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Diverse Economies of Texas Cities Hold Key to Growth, Says Dallas Fed Special Report

Industry clusters provide competitive advantages, but specialization also creates risks

For immediate release: February 17, 2016

DALLAS—Houston’s economic diversification from its energy base won’t allow it to escape pain from the oil price collapse, while Dallas’s large and growing business and financial services sector should lead to continued growth as the state economy slows, a new report from the Federal Reserve Bank of Dallas finds.

“At the Heart of Texas: Cities’ Industry Clusters Drive Growth” is a comprehensive look at the industry clusters, history and demographics shaping eight of the state’s key metropolitan areas: Austin, Dallas, El Paso, Fort Worth, Houston, McAllen, Midland-Odessa and San Antonio.

For each city, the report’s authors identify the dominant industry clusters—those that exceed the national average in their share of employment—that drive that city’s economy.

“Industry clusters are beneficial to productivity growth and wages,” said Pia Orrenius, Dallas Fed vice president and senior economist. “But specialization opens up cities to industry-specific shocks, as we see in Houston with the recent drop in oil prices.”

As low oil prices continue to impact the state, cities with a more diversified industrial base, such as Dallas and Austin, will need to offset the slowdown in energy-producing areas like Houston and Midland-Odessa, according to the report’s authors.
“By the looks of it, this oil downturn will not bring down the Texas economy,” Orrenius said. “Cities with a diversified industrial structure will be more resilient and will continue to drive growth.”

By looking at industry profiles within the context of each city’s history and demographics, the authors provide a snapshot of the city’s growth outlook and future challenges. For example:

  • Austin’s highly educated workforce provides a key competitive advantage that attracts high-tech businesses.
  • El Paso has a mature government presence led by the sprawling Fort Bliss, which provides stability but is also vulnerable to federal budget cuts.
  • In San Antonio, the presence of two large military medical-related facilities have helped promote growth in the health and biomedical sectors.

In addition to Orrenius, Laila Assanie, Kristin Davis and Michael Weiss contributed to the report, which will be updated periodically. An electronic version is available on the Dallas Fed’s website.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: 214-922-6748
Email: jennifer.chamberlain@dal.frb.org