unemployment Rate 5.6 5.4 5.2 5.0 4.9 4.8 4.7 4.6 4.5 4.5 4.4 4.4 7.4 6.2 5.3 4.7 4.5
PCE Deflator 4 0.2 0.3 0.3 0.4 1.0 0.9 1.2 1.7 2.0 2.0 1.9 1.9 1.4 1.4 0.3 1.2 2.0
Quarter-End Interest Rates 5
Federal Funds Target Rate 0.25 0.25 0.25 0.50 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 0.25 0.25 0.27 0.88 1.88
3 Month LIBOR 0.27 0.28 0.33 0.61 0.70 0.95 1.20 1.45 1.70 1.95 2.20 2.45 0.27 0.23 0.32 1.08 2.08
Prime Rate 3.25 3.25 3.25 3.50 3.50 3.75 4.00 4.25 4.50 4.75 5.00 5.25 3.25 3.25 3.27 3.88 4.88
Conventional Mortgage Rate 3.77 3.98 3.89 3.96 4.05 4.13 4.15 4.19 4.24 4.29 4.34 4.51 3.98 4.17 3.85 4.13 4.34
3 Month Bill 0.03 0.01 0.00 0.16 0.37 0.67 0.90 1.18 1.33 1.59 1.88 2.15 0.06 0.03 0.05 0.78 1.74
6 Month Bill 0.14 0.11 0.08 0.49 0.58 0.73 0.99 1.24 1.45 1.68 1.99 2.23 0.09 0.06 0.17 0.89 1.84
1 Year Bill 0.26 0.28 0.33 0.65 0.69 1.01 1.19 1.50 1.63 1.96 2.18 2.41 0.13 0.12 0.32 1.10 2.04
2 Year Note 0.56 0.64 0.64 1.06 1.21 1.46 1.62 1.78 1.99 2.22 2.34 2.59 0.31 0.46 0.69 1.52 2.29
5 Year Note 1.37 1.63 1.37 1.76 1.79 1.87 1.98 2.08 2.28 2.39 2.59 2.70 1.17 1.64 1.53 1.93 2.49
10 Year Note 1.94 2.35 2.06 2.27 2.31 2.39 2.44 2.50 2.57 2.64 2.71 2.81 2.35 2.54 2.14 2.41 2.68
30 Year Bond 2.54 3.11 2.87 3.01 2.92 2.93 2.97 3.00 3.04 3.09 3.15 3.31 3.45 3.34 2.84 2.96 3.15
Forecast as of: January 13, 20161 Compound Annual Growth Rate Quarter-over-Quarter 2 Percentage Point Contribution to GDP 3 Average Monthly Change4 Year-over-Year Percentage Change 5 Annual Numbers Represent Averages
Actual
2017
ForecastActual Forecast
2015 2016
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, Freddie Mac and Wells Fargo Securities, LLC
Appendix
Austin 86
Recent Special Commentary
Wells Fargo Economics Group Publications
To join any of our research distribution lists please visit our
website: http://www.wellsfargo.com/
economics
Date Title Authors
U.S. Macro
January-14 "Taylor-ing" Monetary Policy Amidst Uncertainty Silvia & Moehring
January-12 Potential Growth: Slower Future Silvia, House & Moehring
January-11 Is the Manufacturing Industry in a Recession? Quinlan & House
December-22 Our Favorite Charts of 2015 Silvia
December-16 FOMC Moves Forward In a Fog: Gradual, Data Dependent Silvia
U.S. Regional
January-06 Texas Economic Outlook: January 2016 Vitner & Batcheller
December-18 California Employment Conditions: November 2015 Vitner & Batcheller
December-16 North Carolina Economic Outlook: December 2015 Vitner & Batcheller
December-10 State GDP: Low Commodity Prices Hit Energy and Farm Economies Vitner & Batcheller
November-24 California Economic Outlook: November 2015 Vitner & Batcheller
Global Econom y
January-11 Mexican Industrial Production: Weak Across the Board Alemán
January-08 Canada Struggling as Oil Prices Grind Lower Quinlan
January-07 Brazil Industial Production: Good That People Still Eat, Drink Alemán
January-05 Are Australian & Canadian Households Over-Levered? Bryson, Quinlan & Nelson
January-04 Singapore's Economy Ends a Week 2015 on a High Note Bryson & Nelson
Interest Rates/Credit Market
January-06 Interest Rates as Dependent Variable in 2016 Silvia, Vitner & Brown
December-16 2016 Net Treasury Issuance Outlook Silvia, Vitner & Brown
December-09 Bank Lending Conditions: Support for Consumer Spending Silvia, Vitner & Brown
November-12 All Systems Go for a FOMC Move in December? Silvia, Vitner & Brown
November-04 Inflation Expectations Ease Further Silvia, Vitner & Brown
Real Estate
January-15 CRE Impact From Tax Extenders Khan
December-22 Nonresidential Construction Recap: December Khan
December-04 Housing Chartbook: November 2015 Vitner & Khan
November-30 Nonresidential Construction Recap: November Khan
November-24 Commercial Real Estate Chartbook: Q3 Khan
Austin
Wells Fargo Securities, LLC Economics Group
87
John E. Silvia … ....................... … [email protected]
Global Head of Research and Economics
Diane Schumaker-Krieg ………………… ………[email protected]
Global Head of Research & Economics
Chief Economist
Mark Vitner, Senior Economist……………....………. . [email protected]
Jay H. Bryson, Global Economist …………………....…… …[email protected]
Sam Bullard, Senior Economist [email protected]
Nick Bennenbroek, Currency Strategist ……[email protected]
Eugenio J. Alemán, Senior Economist… …………[email protected]
Anika R. Khan, Senior Economist … . [email protected]
Senior Economists
Erik Nelson, Economic Analyst [email protected]
Alex Moehring, Economic Analyst [email protected]
Misa Batcheller, Economic Analyst [email protected]
Michael Pugliese, Economic Analyst [email protected]
Economists
Azhar Iqbal, Econometrician………………… ……………[email protected]
Tim Quinlan, Economist …………………… ……………. [email protected]
Eric J. Viloria, Currency Strategist [email protected]
Sarah House, Economist …………… ………… [email protected]
Michael A. Brown, Economist ……………… … [email protected]
Economic Analysts
Administrative Assistants
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, theFinancial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, butnot limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells FargoSecurities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member ingood standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member ingood standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within thispublication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receivecompensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information andopinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liabilityfor any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for generalinformation only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is aseparate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2015 Wells Fargo Securities, LLC.
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For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by theFinancial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority’s rules, this reportconstitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FCA rules made under the FinancialServices and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, andshould not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposesonly.
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