At the Heart of Texas: Cities’ Industry Clusters Drive Growth · Dallas–Fort Worth and Houston...

At the Heart of Texas: Cities’ Industry Clusters Drive Growth

Dallas Fed Special Report | Second EditionPia Orrenius, Laila Assanie and Michael Weiss

Dallas FedJune 2019

Laila Assanie

The views expressed are my own and do not necessarily reflect official positions

of the Federal Reserve System.

Overview

• Texas economic activity is concentrated in the eight key metros: • Austin, Dallas, El Paso, Fort Worth, Houston, McAllen,

Midland-Odessa and San Antonio• Smaller metros are new to the second edition and are part of the

larger Texas mosaic:• Amarillo, Beaumont-Port Arthur, Lubbock, Tyler and Longview

• Commercial make-up of each metro is unique and shaped in part by its history, geography, geology and demography

• Industrial composition drives economic expansion

It’s the Age of the City

• Cities have been centers of population, commerce, learning and economic opportunity over the long term

• Movement toward urbanization since the Industrial Revolution• Cities enjoy higher productivity and wages than non-cities• “Mankind’s greatest invention”--- Harvard economist Ed Glaeser

Texas Advantages

• Texas benefits from an outsized number of metros with 2 million or more residents

• Dallas–Fort Worth and Houston rank among the top six largest U.S. metro areas in population and economic output

• Other favorable economic factors• Central location, oil and gas deposits, land and seaports,

proximity to Mexico, young and fast growing population, low cost of living and doing business

Employment Growth in Large Texas Metros Outpaces Small Ones

95

100

105

110

115

120

125

130

2010 2011 2012 2013 2014 2015 2016 2017 2018

Large metros(>800,000)population

Small metros(<800,000)population

Index, Jan. 2010=100

NOTES: Employment data are seasonally adjusted. Small and large metros are aggregated based on 2017 population above or below 800,000. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission.

Modest Job Gains in Small Metros

90

100

110

120

130

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Houston

Texas

El Paso

Lubbock

Tyler

Amarillo

Beaumont-Port Arthur

Longview

Index, Jan. 2010=100, SA

SOURCES: Texas Workforce Commission; Federal Reserve Bank of Dallas.

Unemployment in Most Metros Below Texas Rate

1

3

5

7

9

11

13

2011 2012 2013 2014 2015 2016 2017 2018 2019

Beaumont–Port Arthur

Texas

El Paso

Longview

Houston

Tyler

Lubbock

Amarillo

Percent

SOURCES: Bureau of Labor Statistics; seasonal and other adjustments by Federal Reserve Bank of Dallas.

Industry Clusters

• Cluster formation is driven by:• Geographical concentration, technology relationships• Markets • Goods and services produced• Labor skills

• Clusters comprise of multiple interdependent or interrelated industries

Measuring Cluster Concentration

• Location Quotient (LQ):𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑚𝑚𝑆𝑆𝑚𝑚𝑆𝑆𝑜𝑜 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑚𝑚𝑒𝑒𝑒𝑒𝑜𝑜𝑒𝑒𝑚𝑚𝑆𝑆𝑒𝑒𝑚𝑚 𝑖𝑖𝑒𝑒 𝑖𝑖𝑒𝑒𝑖𝑖𝑖𝑖𝑖𝑖𝑚𝑚𝑆𝑆𝑒𝑒 𝑖𝑖

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑈𝑈. 𝑆𝑆. 𝑆𝑆𝑚𝑚𝑒𝑒𝑒𝑒𝑜𝑜𝑒𝑒𝑚𝑚𝑆𝑆𝑒𝑒𝑚𝑚 𝑖𝑖𝑒𝑒 𝑖𝑖𝑒𝑒𝑖𝑖𝑖𝑖𝑖𝑖𝑚𝑚𝑆𝑆𝑒𝑒 𝑖𝑖• LQ >1 Clustering or specialization• LQ <1 No specialization• Period measured: 2010-2018• Clusters increase productivity, stimulate innovation and facilitate new

business formation• Higher productivity leads to higher wages

Texas Overview

Energy, IT and Business and Financial Services Help Set Texas Apart from Nation

8.6%

9.9%3.7%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Loca

tion

quot

ient

in 2

018

Percentage-point change in employment share, 2010–18

Energy and mining

Business andfinancial services

Government Advanced materials

Construction (6%)

Mature Star

Transitioning Emerging

NOTE: Bubble size represents cluster share of metropolitan statistical area employment.SOURCES: Texas Workforce Commission; Bureau of Labor Statistics.

Food services

Education

Informationtechnology and telecommunications

Health services

Transportation and logistics

Chemicals(1.7%)

Defense and security

Biomedical

Retail

Machinerymanufacturing

Computer manufacturing

Recreation

8.9%

9.7% 3.8%


8.6%

9.9%3.7%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Loca

tion

quot

ient

in 2

018


Construction

Mature Star



Education


8.6%

9.9%3.7%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Loca

tion

quot

ient

in 2

018


Construction

Mature Star



Recreation

Education


8.6%

9.9%3.7%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Loca

tion

quot

ient

in 2

018


Advanced materials

Construction

Mature Star



Recreation

Education


8.6%

9.9%3.7%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Loca

tion

quot

ient

in 2

018


Energy and mining

Business andfinancial services

Government Advanced materials

Construction (6%)

Mature Star



Food services

Education

Informationtechnology and telecommunications

Health services

Transportation and logistics

Chemicals(1.7%)


Biomedical

Retail

Machinerymanufacturing

Computer manufacturing

Recreation

8.9%

9.7% 3.8%

Transportation, Defense and Business Services Among State's Fastest-Growing Clusters

-500

177

88

910

11131414

1618

19202021

2224

2730

353636

37

-10 0 10 20 30 40Computer mfg. (0.7%)

Government (5.6%)Primary metal mfg. (0.2%)

Advanced materials (2.5%)Education (9.7%)

Utilities (0.4%)Textiles (0.4%)

Agribusiness (1.6%)Publishing (1.2%)

Machinery mfg. (0.8%)Transport equip mfg. (0.8%)Fabricated metal mfg. (1%)

Electric equip mfg. (0.2%)Glass & ceramics (0.3%)

Retail (10.8%)Biomedical (0.7%)

Health svcs (11.5%)Chemicals (1.7%)

TotalWood products (1.2%)

Energy & mining (8.9%)Information technology & telecom (5%)

Recreation (2.8%)Construction (6%)

Business & financial svcs (9.6%)Defense & security (3.3%)

Food svcs (8.8%)Transportation & logistics (3.8%)

Percent change in employment, 2010-18NOTE: Each cluster's share of total jobs is shown in parentheses.SOURCES: Texas Workforce Commission; authors' calculations.

Most Dominant Clusters Pay Better in Texas than in U.S.Texas U.S.

Cluster 2010 2014 2018 2018Energy and mining 94,829 99,133 96,846 82,731 Construction 56,698 62,167 63,752 60,742 Transportation and logistics 61,041 63,425 62,946 54,941 Education 44,951 44,567 45,925 50,880 Utilities 103,542 106,478 114,481 111,238 Food services 18,190 18,233 19,136 19,516 Chemicals 82,568 87,923 93,920 74,669 Information technology and telecommunications 95,768 98,055 104,069 110,768 Glass and ceramics 52,757 59,602 61,254 55,946 Fabricated metal manufacturing 60,024 62,803 62,488 56,077 Business and financial services 88,257 92,385 93,452 101,722 Computer manufacturing 114,084 117,186 132,138 121,829

Average earnings (total) 54,068 56,448 57,074 56,506

NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2018 dollars.

SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors' calculations.

Migration and Natural Increase Contribute AlmostEqually to Population Growth

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Natural increaseNet domestic migrationNet international migration

Thousands

NOTES: Census Bureau estimates approximate the population on July 1 of the year indicated and, thus, capture changes from the previous year. SOURCE: Census Bureau.

Hurricane Katrina

52%

25%

23%

2000-2018 Total Net Increase

Reason for Migrating to Texas Versus Elsewhere

NOTE: Data refer to 2010-2018.SOURCES: CPS-ASEC, author’s calculations.

Reason Texas Non-Texas

Relocated for job 50.9 41.3

Family Reasons 26.4 27.0

Amenities 18.4 23.9

Other 4.3 7.8

Beaumont—Port Arthur

The Golden Triangle Shines as Petrochemicals Boom

Beaumont-Port Arthur Metropolitan Division:At a Glance

• Population (2018): 409,526• Population growth (2010–18): 1.4% (Texas: 13.7%)• Median household income (2017): $49,875

• Texas: $59,206; U.S. $60,336• Median household income growth (2010-17): 7.5% (Texas: 8.3%)

Beaumont-Port Arthur: Overview

• Thriving oil and gas hub, with the nation’s largest concentrations of refineries, petrochemical plants and related businesses

• Rapid growth in chemicals, energy and energy-related manufacturing since 2010

• Other important industries such as transportation have grown in support of its outsized manufacturing and energy base

• Sizeable earnings premium in several dominant clusters• A relatively less-well-educated workforce compared with the state and

nation

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Loca

tion

quot

ient

in 2

018


Chemicals


Transportation and logisticsHealth

services

Energy and mining

Mature Star



Food services

EducationRetail

Government MachinerymanufacturingBusiness and

financial services

Advancedmaterials

Petrochemicals and Refineries Central to Beaumont's Economy

Construction

Fabricated metal manufacturing

8.9%

11.7% 14%

5%

2.8%

Energy and Manufacturing Payrolls See Strong Growth

-41-40

-25-23

-16-14-13-11-11

-9-7

1123

567

1115

191920

2534

4379

-60 -40 -20 0 20 40 60 80 100Glass & ceramics (0.3%)

Biomedical (0.2%)Agribusiness (0.9%)

Publishing (0.4%)Wood products (0.9%)

Fabricated metal mfg (2%)Recreation (1.5%)

Government (6.4%)Primary metal mfg (0.4%)

Education (8.9%)Health svcs (11.7%)

Business & financial svcs (4.7%)Retail (12.4%)

Advanced materials (5.8%)Total

Construction (11.7%)Infotech & telecom (2%)

Utilities (0.7%)Energy & mining (14%)

Food svcs (8.8%)Defense & security (1.6%)

Transport equip mfg (0.6%)Transportation & logistics (2.8%)

Chemicals (5%)Electric equip mfg (0.1%)

Textiles (0.1%)Machinery mfg (1.3%)

Percent change in employment, 2010–18NOTE: Cluster's share of total jobs is shown in parentheses.SOURCES: Texas Workforce Commission; authors' calculations.

3

79

4334

2520 19 1920

10 814

20

37

11

36

14 12

211 12

3227 24

0

10

20

30

40

50

60

70

80

90

Total Machinery mfg(1.3%)

Textiles(0.1%)

Electric equipmfg (0.1%)

Chemicals(5%)

Transportation& logistics

(2.8%)

Transport equipmfg

(0.6%)

Defense &security (1.6%)

Beaumont-Port Arthur Texas U.S.

Percent change in employment, 2010–18

NOTE: Each cluster's share of total jobs in Beaumont is shown in parentheses.SOURCES: Texas Workforce Commission; authors' calculations.

Overall Job Growth Slower than Texas; Expansion in Select Top Sectors Outpaces State and U.S.

Earnings in Energy-Related Clusters Outpace U.S. Averages

Beaumont U.S.Cluster 2010 2014 2018 2018Chemicals 107,307 121,526 135,740 74,669Energy and mining 90,915 93,168 100,811 82,731Construction 62,892 66,807 71,632 60,741Fabricated metal manufacturing 64,952 68,229 63,132 56,077Utilities 127,936 119,551 126,586 111,238Advanced materials 92,908 107,908 123,322 88,294Machinery manufacturing 62,238 64,415 70,480 71,072Primary metal manufacturing 71,483 73,801 76,013 69,706Retail 30,083 30,491 32,159 32,066Food services 17,928 16548 17,558 19,517

Industry Cluster with LQ >1 57,306 67,990 68,791Industry Cluster with LQ <1 57,579 52,693 55,630

Average earnings (total) 50,689 53,556 55,523 56,506 NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2018 dollars.

SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors' calculations.

Sizeable Earnings Premium Prevails in Many Leading Sectors

56

136

101

7263

127 123

57

94 97

64 62

114

93

57

7583

61 56

111

88

0

20

40

60

80

100

120

140

160

Total Chemicals Energy andmining

Construction Fabricatedmetal mfg

Utilities Advancedmaterials

Beaumont-Port Arthur Texas U.S.

Thousands of 2018 dollars

NOTE: Data refer to 2018 average annual earnings.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; Federal Reserve Bank of Dallas.

78 7667 66 65 64 63 60 59 58

53 52 51

-5

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

80

90

Midland Austin Dallas FortWorth

Houston SanAntonio

Amarillo U.S. Tyler Odessa Longview Lubbock Beaumont

Median household income (cost of living adjusted)Real income growth 2010-17 (right axis)

Median household income, thousands $2017

NOTE: Cost of living index for 2017 used to adjust for metros to regional price parity with U.S.SOURCES: Council for Community and Economic Research; Bureau of Labor Statistics; Texas Workforce Commission; Federal Reserve Bank of Dallas

Percent

Adjusted Median-Household Income Below U.S.

17.8

15.5

11.9

8.3 7.5 7.25.2

3.4 2.60.6

-0.2-202468

101214161820

Austin($73,800)

Midland-Odessa

($64,210)

Tyler($54,339)

Texas($59,206)

Beaumont-Port Arthur($49,875)

U.S.($60,336)

Houston($63,802)

Amarillo($53,922)

Longview($48,259)

SanAntonio

($56,774)

Lubbock($47,276)

Percent growth, 2010-17

NOTES: Bars show real median household income growth 2010-17. Median 2017 incomes are displayed in parentheses.SOURCE: Census Bureau, 2010 and 2017 American Community Survey 1-year estimates.

Median Household Income Growth Exceeds U.S.

Education Levels in Beaumont-Port Arthur Trail State and U.S.

42.8

37.1

32.4 32.029.7 29.6 28.1

26.7

22.921.0

18.7 18.2 17.8

9.4

14.616.4

12.014.4

16.314.4

12.9

21.620.3

34.7

16.913.6

0

5

10

15

20

25

30

35

40

45

Austin Dallas Houston U.S. Fort Worth Texas SanAntonio

Tyler El Paso Midland–Odessa

McAllen Longview Beaumont-Port Arthur

Bachelor's degree or higherNo high school diploma

Percent

NOTE: Share of population age 25 or over. SOURCE: Census Bureau, 2017 American Community Survey 1-year estimates.

Beaumont-Port Arthur is Slightly Younger than the Nation

20 22 23 22 20 22 2128 24 21 20 22 19

14 14 16 14 13 13 13

1615

14 14 1413

46

43 39 4139

42

37

37

4041

37 41 40

11 11 11 1213

1113

8 1011

1211

13

10 11 12 12 15 11 16 11 10 13 16 12 16

34.7 34.8 32.4 35.2 36.734.4

36.8

29.2 31.034.7

37.534.7

38.1

0

10

20

30

40

50

60

0102030405060708090

100

Austin Dallas El Paso Fort Worth Beaumont Houston Longview McAllen Midland–Odessa

SanAntonio

Tyler Texas U.S.

Under 15 years 15–24 years 25–54 years 55–64 years Over 64 years Median ageSOURCE: Census Bureau, 2017 American Community Survey 1-year estimates.

PercentAge (years)

Key Takeaways

• Each metro has a unique fingerprint but together they make up the Texas commercial mosaic

• Cities over time tend to grow when they can exploit their natural and economic advantages

• Size and industrial composition plays a role in pace of growth• Smaller metro areas play an important role in the state’s

economy• Small metros in Texas have grown or maintained their

standing even as smaller cities across the U.S. have shrunk

Dallas Fed Publications

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At the Heart of Texas: Cities’ Industry Clusters Drive Growth · Dallas–Fort Worth and Houston...

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